Lords Sitting of 27 April 1954

Preamble
Reassembling after the Easter Recess, the House met at half past two of the clock, The LORD CHANCELLOR on the Woolsack.
Prayers
  ASHRIDGE (BONAR LAW MEMORIAL) TRUST BILL
  Read 2a.

  DECONTROL OF JUTE
  2.36 p.m.
  LORD BARNBY: My Lords, I beg to ask the first Question which stands in my name on the Order Paper:
  [The Question was as follows:
  To ask Her Majesty's Government whether, following the recent statements by the Chancellor of the Duchy of Lancaster with regard to decontrol of the jute industry, they are yet able to announce whether this will be by application to G.A.T.T. for permission to raise duties on imports of jute materials, or by exposing the jute textile industry to the full force of competition from low wage production countries, for instance India.]
  THE CHANCELLOR OF THE DUCHY OF LANCASTER (VISCOUNT WOOLTON): My Lords, as I stated on 16th February in reply to my noble friend, public trading in imported jute goods must continue until appropriate measures to safeguard
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  the United Kingdom industry under conditions conducive to efficiency can be worked out and introduced. The matter is being examined, but no conclusion as to the appropriate method of safeguarding the industry has yet been reached. As I previously warned the House, this may take some time. I would point out to my noble friend that no permission from G.A.T.T. would be required to impose duties on Commonwealth jute goods.
  LORD BARNBY: My Lords, while thanking the noble Viscount for that reply, would it not be right to assume from it that the present policy amounts to a substantial subvention to the jute industry at the expense of the Exchequer? Secondly, is it not a fact that the Ottawa Agreement would prevent us from putting any duty on manufactured goods within the Commonwealth, whereas G.A.T.T. prevents us from putting any extra duties on imports from outside the Commonwealth?
  VISCOUNT WOOLTON: My Lords, I think the answer to the first part of the noble Lord's supplementary question is in the negative. I hope that the Exchequer will not have to make any payments as a result of the present conditions.
  LORD BARNBY: My Lords, perhaps I have not made myself clear. There is a cost for a subvention to industry which must be borne by someone, and presumably it would be loaded on to the consuming public.
  VISCOUNT WOOLTON: My Lords, I do not deny that, but I thought the noble Lord said this cost would fall on the Exchequer.

  WHEAT PURCHASES FROM CANADA
  2.38 p.m.
  LORD BARNBY: My Lords, I beg to ask the second Question which stands in my name on the Order Paper.
  [The Question was as follows:
  To ask Her Majesty's Government if they will state (a) the amount of wheat and the value thereof bought by the United Kingdom from Canada in 1952 and 1953; (b) the quantity bought in the first quarter of 1954 and/or contracted for, for the balance of 1954 and at what price.]
  VISCOUNT WOOLTON: My Lords, the amount of wheat imported into the United Kingdom from Canada in the calendar year 1952 was 2,768,018 tons, to the value of £85,972,000. The corresponding figures for the calendar year 1953 are 2,790,542 tons and £84,292,000. The quantity imported in the first quarter of this year was 325,233 tons, to the value of £9,564,000, as compared with 445,909 tons, to the value of £13,273,000, in the first quarter of 1953. The importation of wheat is now in the hands of private importers, and I cannot say what contracts they may have made for the rest of 1954.
  LORD BARNBY: My Lords, I should like to thank the noble Viscount for that reply. It contained a number of figures which it is difficult to keep in mind, but it suffices to show that a substantial value of wheat was imported from Canada into the United Kingdom. In view of the regulation of prices through the operation of the Government-controlled Wheat Board in Canada, does it not mean that Canada is charging prices to overseas customers, including the United Kingdom, above the realistic price, having regard to the excess of the 1953 crop over the 1952 crop? Does this not operate as a high protection to Canadian wheat growers?
  VISCOUNT WOOLTON: My Lords, the selling price of Canadian wheat is a matter for the Canadian Wheat Board, and it is one on which I should not like to make any observations.
  EARL JOWITT: My Lords, may I suggest to the noble Lord who asked the Question, and to the noble Viscount who answered, that it would be more convenient, when we have Questions
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  involving a great many figures, to have them in writing first, so that we can see what they are, and can then discuss afterwards what conclusions may be drawn from them? It is difficult to follow a large number of figures when they are read out as the noble Viscount read them out.
  VISCOUNT WOOLTON: My Lords, I did my best.
  EARL JOWITT: My Lords, I am not complaining; I am only saying that it is difficult to follow the figures.
  VISCOUNT WOOLTON: I entirely agree.

  "PERSONAL CALL" FACILITIES
  2.41 p.m.
  THE EARL OF LUCAN: My Lords, I beg to ask the Question which stands in my name on the Order Paper.
  [The Question was as follows:
  To ask Her Majesty's Government whether they have any proposals for the improvement of the "Personal Call" facilities given by the telephone service.]
  THE POSTMASTER GENERAL (EARL DE LA WARR): My Lords, during the war, in order to save manpower, we had to reduce very considerably the facilities offered by the "Personal Call" service. This meant that, instead of making repeated attempts for the one "personal call" fee to obtain the wanted subscriber, we had to limit the number of such attempts to two. I am glad to tell your Lordships that it is now possible to remove the restrictions and to restore the full pre-war service, and, indeed, to go a little further than that. Operators will make as many attempts as are necessary to establish a "personal call" on the day that it is booked. Either the original caller or the people on the called number will be able to suggest further numbers at which the person called may be found and times at which he or she may be available. But, in addition, we propose also to offer an entirely new facility, not provided before the war. This is that if the wanted person cannot be found a message will be left inviting him on his return to ring the "personal call" operator at the originating exchange, without

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  charge, so that she may set up the call forthwith. The new arrangements will come into force on May 1, and I hope that subscribers will find this service really useful to them.
  May I add that the more telephone-minded subscribers become, the more we can help them with this type of service. By this I mean that one of the factors that make the "personal call" service so good in certain other countries is the habit of subscribers, when they go out, of leaving behind them their telephone numbers, or at least word as to where they are likely to be. If our operators are answered by someone who says he has no idea where the wanted individual is, it is not easy for us to be able to give the "personal call" Service that we should like to be able to give. I would therefore appeal to the public who are interested in this type of service to cooperate with us in making it really first-class.
  THE EARL OF LUCAN: My Lords, may I thank the noble Earl for his reply, and say how glad everyone will be at the extension of facilities. Might I also suggest to him that, in order to make the new facilities as widely known as possible, he should make use of the covers of the telephone directories, instead of having the commercial advertisements which have recently appeared on the outside covers. I suggest to him that the Post Office notices should occupy that position.
  VISCOUNT HUDSON: My Lords, while agreeing that this represents a big step forward—or one hopes that it will—may I ask whether an extra charge will be made for this service and how it will affect the finances of the Post Office?
  EARL DE LA WARR: My Lords, with regard to the first question of the noble Earl, Lord Lucan, I will consider it. He would not wish me to say more now. With regard to the question of the noble Viscount, Lord Hudson, we are not changing the "personal call" fee: it will still be 1s. 6d. during the day, and 9d. during the cheap period for trunk calls in the evening. We hope to complete more calls under the new procedure and thus to break even on increased costs and revenue.
  LORD DERWENT: My Lords, my noble friend the Postmaster General has
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  made clear the importance of leaving one's address where one is likely to be found either at the office or at home. Could he explain more clearly? Supposing Mr. So-and-So is rung up at his London office and the reply given to the operator is that he has left by air for his Glasgow office, would the operator try to find him at his office in Glasgow?
  EARL DE LA WARR: I think the reply is, Yes. Of course, it would have to be dependent on the caller being prepared to pay the normal trunk fee, which might be more than that of the original call.
  LORD BARNBY: My Lords, may I ask how the wanted person who happens to be out will get in touch with the "personal call" operator when he returns to his office?
  EARL DE LA WARR: I think thin will depend on the form of the message left. In some cases he would be asked to ring, say, the Bournemouth "personal call" operator. In other cases he would be asked to ring, say, Bristol operator No. 128. The second system which I give is one which I should like to see eventually in general application. We shall as quickly as possible take steps to see that the operator number system is brought into operation.
  LORD BARNBY: My Lords, in thanking the noble Earl for that reply, in view of the importance of the question, may I ask him a further supplementary question. Although the service in Britain is admittedly much better than the service in any of the Dominions, it is still inferior to that in North America, which, of course, includes Canada. Would it not be possible to have the same system here as they have in North America, whereby you put in a "personal call" and if the person is not obtainable you pay nothing; but if he is subsequently obtainable, as everyone knows, you pay a higher rate than you would pay otherwise—that is, you pay for a person-to- person call, rather than for a station-to-station call.
  EARL DE LA WARR: My Lords, I know that the noble Lord and the House would not expect me to follow the noble Lord in making comparisons between our system and that of another country. In answer to his particular question I

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  should say, No—and for this reason. Whilst it is extremely desirable to give as much extra service as possible to subscribers who want it, I think it is only right that when they have an extra service they should pay for it. Otherwise, if they do not pay for it, it inevitably means that that extra charge is put on to the normal service, so that, in the long run, the ordinary user of the telephone who does not want these extra services has to contribute to their cost.

  LOSS OF THE "EMPRESS OF CANADA"
  2.49 p.m.
  LORD GIFFORD LORD GIFFORD rose to ask Her Majesty's Government what action they propose to take upon the Report of the Inquiry into the loss of the "Empress of Canada," with a view to minimising the risk of similar disasters in the future. The noble Lord said: My Lords, many noble Lords have come here to-day to hear the economic debate to be introduced by the noble Lord, Lord Pethick-Lawrence, which follows my Question, and I assure those noble Lords that I do not intend to detain the House for very long. At the same time, I make no apologies for raising this matter of the "Empress of Canada"—in fact, I think it is a useful curtain-raiser to the economic debate, because the fire in the "Empress of Canada," and other fires in passenger ships in port which I propose briefly to mention, have caused an enormous drain on the financial resources of this country. I am not going to attempt to estimate what this figure would amount to, though perhaps one of the economists among your Lordships—Lord Brand, for example—could do so; but it must be many millions of pounds in material, labour lost and passenger-carrying capacity, and so forth. Therefore, as I have said, although my Question relates to the "Empress of Canada" I should like to bring to your notice the fact that there have been other serious fires in ports of the United Kingdom in the last few years, and I will mention the most important ships. These were the "Empire Waveney" (17,000 tons), the "Empress of Russia" (17,000 tons), the "Monarch of Bermuda" (22,000 tons), the "Prague" (4,000 tons), and the "Kronprins Frederik" (4,000 tons).
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  I believe that every ship that I have mentioned, with the exception of the last one, has been a constructive total loss. In the case of the "Kronprins Frederik," she has been well over a year out of commission and will be coming back into service in a few weeks' time only after an almost complete reconstruction.
  The seriousness of this matter was realised some little time ago, and when the Party of noble Lords opposite were in power a Working Party was appointed. That Working Party made a most admirable Report, which I have studied, and it seems to me a very great pity that many of the recommendations which they made do not appear to have been adopted—a point which was stressed in the findings of the Court of Inquiry on the "Empress of Canada." I will deal briefly with some of the most important findings of the Court of Inquiry. I think the outstanding one is that the problem of fire in ships in port and out of commission is an entirely different one from that of fire in a ship when she is in full commission at sea. When a ship is at sea, the nerve centres of that ship are on the bridge, with the officer of the watch, and at the control platform of the engine room, where the engineer officer of the watch, and perhaps also the chief engineer, are on duty; quite properly, all instruments, fire alarms, telephones and other communications centre on those two points.
  When a ship is in harbour, however, the bridge is deserted, and the engine room may be dead; so that, if the communications still centre on those points and the alarm bells ring, nothing whatever happens because nobody hears them. Noble Lords who have served in the Royal Navy will know well that when a ship comes into harbour the focal point or operation centre changes: it changes to the gangway, where the officer of the watch is located. All sentries and other people on duty, look-outs and so on, know where the officer of the watch is to be found. He can receive messages and alarms; he is able to take responsibility, in case of fire or other emergency, initiating the appropriate action. I realise that in a merchant ship the problem is very different, but I still think that some lessons can be learnt from Naval practice. When reading the Court of Inquiry Report it appears to me that no kind of operational centre was provided in the "Empress of Canada." There were

  9
  isolated patrols on their particular beats, but there was no instruction: nobody knew to whom he ought to go, or where the responsible officer was to be found who would take the appropriate action in case of fire. I think that really is the crux of the whole matter.
  The second point which I have picked out from the findings of the Committee of Inquiry is the lamentable delay in calling the fire brigade. The fire took place on a Sunday afternoon, which, of course, is a rather somnolent period, when people are not perhaps quite so awake as at other times. A watchman on a grain elevator actually saw smoke coming from the ship at 3.25 p.m. He took some action—he hailed the ship—but nobody seemed interested, and absolutely nothing was done. Twenty minutes later, at 3.45 p.m. two of the owners' shore gang on the boat deck saw smoke coming out of a porthole down below. They looked at it, and sucked their teeth; but again did nothing about it. I feel that it is one of the tendencies of the present day that people will stand by and do nothing, rather than accept a little responsibility. I think it is very important that everybody, even the most junior person on board, should realise that it is necessary and desirable that he should take some positive action when an emergency arises, instead of fearing to push himself forward and take responsibility. As I say, the fire was seen at 3.25 and 3.45 p.m. but no action was taken to call the fire brigade until 4.10 p.m., three-quarters of an hour after the fire was first seen. Not unnaturally, by that time it had got well out of hand, and the efforts of the fire brigade were useless.
  The next serious defect which I wish to bring to your Lordships' notice is the fact that there was no water in the ship's fire main for fighting the fire. Nor at any time during the course of the fire, so far as I can gather, was water got into the fire main, which remained useless. Such water as did get to the fire came from hoses brought over the gangway and from floats outside the ship. This, of course, was extremely discouraging to the patrolmen and others who were attempting to get the fire under control. It is interesting to note that this very point was particularly stressed by the Working Party, who said that they regarded it as absolutely vital that water
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  should always be available in the ship's fire main, and that, if it was not available, a temporary fire main should always be rigged. It is not a difficult thing, if the ship's pumps are not working, to connect shore hydrants to the ship's main. There are various ways of doing it, and it seems to me that this elementary precaution was badly neglected.
  When I first went to sea, one of the first things that I was told by my commander was that it was the duty of every junior officer to know his ship. When I say "know his ship," I do not mean just knowing one's way from one's cabin to the anteroom to get a tot of gin; I really mean knowing the ship. To know a ship of any size means putting on a pair of overalls and crawling about storerooms and hundreds of compartments, probably for a whole week. In fact, when one joined a ship one was always allowed several days in which to get to know her—and even then, of course, one did not really know her. It has been said that there are only two people in a ship who really know her: one is the senior engineer and the other is the warrant shipwright. Both of them probably have served in her since the first keelplate was laid. That, in fact, is why they are always appointed at a very early stage. It seems to me that in the present case no responsible person was available who really knew the ship. Noble Lords will remember that, after the fire, the ship capsized due to the pumping in of water. One of the main contributory causes of the ship's capsizing was the fact that there was nobody there who really knew the ship, because, when water was pumped in on the starboard side to try to right the ship, it immediately ran across to the port side, through a cross drain which nobody knew existed; and in consequence the vessel then capsized. Also, no attempt was made in the early stages to close fire and water-tight doors—largely, I think, because there was nobody immediately available who knew exactly what doors ought to be closed. If these doors had been closed, it is quite probable that the fire would have been isolated.
  The Court of Inquiry were unable to establish the exact cause of the fire, but they indicated the very strong probability that it was caused through clandestine smoking. There is no doubt, as anybody who has served in a ship under refit will

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  know perfectly well, that a good deal of clandestine smoking does go on among workmen on board. It is a difficult thing to cope with. It seems to me that the best way of dealing with this evil is to cultivate a sense of honour and public opinion among the dockyard workmen, and to point out to them, by propaganda and other means—and I think that this is where the trade unions could help greatly—the very grave danger of smoking on board a ship that is under repair, and particularly the avoidance of carelessness with cigarette butts.
  I have tried to give, as briefly as possible, what are, in my view, the main reasons for the loss of this great and valuable ship. I hope that the Government will take energetic steps to bring the Report of the Working Party, and also the Report of the Court of Inquiry, to the attention of all the appropriate authorities, the shipowners, the dock authorities and so on. I hope that all concerned will take this matter to heart. I consider that, when a large ship goes into port, a conference should take place, attended by all the interested parties, to decide on an operational plan for firefighting, and that after the conference has taken place, very clear written instructions, which do not seem to have been in existence in the case under discussion, for combating fires in the particular ship concerned should be given to those responsible on board and should be posted up clearly in strategic parts of the ship. To my mind, it is absolutely essential that an operational centre should be provided, from which there should be direct communication with the fire brigade, the harbour authorities, and so on, and that everybody should know where this centre is and where the responsible officer in charge of fire-fighting arrangements is to be found. I hope that the noble Lord, Lord Hawke, who is to reply will tell us what action has already been taken. Doubtless, many of the suggestions which I have made to-day have already been considered. If not, I hope that they will be of some assistance in solving this grave and difficult problem.
  3.7 p.m.
  LORD ELTON: My Lords, arising out of my noble friend Lord Gifford's Question, I should like to make one suggestion to Her Majesty's Government. It
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  is a brief suggestion. Before doing so, I ought perhaps to declare a limited interest in the question, in the sense that I am a director of a company, one of whose subsidiaries is one of the companies which manufacture the new incombustible materials which ought to be more widely used in shipbuilding. I gather from answers given in another place that the attitude of Her Majesty's Government is likely to be that the "Empress of Britain" was built before the International Convention of 1948 and before the subsequent British Rules for construction were framed, and that they are perfectly satisfied that the British Rules as they stand are adequate.
  I want to ask the noble Lord, Lord Hawke, and through him, the Minister, to consider whether, in view of the fact that incombustible materials have become available for sterling only within the last twelve months, these Rules, framed way back somewhere about 1948, do not need revision. As I understand it, the present requirement of the Rules is an alternative; either a ship must be fitted with mechanical sprinklers, in which case any sort of structural material could be used—wood or, for that matter, I think, matchwood: provided there are sprinklers there, you can use any kind of structural material you please—or, alternatively, incombustible materials must be used. The use of incombustible materials is the American practice, for in America incombustible materials have been available for about fifteen years. The use of sprinklers is the British practice, for in Britain indestructible materials have only just become available. I should have thought it more or less self-evident that, rather than require a crude alternative such as that, it would be better to require both sprinklers and indestructible materials: and, secondly, that if one or the other had to be required, then indestructible materials would be preferable to sprinklers. For after all, the use of indestructible materials for your cabin walls means that, although a dropped cigarette may start a fire in the cabin, the fire cannot possibly go beyond that particular cabin.
  Against the automatic sprinkler it has to be remembered that any mechanical system can go out of order, and is particularly likely to go out of order when there is a fire. Sprinklers did not save the Monmouth Paper Mills, where they were fitted, and where there was a great fire

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  not long ago; nor did they save General Motors, in America, from the destructive fire in a building in which sprinklers were fitted. What is to be said in their favour is largely psychological—a passenger likes to see something fitted for his safety. Even so, I should have thought he would prefer to see a notice roughly to the effect that "Your cabin is built of incombustible materials. You can burn it out if you like with a dropped cigarette, but no fire originating beyond your own cabin walls can possibly put you in danger." I should have thought that that would have been, even psychologically, more satisfactory for the passenger. The other great advantage of a sprinkler system is that in the large rooms of a ship like the "Queen Elizabeth" it may check the fire before it can reach the cabin walls where, if incombustible material is used, it will inevitably be checked.
  My Lords, that is all I have to say. These materials have been available for sterling during the last year or two. They are not more expensive, and they are not harder to use than wood; but the shipbuilding industry, like most of us, including noble Lords opposite, is naturally conservatively minded. They love wood. They have had very unfortunate experiences recently with some substitutes for wood; consequently they are most reluctant to use these incombustible materials which are now available. I think that if it is left merely to the free play of commerce the use of indestructible materials will spread comparatively slowly. I would ask the Minister to consider whether or not he considers it a responsibility of Her Majesty's Government, in the interests of safety of life at sea, to do what he can in one way or another to encourage the use of these materials, remembering that there are no regulations whatever in force in respect of freighters or tankers, which represent 75 per cert. of our tonnage and which now carry quite a lot of passengers—and of course their crews, whose lives are just as valuable as those of the passengers. So that the question I am putting to the noble Lord, Lord Hawke, is merely whether he will reconsider the existing regulations in the light of the fact that new materials have become available since the regulations were drawn up.
  3.14 p.m.
  LORD HAWKE: My Lords, my noble friend Lord Gifford need make no apology to the House for bringing forward
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  this very important matter of the loss of these great ships, and in fact my right honourable friend the Minister of Transport is extremely grateful to him for giving me the opportunity to make a few remarks on the subject. The facts as presented by my noble friend were, so far as I could detail them, absolutely correct in every particular. In 1948, as a result of experiences after the war, when several substantial ships were destroyed by fire, the Minister of Transport of the day appointed a Working Party. Their task was to see what recommendations could be made towards the prevention of these fires and towards firefighting on ships in ports or repair yards. I must emphasise here that we are not dealing with ships at sea, and as my noble friend, Lord Gifford, pointed out, conditions in harbour are very different, very much more dangerous. This Working Party reported in November, 1949, and their Report received wide publicity throughout the shipping industry. They analysed the causes of the fires started in the three previous years, 1946 to 1948, and suggested the proper precautions that should be taken. Incidentally, it may be of interest to know that in those three years there were 837 fires in ships in port in the United Kingdom, and of these no fewer than 354 were believed to be caused by burning and welding apparatus, and 102 by smoking. Very many of these fires were, of course, small, but in the years since the war there have been eight major fires in passenger ships in port. The noble Lord listed them all, except the "Oronsay" in 1950, which was not a complete loss.
  The Working Party suggested a number of detailed steps which should be taken, but their main conclusions can be summed up in some very simple rules: first, the establishment of clear instructions and practices for fire prevention and fire fighting—the point my noble friend emphasised; secondly, the employment of the right type of man as patrolman; and thirdly, co-operation with the repairers in preventing fires. The fire in the "Empress of Canada" occurred on Sunday, January 25, 1953. She was lying in the Gladstone dock at Liverpool, with her port-side to the wharf. Repair work was being carried on by some 291 workmen of the contractors, and there were about thirty-five men employed by the owners aboard, with a duty officer, two

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  engineers, and an electrician of the day. The ship was not in commission. Between 3.25 and 3.30 p.m. the man in charge of a grain elevator moored on the starboard side of the ship saw smoke coming from "B" deck. He hailed the ship, but nothing came of it. A quarter of an hour later, two of the owners' shore-gang saw fire coming from over the bulwark from "B" deck and they took no action. Then at 4.10 two of Harland and Wolff's men discovered the fire, took prompt action, went on shore and called the fire brigade from the shore offices. The fire brigade from Bootle turned up in two minutes, but the fire had taken such a hold that when, by 8.35, the pumping of water had to be stopped because the ship then had a list of 17 degrees, the fire was still raging furiously. After that, the ship slowly filled, through water entering the hull through various unsealed orifices that were below the water, eventually capsizing at 1.38 in the morning of January 26.
  At the subsequent Inquiry, question 56 put by the Ministry to the Court is, I think, the important one. The question and the answer given were as follows:
  "Were the recommendations of the Report of the Working Party on Fire Prevention and Fire-Fighting in ships carried out?
  Answer: Some of the more obvious discrepancies between the routine in force and the principle recommended by the Working Party may be listed as follows:—

  (a) No liaison existed between the owners and the fire brigade in relation to the ship.

  (b) Fire patrol frequency was below the recommended standard; clock patrols operated only at night, and at the time of the disaster personal alarms, as for example whistles, were not supplied.

  (c) A direct telephone line from ship to fire brigade was not available.

  (d) The fire main was uncharged and no alternatives had been instituted.

  (e) Fire doors and watertight doors were not closed.

  (f) Gas cylinders would not appear to have been dispersed as widely as possible."

  The Court of Inquiry suggested that the probable cause of the fire was a cigarette end in one of the cabins, B.29–53. Some of these cabins were used as mattress and pillow stores, and there is no certainty that they were locked. The whole circumstances, as my noble friend has said, were unfortunate. And the alarming thing is that after the Working
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  Party had reported and produced a well-thought-out series of measures for the prevention and extinction of fires of this sort, their conclusions should have been ignored to so large an extent.
  The noble Lord, Lord Elton, has asked me about rules for construction. The rules for construction for British ships include a sprinkler system. Some foreign instructions go in more for non-inflammable substances. My noble friend has brought to the notice of the House a substance which has not been manufactured in this country until recently and which is incombustible. I do not want to pursue the noble Lord further down these paths, because he, of course, is a director of the company that makes this material, and I find that I am a shareholder. Therefore, I think it would be wrong for me to discuss the material in question: I understand it is sold in quantity.
  LORD ELTON: My Lords, may I just correct the noble Lord? I am not a director of a company that makes this material; I am a director of a company one of whose subsidiaries is one of the companies which make it.
  LORD HAWKE: I accept that. But I can assure my noble friend that my right honourable friend the Minister is always examining problems of this sort, and if a new situation has arisen in this matter I have no doubt he will look at the construction rules again. Now the Minister has carefully considered the findings of this Court of Inquiry, and has decided that the best thing he can do is to call a meeting of all the organisations which have any responsibility for seeing that ships in port are properly protected against fire. The object of the meeting will be to find the best means of seeing that the recommendations of the Working Party are strictly carried out, in particular the recommendations as regards patrolling, because in the prevention and the speedy putting out of fires the human factor—the quality and the frequency of the patrols—is obviously the most important. Then my right honourable friend thinks that if a drive can once again be instituted to bring the recommendations of the Working Party before the people responsible in these matters it will give the best chance of lessening the number of fires and seeing that those that are started are put out

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  quickly. I hope that my answer is satisfactory to my noble friend.
  VISCOUNT CALDECOTE: My Lords, before the noble Lord sits down could he say whether the Minister has sufficient power to enforce the requirements of the Working Party by inspectors or other means?
  LORD HAWKE: The Working Party report is naturally not a statutory document, and the Minister, in matters of this sort—I am speaking now subject to correction—has not, so far as I am aware, statutory powers on the subject. But I can assure the noble Lord that in the shipping world if the Minister of Transport expresses a strong wish that wish is very nearly as good as a statutory power.

  THE ECONOMIC SITUATION
  3.27 p.m.
  LORD PETHICK-LAWRENCE LORD PETHICK-LAWRENCE rose to call attention to the economic situation; and to move for Papers. The noble Lord said: My Lords, in opening this debate in your Lordships' House I am sensible of a deep feeling of responsibility. There are two subjects of supreme importance to the men and women of our country. One of them is the peace of the world. If we lose that, and if war breaks out, the whole future of our civilisation will be at stake. The other is the internal economy of our island home in which we move and live and have our being. It is to that second question that we are turning our attention this afternoon. I am aware, of course, that it is the special province of the Members of the House of Commons to deal with the subjects on the Budget that are matters of debate, but it is not only the right but the duty of Members of your Lordships' House to give their counsel to Her Majesty on the prosperity of the Realm, and in pursuance of that duty it behoves us to examine and satisfy ourselves as to the stability and the progressive character of our economy. Stability requires that we should pay our way both at home and abroad. Progress means that the standard of life of the whole of our people shall be advancing. But even if we are satisfied that both these conditions are fulfilled we ought not to be content if in any respects there are measures that could be taken which would improve and carry to an optimum
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  our economic life. I am bound to confess that a study of the various White Papers that have been issued to us in recent days and a perusal of the reports of the speeches—excellent speeches as I think many of them were—in another place during the past few weeks, leave me uneasy on all these points.
  Let me begin with stability. It is perfectly true that our gold and dollar reserves have been climbing up slowly during the last few months, but if we deduct the subventions that we have received from across the Atlantic, then the accretions to our reserves have been pitifully small in terms of the large figures of modern finance. And even with American aid our reserve to-day falls far short of the peak of the Spring of 1951 and is, in fact, considerably less than one-third of the sterling short-term indebtedness. When we turn to the balance of payments, it is true that there appears to be almost a substantial figure on the right side of the account—I think it is £225 million—during the last year. But over £100 million of that is American aid, which I do not think can really be put in as a balance in our favour for general purposes. It may at any time be withdrawn and we are left with a sum, large as it may seem from certain points of view, which is really exceedingly small if it is all that stands between us and disequilibrium. In fact, any mischance may easily plunge us heavily downward into the red.
  Let me take two illustrations. We were exceedingly fortunate during last year because, on top of the great improvement, from our point of view, in the terms of trade in 1952, amounting to several hundreds of millions, we had a further improvement last year which, according to the Economic Survey, amounted to no less than £200 million to £250 million. It is clear that if this trend in our favour in the terms of trade were to be reversed, even to only a slight extent, it would play havoc with our balance. Further, it is only a little while ago that we saw a large cloud arising over the Western horizon. There was the prospect of a recession in the United States, which many people felt might grow to grave dimensions. I do not think we are quite out of the wood yet, but it does seem as if that threatened recession is checked and may not grow to anything very much larger.

  19
  It also seems that such a recession as did take place has not had, so far at any rate, any serious ill-effect upon our economy in this country. Still, one never knows, and we cannot say that we are safe. I hope the noble Earl, Lord Selkirk, who is going to reply at the end of this debate will have some reassuring figures with regard to the situation of this American recession of the last few weeks. If so, I am sure the whole House will be glad if he will announce them.
  I should like to make it plain that in saying all this I am not attacking Her Majesty's Government in the slightest degree. In fact, I am not at all sure that the Chancellor of the Exchequer, if he were here to-day in person, would not have said a hearty "Hear, hear," to a great deal of what I have already put before your Lordships. Moreover, for this occasion at any rate, I am not raising the debatable question—the Party issue, if you like—of how far the more favourable condition of to-day is due to good fortune exclusively, or whether in some measure, and, if so, to what extent, it is due to the policy pursued by the present Government. But I do say (and this is practically my only Party point) that it rather knocks the bottom out of the fallacious charges made by certain supporters of the Government—I except the Chancellor of the Exchequer, who has always been perfectly fair in the matter—that the tidal wave that struck the ship of State in the middle of 1951 rose from the misdeeds of the Labour Government and its Chancellor of the Exchequer, Mr. Gaitskell, when its real cause was the outbreak of the Korean war, which sent prices rocketing and compelled us in the teeth of the heavy competition of stockpile buying by the United States to make a certain stockpile for ourselves. Apart from this slight digression into Party politics, my desire is to state the simple, straightforward facts so that all Parties equally may not live in a fool's paradise. Our stability does exist but it is by no means firmly established, and needs unsleeping vigilance to preserve it.
  I turn now for a brief moment to the questions of E.P.U. and G.A.T.T.—that is to say, as your Lordships know full well, the European Payments Union and the General Agreement on Tariffs and Trade. In my opinion, and in the view
  20
  of those for whom I speak, these bodies perform valuable services in the promotion of international trade, the former by enabling credits and debits between certain European countries to be carried forward from year to year, and the latter by lowering tariff barriers by mutual agreement. We certainly hold that these bodies, as such, are of great value, especially to this country which, more than any other country, is dependent for its existence and prosperity on world trade. But there are a certain number of people who are constantly pressing the Government to get out of E.P.U. and out of G.A.T.T. I want to say clearly that we on these Benches support the Government not only in remaining in these bodies but in doing everything that is possible to promote their successful working.
  When all is said and done, the essential thing we have to think about is production, for without abundant production at a reasonable cost neither E.P.U., G.A.T.T. nor any conceivable financial or trading device can enable us to market enough goods overseas and satisfy the requirements of our own population at home. Nineteen fifty-two was a bad year and production actually fell; 1953 was much better, but even now we have only just made up the loss and just passed the earlier peak. We must do far better than that in future if we are to attain to progressive prosperity. How is it to be done? There are only three ways: more efficient team work by all partners in industry; more and better capital equipment, and more workers to share the burden. The first can be obtained only by better education, both technical and moral. Money wisely spent on education is productive money. Money spent on education for citizenship yields material as well as moral returns. Improved capital equipment can be secured only by forgoing immediate consumption in favour of increasing the means of better production in future. We did not do so very well in this matter in 1953. When the returns are carefully analysed it will be found that private enterprise, at any rate, extended its equipment very little, and spent little money on new and improved machinery. If we were to go on like that from year to year it would present a bleak prospect, considering the increasing claims that are made on our productive resources.
  The Chancellor of the Exchequer has decided—and I am not going to argue to-day whether he is right or wrong—not to have a considerable above-the-line surplus in his Budget. That being so, it falls to the private citizens of this country to provide the means out of which new capital investment can be secured either individually or in corporations composed of private individuals. Of course, anything in the nature of a rise in prices will discourage them from that. If prices are going up, people do much better to spend while prices are low. Therefore, it is essential, if we are to find the means of capital investment in that way, that we should shun inflation like the devil.
  Granted the decision of the Chancellor of the Exchequer not to provide any money for capital development out of the Budget, his new scheme of his investment allowance has, I believe, a great deal to commend it. That applies quite outside Party limits, and will, I think, be the general view of us all. But the details of this new scheme certainly require a good deal more investigation and explanation. I notice that it was described in the other place by more than one speaker, including, if I am not mistaken, one of the Treasury Ministers, as a 120 per cent. allowance on investment. I do not know whether that is correct, but it is certainly a new method of finance to allow a person, over the period of life of the new machinery, not merely to write it all off but to write off 120 per cent. of it. I am not saying that it is necessarily wrong, but certainly it wants some thinking about and some justifying, and I have no doubt that the noble Earl who is to reply will be able to explain whether it is correct that this is a 120 per cent. allowance, and will give us reasons why we should support it. I think probably he would serve us best if he were to take some concrete figure—I do not care what it is, £10,000 or £100,000—and assume that a manufacturer is going to purchase that amount of new machinery, or fixed capital of some kind, and say how that will be allowed for in reduction of income tax over the whole life of the machinery. I hope that the noble Earl will be able to oblige with something of that kind.
  Then there is some question as to the nature of the capital investment which will attract and qualify for this allowance. Perhaps the noble Earl can give
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  us a little information on that point, too. I noticed recently in a Sunday paper a rather amusing suggestion that women should claim for this investment allowance for capital investment in their kitchen machinery. Possibly that was intended somewhat as a jest, but there are many true words spoken in jest. I believe that the Chancellor of the Exchequer would be better advised, in the interests of good economy, to think about this proposal—it would certainly be more advantageous than putting a purchase tax on, say, a refrigerator. However, that will be for the Chancellor of the Exchequer to think over in his quieter moments. While the noble Earl is dealing with Clause 15 of the Finance Bill—that is, the investment allowance—he might possibly be able to answer a simple question from me in relation to another clause in the Finance Bill which deals with valuation for purchase tax. Perhaps he can tell me whether I am right in thinking that the sole intention of this clause is to deal with the case of a retailer who, because he is a chain-store, or something of that kind, buys direct from the manufacturer, instead of going through the medium of the wholesaler. If that is the object of the clause, as I believe it to be, then I think there is something to be said for it. Everything that reduces purchase tax and makes goods cheaper is better for the economy of the country all round. If it is a special favour to the big men, as against the little men, then I feel that we should have to think twice about it.
  There remains the question of finding additional workers. No doubt I shall be told that, while that may be feasible in ordinary times, when there is a certain amount of unemployment, it is not possible to-day, because we have no slack to take up in these modern days of full employment—which I think some noble Lords used to call, when the Labour Government were in office, over-full employment. But is this really the case? I contend that there are at least two classes of workers who are not fully employed at the present time, who would like to be fully employed but who are prevented from getting employment by obsolete ideas and prejudices, or by lack of proper organisation which could and should employ their labour. In that connection, I should like to say that full employment, as we have it at the present

  23
  time, disposes of certain of the objections which existed in days of unemployment to the working of that additional class of labour, because the additional class of labour is not going to take the bread out of the workers' mouths. Anybody who wants to can get a job to-day, and any additional labour will increase production and will not throw people out of work.
  The first of the two classes to which I want to refer consists of married women who are unable or are unwilling to work full-time. Your Lordships may have read some of the interesting correspondence which is proceeding in The Times on this question with regard to a particular class of married women workers. There is one difference between men and women which is often not sufficiently recognised. It is that, whereas men excel over women in specialisation on a single craft—maybe in the mining or mechanical field—women excel over men in their versatility. Though that is not a universal truth, it is a general truth, and it is in accord with the difference between the rhythm of women and the rhythm of men. However that may be, it is undoubtedly a fact to-day that there are large numbers of women—generally married women—who are either unable or unwilling to give full-time work, but who are anxious to be employed for part of their time, and who would give good service in such a direction, provided that an opportunity was made available for them. Let me give just one concrete illustration—other noble Lords will no doubt think of many quite different ones. Take the teaching profession. We are told that there is a great shortage of women teachers at the present time, and yet there are large numbers of women who are quite competent to qualify and quite willing to teach, but who are not able to teach for the whole day. It may involve some difficulty of organisation, but it should be perfectly possible to have some women teaching only in the morning and other women teaching only in the afternoon. I am not an expert on educational matters, and there may be some snag in that, but I do not think there is.
  The other class of available workers is the elderly people, of both sexes, who have been arbitrarily thrown out of employment because they have passed some fixed age for retirement. Some men
  24
  and women of that age are perfectly capable of working full-time; others would prefer half-time or possible three-quarter time. It is not only that their services would be of value to the community. We have gone a good deal past the idea that the greatest happiness in life is to cease from all productive creative work and sit on a chair with folded hands, smoking a pipe. There are large numbers of people to whom creative work is an essential if they are going to enjoy the remainder of their life. We have only to point to the other place, where the prime mover and figure is a man who has passed by many years the period allotted for human beings to work and passed the date when he should normally have retired. It may be said: "That is all very well, but you cannot fit these people in. They would create an industrial organisational problem; they would raise a lot of awkward human questions and would upset a large number of people." That is always said of every proposal which is likely to alter somewhat the conditions in which we live at the present time.
  I am old enough to remember the day—and I dare say a good many of the older members of your Lordships' House will remember it, too—when a large number of young children worked half-time while the other half was given to schooling. The claim was then made that, if that were abolished, and if there were no half-time for children, the whole basis of industry in certain industries would be upset. Of course, that was nonsense. We have practically no half-time child labour to-day, yet industry manages very well without them. Somewhat the same thing is true to-day in the opposite direction. I do not believe for a moment that it is impossible to work in half-timers and three-quarter timers. The old and the women have a good deal to give to the nation, and it is a mistake on our part to shut them out, by prejudice or a refusal to change.
  Therefore, I say that those two classes of workers can and should be enmeshed in the productive machine. If that were done in the case of the old, it would go a long way to removing the oft-quoted remark that, as a class, the old are becoming an increasing burden on the backs of the young and those in the prime of

  25
  life; and it would enable the Chancellor of the Exchequer to meet the demand for higher pensions, and would result in fewer people having to go on the National Assistance. The Chancellor of the Exchequer himself admits the priority of this claim; and I suggest that the proposal I am making would help him to meet it. In the case of the women, it would also more than enable him to meet the other admitted priority claim, the concession of equal pay. These are, however, from the point of my discussion to-day, subsidiary, secondary, though important, considerations. The main fact is that it would increase the number of human factors in production, with great advantage to the nation as a whole, and would at the same time satisfy the craving for creative achievement to many who to-day are denied that opportunity. I beg to move for Papers.

  FOREIGN MINISTERS' MEETING
  3.57 p.m.
  THE SECRETARY OF STATE FOR COMMONWEALTH RELATIONS (VISCOUNT SWINTON): My Lords, I think it would be for the convenience of the House if I intervened just for a moment to repeat here a statement which the Prime Minister has made in another place in answer to a Private Notice Question. The meeting of the Foreign Ministers in Paris marked the fifth anniversary of the signing of the North Atlantic Treaty and reviewed in its military aspects the international situation. No doubt your Lordships will have read the communiqué issued after the Meeting which, for the convenience of the House, I am circulating in the OFFICIAL REPORT.
  While in Paris there were naturally conversations between the Foreign Ministers, especially about the grave local situation in French Indo-China. No decisions were taken in advance of the Conference at Geneva. All the Powers concerned are now in session there. The preliminary stage of procedure, which has so often absorbed much time and energy, has been settled with the full agreement of the four Powers who initiated the Conference with a smoothness and celerity which is at least a good augury for the spirit which should animate the proceedings. The House will, I am sure, be anxious that nothing should be said here
  26
  to-day which would render more difficult the momentous discussions and vital contacts which are now in progress.
  The episode of the siege of the French fortress of Dien Bien Phu, the fate of which now hangs in the balance, creates a violent tension in many minds at a time when calm judgment is most needed. The timing of the climax of this assault with the opening of the Geneva Conference is not without significance; but it must not be allowed to prejudice the sense of world proportion which should inspire the Conference and be a guide to those who are watching its progress.
  Three of the Commonwealth countries are represented by high authorities at the Conference, and the closest intimacy and sense of unity prevails between them and us. My right honourable friend the Foreign Secretary is also in constant touch with the other members of the Commonwealth. In order that his Cabinet colleagues and he should be in full agreement, he returned to this country last Saturday, and there were lengthy meetings on Sunday, at which all the questions pending were considered and Ministers had the advantage of the professional advice of the Chiefs of Staff. As a result, we have the fullest confidence in the wisdom of the course which we have agreed my right honourable friend should follow, in circumstances so largely governed by the unknown.
  Her Majesty's Government are not prepared to give any undertakings about United Kingdom military action in Indo-China in advance of the results of Geneva. We have not entered into any new political or military commitments. My right honourable friend has made it clear to his colleagues at Geneva that if settlements are reached there Her Majesty's Government will be ready to play their full part in supporting them in order to promote a stable peace in the Far East.
  Following is the text of the communiqué referred to by Lord Swinton which was published after the North Atlantic Council Ministerial Meeting on April 23:
  "1. At a Ministerial Meeting held in Paris to-day, five years after the Treaty was signed, the North Atlantic Council reviewed the progress made by the Organisation, examined the present international situation, and exchanged

  27
  views on problems of common interest. The meeting was attended by the Foreign Ministers of the member governments under the chairmanship of M. Bidault.
  "2. The Vice-Chairman and Secretary General, Lord Ismay, reported on the work of the Organisation. His survey emphasised the effective working relationship developing within the Alliance, a relationship which goes beyond the formal obligations assumed by its members. The Foreign Ministers took this opportunity to reaffirm their association in the Atlantic Alliance as fundamental to the policies of their respective Governments. Recalling the defensive and peaceful aims of the Treaty, they expressed their resolve to maintain and develop the Alliance not only as the firm basis for the collective defence of their peoples, but also as an enduring association for common action and co-operation between the member states in every field.
  "3. After discussing international developments since its last meeting, the Council found no evidence that the ultimate aims of the Soviet Union had altered, and noted that the military strength of the Soviet Union and its satellites continues to increase. The Council therefore once more agreed upon the need for continuing efforts, vigilance and unity.
  "4. The Council—reaffirming its long-established position that the institution of the European Defence Community is in the essential interest of the Alliance—welcomed the ratification of the E.D.C. Treaty by a number of the signatories since the last Ministerial Meeting, which brings closer the entry into force of the Treaty. The Council also expressed its gratification at the far-reaching steps taken by the Governments of the United Kingdom and United States towards co-operation with the European Defence Community, thus ensuring their lasting and close association with the defence of the continent of Europe.
  "5. With regard to the recent declaration by the Soviet Government on the status of their zone of occupation in Germany, the Council noted with approval that member governments of the Organisation had no
  28
  intention of recognising the sovereignty of the so-called German Democratic Republic or of treating the German authorities there as a government. It decided that the Permanent Representatives should draw up a resolution on this subject.
  "6. The Council, with a view to developing further the habit of political consultation in the Council, adopted a resolution on that subject, the text of which has been published separately.
  "7. The Council paid tribute to the gallantry of the French Union forces fighting in Indo-China. It expressed the hope that the Geneva Conference will have positive results."
  EARL JOWITT: My Lords, I am grateful to the noble Viscount for making his statement but I confess I find it a little obscure. What it means I do not know, but I think it means that the Government at the present time have not made up their mind what they will do in certain eventualities which they do not know—and in that respect I think they are wise. But what is of great importance is that at Geneva we should try at all cost to get a "cease fire." That is a matter of fundamental importance and I am glad to hear that the Government realise it. I personally think it is rather bad timing to discuss these other matters on the eve of Geneva. However, I devoutly hope that we shall be able to get some agreement at Geneva and that, therefore, these other matters will not arise. I hope also that the Government, as I am sure they will, though I realise the necessary limitations, will keep the House constantly supplied with information, so far as they can, as to the line which they contemplate as being the right line to take.
  VISCOUNT SAMUEL: My Lords, the House will be grateful to the Government for the important statement which has been made. The whole world, which is watching with intense interest the critical meetings now taking place in Geneva, will rejoice that the proceedings should have begun so smoothly and in a mood and temper very different from that which has been shown at many previous conferences, which at the outset wasted days and weeks in futile wrangling on trumpery questions of procedure. The important point, however, in the Government's statement is the reference to

  29
  the possibility of United Kingdom military and political action in Indo-China. There the Government may be called upon to arrive at decisions of the greatest gravity. I think, and I believe the House will agree, that the Government have been wise not to allow themselves to be hurried by the pressure of military events into any new political or military commitments in that part of the world. They will be well advised in this matter not to go further than they can be sure of receiving the support of general public opinion in this country and also the approval of the Governments and Parliaments of the other members of the Commonwealth whose geographical position makes this matter for them one of primary concern.

  THE ECONOMIC SITUATION
  4.4 p.m.
  Debate resumed.
  VISCOUNT BRUCE OF MELBOURNE: My Lords, I entirely agree with the mover of this Motion, the noble Lord, Lord Pethick-Lawrence, that the economic questions that concern the world are of equal importance with the great, outstanding and overriding problem of peace. Unless some way is found by which we can resolve the economic difficulties in which the world is placed to-day it is inevitable that peace cannot be indefinitely maintained. I agree with practically everything the noble Lord has said in moving this Motion and I trust that, with the wise counsels he has given, greater production and greater co-operation will be achieved. But, personally, I feel we have to go a little further before all the things which he has suggested can be achieved. I still do not see how the economic salvation of this country and of the world can be achieved unless a much more positive and broad-visioned policy is brought into being. I agree with what the noble Lord said with regard to the position in fins country. The balance of payments over the two last years has been very good. We had a balance in our favour in 1952 of £134 million and in 1953 of £123 million. Over the same two years our gold and dollar reserves have increased; in both 1953 and 1954 there was an increase, and at March, 1954, they stood at 2,685 million dollars. This is a great improve-
  30
  ment and it is something for which we ought to be thankful.
  A number of other factors, however, have to be taken into consideration. One of the things that appal me at the present time is the spirit of what I think is completely undue optimism that exists in this country as to our position. It may be good politics from the Government point of view to show that they are doing better than the Government which preceded them; but I venture to say that it is extremely bad statesmanship. The people ought to be told of the facts; they should not be allowed to live in a state of illusion as to where we stand. Now, taking the balance of trade, the noble Lord has pointed out that over the last two years the terms of trade have been very much in our favour. In those two years we have done well; but if we go back over a period of years and take the position from 1946 to 1953, we find that our balance of payments shows a total deficit of some £540 million. That cannot be a very satisfactory position.
  Our gold and dollar reserves, as I have said, have gone up over the last two years, and as the noble Lord pointed out, this was greatly assisted by American aid in connection with our rearmament. The actual figures are these. In 1952 the Defence Aid we received was 338 million dollars. In 1953 it was 286 million dollars. Perhaps I had better give your Lordships the position in March, 1954. The position at that date with the accretions we have had over the last two years, was that our gold and dollar reserves stood at 2,685 million dollars. In December, 1946, they stood at 2,696 million dollars—a slightly higher sum; and when you remember that over that period of years we have received by way of loans and grants some 9,000 million dollars, nobody can possibly say that this is a satisfactory position.
  Let me turn to our position as a debtor country. Before the war we had no long-term debt at all, and we had a short-term debt of about £800 million which was balanced by gold reserves of about the same amount. By 1953 we had incurred long-term liabilities—we had none before the war—of £2,000 million, and our short-term liabilities had increased from £800 million to some £4,200 million. Yet our gold and dollar reserves are at practically

  31
  the same figure as they were before the war. That must be a serious position and it seems to me that people ought to understand it better than they do. In that way we shall get the whole-hearted co-operative effort which the noble Lord, Lord Pethick-Lawrence, has advocated as being necessary at the present time.
  I proposed to say a few words about what I believe could be done. After the war it was obvious that we had to restrict our imports and stimulate our exports. We have done extraordinarily well in both directions. We have cut our imports to the point where I venture to say that there is really nothing more we can do, if we are to get the food and raw materials which are necessary to maintain our standard of life. On the other side, we have increased our exports. In 1952, the volume, not the value, of our exports was nearly 60 per cent. above the 1938 level. That is good. We have to increase our exports still further, as the noble Lord, Lord Pethwick-Lawrence, said, but we have to remember that there are great difficulties in the way of doing that. Germany and Japan are just about back to their pre-war position as competitors in the markets of the world. We have to remember that before the war America's exports were only some 4 billion dollars a year. To-day, the lowest estimate I have seen is that she has somehow to get out into the world 10 billion dollars' worth. That is the competition we shall be faced with when we attempt to increase our exports. I have the very gravest doubts whether, even if we did everything that was humanly possible in this country, the markets are there to absorb all this extra production brought about by the war.
  That is not a new, bright and original thought of mine. I do not know whether members on the Government Bench or members on the Opposition Bench know that Britain, as well as America, is committed to the view that it could not be done, that one could not find markets for all the production brought about by the war, unless some new and almost dramatic policy was embarked upon. This matter is of such interest that I propose to read to your Lordships what the British and American Governments said. Many other Governments also were concerned as I shall explain in a minute. I had the
  32
  honour to preside as Independent Chairman over what is known as the Preparatory Commission on World Food Proposals, which will be very much dealt with in your Lordships' debate to-morrow. That Commission of which I was the Independent Chairman was composed of sixteen nations. When we got down to our job we discovered that we had to make an economic survey of the position of the world, and that we could not deal in isolation with our particular subject of food and agriculture.
  Let me now read to your Lordships an extract from the Report, which was subscribed to unanimously by all the sixteen nations represented:
  "The first fact that emerged from the examination of the task that we had been given was that it would be impossible materially to increase production and consumption or effectively to stabilise prices, save in a setting of expanding world economy.
  "Following World War I"—
  and this, to my mind, is intensely interesting; it is something we have to carry in our minds now. It is a summary of the position after the First World War, followed by a summary of the position after the Second World War—
  "after the devastated areas were restored and the world was restocked and re-equipped, it was found that the world could not absorb the increased production which the war had stimulated. The result was the economic and financial crisis and the human tragedies of the 1930's.
  "To-day, in many respects we are in a similar position to that after World War I. Productive capacity has been extended in many countries outside the combat areas and the war-devastated areas are being repaired. The world is being restocked and re-equipped. What are we going to do when these tasks are accomplished?
  "If nothing is done to absorb the much greater production which our efforts in World War II have stimulated, we may find ourselves heading for an even greater disaster than in 1929. The result may be millions out of work and unparalleled business recession and social and economic unrest, with renewed measures for restriction of production."
  I want to make it clear to the House that those comments, which are no bright thoughts of mine, are embodied in the Report of that Commission which sat at the end of 1946 and the beginning of 1947.
  That Report and the views expressed in it were signed by the United Kingdom Government, The French Government, the American Government and sixteen

  33
  other Governments. Further, that Report went to Geneva a few months later and was endorsed by some sixty nations. Nothing at all was done, however, until the end of 1949, in Paris—the Commission having sat in December, 1946. In December, 1949, the first sign of action appeared. At the United Nations General Assembly in Paris, in December, 1949, the nations became alarmed at the situation that was developing. As our Report has said, the only way to meet all these dreadful calamities is to create new wealth in the world on which to base an expanding world trade. The only way to do that is by utilising the undeveloped resources of the backward countries. We said that that was the answer. We pointed out that there was a great deal which the undeveloped countries could do for themselves but that they would require financial and technical assistance.
  That view was endorsed, but no action was taken for nearly three years. Then, having become alarmed, the General Assembly of the United Nations, in Paris, passed a unanimous recommendation to the effect that it was imperative that technical and financial assistance should be given to the more backward countries, and referred the question to the Economic and Social Council, to keep it under review and to make recommendations as to action. Within a month, that was followed by President Truman's Point IV. That gave the real stimulus to the whole question of technical assistance.
  Following these two events, the Technical Assistance Commission was appointed, with representatives of the United Nations and all the Specialised Agencies. They have worked in complete co-operation. The work has been handled very well within the limited resources available to them. A further appeal for additional financial assistance on a voluntary basis has been made by the nations of the world. It has not received the response it should have, but I commend it to all the members of this House, to all the British countries and to all the countries of the world, because technical assistance is moving on the right lines and in the right way. There are, however, limits to what it can do—I propose to deal with that side of it in a minute. Following the start of technical assistance, the Colombo Plan has now come into existence. America has gone on with her unilateral aid to
  34
  the backward countries, and I believe that that side of the problem is moving well and that there is some hope for the world. But I suggest it is not enough. What we overlooked with the more backward countries in 1946 was that, because of their ancient civilisations, their religious prejudices, their national customs, their bad traditional land tenure systems, development and production could not proceed as rapidly as was hoped. Technical assistance, even to the maximum point, could not begin to fill the gap that was felt in the world between consumption power and production as a result of the increased industrial production brought about by World War II.
  We must now take another step forward, because markets to absorb this increase have got to be found. It is utterly impossible to go on trying to produce more, with every country determined to do it, and with industrial production increasing. During and since the war the effect has been absolutely astounding. Production in America is up by nearly 100 per cent., and in every country it is up. Every industrial country is determined to satisfy its own needs and, at the same time, is seeking further markets. What hope has Britain, in that atmosphere, of finding the markets that she needs? I understand that hopes are pinned on G.A.T.T. and on the United States allowing a greater flow of imports. Whilst I wish to say nothing at all about G.A.T.T., one way or another (I heard what the noble Lord, Lord Pethick-Lawrence said about it), however successful it is in this atmosphere of every country increasing its production, those countries are not going to lower their tariff barriers to an extent that will solve either Britain's problem or that of the world.
  With regard to the United States, we all welcome the statesmanlike reports of Mr. Douglas and Mr. Randall, which I believe will have great repercussions on American public opinion; but it is going to take a very long time to get results from those wise and statesmanlike counsels, and to persuade the people and politicians of America to allow into their country a sufficient flow of goods to solve the world's economic problem. As soon as any American industry is seriously hurt by the flow of imports into America, the whole policy will be abandoned and

  35
  the position will be reversed. Even Mr. Eisenhower, in his speech just after his Inauguration, had to put in a proviso. After he had said the most encouraging things in regard to imports into the United States, he then put in a sentence that showed that even he would be forced to take action to prevent the flow from being serious enough to embarrass American industry.
  The last thing I want to deal with is the question of what it is possible to do. I have ventured to suggest on previous occasions what I think could be done. What I am now going to say is not new; I have said it all before, and I apologise to the House for wearisome reiteration. But long experience has taught me one thing; that is, that if, by good fortune, you happen to be right about anything and you go on saying it often enough, eventually something will be done about it—though, unhappily, generally too late. The suggestion I have made is that we, the British countries—because the world always looks for a lead from us—should make an assessment of the world's needs of raw materials and food. We should then examine the resources and production potential of the Commonwealth sterling area in relation to the demands for these basic requirements, and go ahead with production in the sterling area, thus either saving dollars, by giving us a source of supply in the sterling area, or earning dollars by providing something to the United States.
  It is essential from every point of view that something of this sort should be done because, owing to this paralysing increase in industrial production, the world is going to be short of raw materials. The Paley Report showed that. It showed that America has changed from being a surplus raw material country to a deficiency raw material country, and I believe that if we had a Paley Report for the United Kingdom and Europe it would disclose exactly the same position. Here is a great opportunity for us to do something that is essential, to expand the volume of production and real wealth in the world, and to do something upon which can be founded an expanding world trade that might absorb all the exports that Britain must make if she is going
  36
  to maintain her position. I believe that it can be done by getting the facts in regard to the vital raw materials and foodstuffs. If that information is not available, it ought to be. Just two or three months ago there was published a book, written by Mr. St. Clair Grondona, which is invaluable on this question. It is called Commonwealth Stocktaking. I commend it to your Lordships. Having found what are the facts, we must decide on the course we will follow. It will probably need co-operation from a number of Commonwealth Governments. There will be certain Commonwealth Governments which need the raw material, and there will be some other spot in the Commonwealth where that raw material can best be produced. Working out a plan will be a matter of co-operation between the Governments concerned. Industry also must be brought in, if industrial production is to be included in this programme.
  I suggested some time ago that there should be a Commonwealth Finance Corporation, somewhat on the lines of the Finance Corporation of which I am Chairman in this country. That suggestion was adopted by the Conference at the end of 1952, and the Corporation is now in being. It could assist on the private enterprise side. Governments would have to be responsible for the basic items, such as transport, irrigation, and social services and so on, but private enterprise could take up the rest of the burdens. I am confident that it would be possible to get in America whatever money was required for that project. The approach would be through the Governments to the International Bank, or to other authorities in America, and the private enterprise side of it would be an approach by the Commonwealth Finance Corporation. The names on that Commonwealth Finance Corporation would give confidence to the private investor in America—indeed, I believe that the amount of money which would be available for a well-thought-out and considered plan to provide something that is needed by the world is incalculable. I suggest that a lead of the sort I have described would be the first step towards achieving what Mr. Eugene Black, Chairman of the International

  37
  Bank, in an admirable speech which he made to the Economic and Social Council, suggested was essential. After emphasising what the Bank has done, and expressing the needs very much as I have indicated them to-day, he finished up by saying:
  "I suggest the advanced nations need urgently to re-examine and re-state their development objectives and then to join in the formulation of a long-term programme of action adequate to achieve these objectives."
  I would appeal to Her Majesty's Government, as the leading Government in the British Commonwealth, to give the inspiration and make a start on such a project.
  4.29 p.m.
  LORD COLERAINE: My Lords, if I dared to do so, I would ask your Lordships for double that measure of consideration and indulgence which it is your custom to give to all those who address you for the first time. Not only is this my maiden speech—an ordeal sufficient in itself—but the topics which have been raised by the noble Lord, Lord Pethick-Lawrence, this afternoon are of extreme complexity, and I realise well enough that there are many of your Lordships who are far better qualified to deal with them than I. Not only that, but the topics which Lord Pethick-Lawrence raised are, of their nature, controversial. If he will allow me to say so, he himself was not markedly controversial, though I am not certain that he was quite as uncontroversial as he thought he was being. It may be, therefore, that, with the best will in the world, I may stray over the line of what is seemly in a maiden speech. If I do, I know that I cannot expect your Lordships' indulgence, nor can I expect your mercy, except that mercy which the courts will always afford, I believe, to a first offender.
  I count myself fortunate in following the noble Viscount, Lord Bruce of Melbourne, not only because I agree with so much that he said but because, ten and more years ago, I was associated with him in inter-Governmental discussions on many of the subjects with which he has dealt this afternoon. I think I had from him then my first lessons in the theme he developed this afternoon—the theme of the necessity of developing expanding markets in the world. I saw then that it
  38
  was a theme of the first importance. I still so regard it. The only point I would make is that, desirable as it is, essential as it is, to develop expanding world markets for our trade, there are other things that have to be done first, here at home—namely, to put ourselves in a position to take advantage of those expanding markets as they are developed.
  The noble Lord, Lord Pethick-Lawrence, said something about investment and about the fact, as he put it, that while the public sector of industry had created a good deal of new investment, the private sector had created none at all. And this, I think he implied, if he did not state, was a slur upon private enterprise and a credit to the public sector of industry. I think he said, too, that the White Paper made all this clear. If I may say so to the noble Lord with the greatest respect, the White Paper did not make it clear at all. It gave some figures the effect of which was to show that there was a surplus of £500 million or more which apparently had not been invested by private industry. But there were all kinds of qualifications alongside of that table, and the White Paper categorically stated two things, the first being that the figures in the White Paper took no account of investment overseas. As, I think, your Lordships are well aware, there has been, particularly in the last twelve months or so, very great investment overseas on the part of private industry, particularly in Canada. That might very well absorb the alleged surplus given in the White Paper. The White Paper also definitely states that it does not take account of individual companies, or even of categories of companies. It can give only an aggregate sum. The fact may be that while some companies have large resources they did not invest, possibly because they had already renewed their equipment and developed it, other companies which needed to invest might well have been without the resources to do so.
  But there are, I suggest, other reasons which may account for the apparent lack of investment—it may be it was a real one. Possibly certain companies which had the funds to apply to new investment did not so use them. But it may also be that there were very good reasons for that. For example, if a company wishes to provide new machinery it will not do so if the margin it is going to get back

  39
  after taxation is insufficient to justify the investment. It may well be that high taxation is one of the factors which preclude new investment. There is another factor which I am sure we must take into account, and which, I think, noble Lords opposite who have studied the matter will agree is a matter of some importance, if not, perhaps, of major importance. That is, that in some cases that have come to my knowledge, while the management was ready enough to invest its surplus in new and more efficient productive equipment, restrictions by the trade unions were such that if that equipment were installed there would be no real advantage from it because the trade unions insisted on the same number of operatives working the new machines. I do not say that that is general, but it is clearly one of the aspects of the situation which we ought to keep in mind.
  The noble Lord, Lord Pethick-Lawrence, said something about good luck and ill-luck. I will not pursue him further on that matter, except to say that it is sometimes difficult to know the difference between good luck and good judgment, and between ill-luck and bad judgment. And I do not think the particular case which he gave of the ill-fortune of the Labour Government really bears the interpretation that he put upon it. What he said was that owing to the rise in prices as the result of the Korean war—which was a piece of bad luck—a large favourable balance of payments was turned into a large adverse balance of payments. I think that was his argument. But what, in fact, happened? What happened was that in 1949 the then Government, in the belief that commodity prices were going down, ran down their stocks to an extreme degree—I would have said to a foolish degree. Commodity prices did not go down; they went up. I would not describe that as bad luck; I would describe that as bad judgment. If a maiden lady went into the stock market and sold short some popular share and things went against her, I would not say she was unlucky, I would say she was an ass.
  But whatever we attribute to luck, or whatever we attribute to judgment, there is, I think, no doubt that there has been a considerable improvement in the last two years—an improvement such as none
  40
  of us, perhaps, would have imagined possible two years ago. There has been a real improvement in the balance of payments. It is not only that for the two years in question we have a substantial favourable balance, but we have that balance without, so far as I understand, any running down of stocks. It is an absolutely genuine balance. And we have done that while embarking on the most ambitious housing programme this country has even seen, a housing programme which has been eminently successful, a programme which was, however, as I think your Lordships would agree, a deterrent to a satisfactory balance of payments, for it was, in itself, a drain, to some extent, upon our economy and particularly upon the balance of payments.
  Then there has been, too, a great development of private saving. That shows, I would suggest, that people now have confidence in the future of the country which they did not have before. There has been an improvement not only in production but also in productivity. I hope your Lordships will have noticed one significant thing in the White Paper—that is that in two major industries, one of great importance to the well-being of the people, the building and contracting industry, and the other of vital importance from the point of view of exports, the motor vehicle industry, there has been a greater increase in productivity than in any year since the end of the war. This has been achieved not when conditions are entirely favourable, but with the recession in the United States as a background, a recession which is quite as severe as that which occurred in 1948–49 and knocked us all off our perches then. In fairness, I think we must give a great deal of credit to the Government for the new flexibility which they have introduced into the national economy. We must give them a great deal of credit for this change in our affairs.
  I do not think that any objective critic of the Government would say they have not done well. If I had a criticism to make I think it would be that they have done too well. They have done so well as to conceal from us the fact that we are still in some danger. I do not think the danger is so great as the noble Lord, Lord Pethick-Lawrence, has suggested to us, but we are still in some danger. They have concealed from us, too, the fact that,

  41
  apart from any difficulties we have to face now, there is still a tremendous amount to do. There is German and Japanese competition. The terms of trade may turn adversely again; but we should not forget that though favourable terms of trade are helpful in one way, they do harm in another, and that while adverse terms of trade make imports more expensive, they make exports easier. It is possible that the recession in the United States may turn into a slump, but I do not think, any more than the noble Lord, Lord Pethick-Lawrence, thinks, it is likely to do so. But, taking all these factors into account, it is clear that we should be wise to be prepared for trouble. It is clear that the surplus on our balance of payments of £100 million or more is not a sufficient shield if there is to be serious trouble ahead. But that is not all. Not only is it desirable, but we are actually under an obligation to undertake a considerable programme of new investment in the Commonwealth and sterling area. And to fulfil these obligations and secure our own position, we should require a surplus not of £100 million but of something far greater than that. The Chancellor of the Exchequer put it at £300 million and I have heard other good judges putting it even higher.
  We know what the problem is, and we know in broad terms what the solution is. There is general agreement on both sides that we have to increase productivity very considerably. Indeed, there has been agreement on that point at all times in the last ten years. But we have to face the fact that after ten years of propaganda and exhortation, despite a marked improvement in the last twelve months, we have not increased productivity to anything like the extent that we need. Other countries can get this increase—the United States can get it; Canada can get it; Western Germany can get it. Why cannot we get it? I believe that we may find a clue in last year's Budget. In last year's Budget, the Chancellor of the Exchequer provided additional incentives to industry and to those who worked there, by small remissions of taxation. The remissions were small, but if the results were not magical, they were marked. Why, then, did he not continue the mixture as before? Why did he alter the prescription? It is very natural that people should ask themselves that question.
  42
  In my view, for what it is worth, the Chancellor was absolutely right in 1953 to give remissions in taxation and he was absolutely right in 1954 to withhold them. I think that what he did last year was in the nature of a pilot operation. He took a small step in one direction to see what would happen. What has been shown by that pilot operation? I think two things have emerged. The first is that if we increase productivity by giving incentives, we increase consumption as much as or more than we increase productivity, and thus put a new strain on the economy. We are in a kind of vicious circle. If we want productivity, we have to give increased incentives; increased incentives produce increased consumption, and our last state may be worse than our first. It seems to me that there is only one way of breaking out of this vicious circle—that is, by accompanying remissions of taxation by cuts of expenditure. It is clear to me that if we have a given volume of Government expenditure and private expenditure and we add to the volume of private expenditure, we are producing a result that to some extent is inflationary. If we are to add to the volume of private expenditure without producing an inflationary effect, I suggest that the only way to do it is by cutting the volume of public expenditure.
  It has often struck me, and I expect it has struck other noble Lords, that in the economic system of this country as we have worked it since the war there has been a great paradox. However many industries may be nationalised and however many may be denationalised, we are all agreed that over a wide field, perhaps over the greater part of the field, our economy must be based upon a system of competitive, free enterprise. I think that is one thing we are all agreed upon. We are also agreed that we should try to make this system of competitive free enterprise work in conditions in which it cannot possibly work. That is what we have all been doing since the war. This system depends for its efficacy upon two sanctions—I would prefer to put it, two freedoms. It depends upon freedom of competition and upon freedom of reward. To a greater or lesser degree, since the end of the war we on both sides of the House have set ourselves to denying both of those freedoms. Without freedom of competition we shall not get any real control of prices and we shall

  43
  not get any real control of quality. Without freedom of reward, I believe it is impossible to improve productivity.
  After all, what does increased productivity depend upon? I suggest it depends first on contented and well-paid workers; secondly, upon efficient and progressive management, and thirdly, upon risk capital. I do not think you will get well-paid workers unless you have good management and I do not think you will get good management unless it is well-paid management. That may be thought to be a shocking thing to say, but I am emboldened to say it after listening to the speech of the noble Earl, Lord Jowitt, on the Second Reading of the Judges' Remuneration Bill. I could not hope to rival or even to equal the grace of the noble Earl's diction or his phraseology, but I listened to the speech carefully and I think that the gist of it, in bald, plain and possibly repulsive English, was: if you want good judges you must pay them well. I suggest to your Lordships that the same thing applies in industry also.
  But we all know that as well as good management we must have new investment: we must have the tools for the job. In my judgment again, which is fallible, we shall not get new investment unless captial is well paid. I cannot understand why we are all so afraid of this. I can understand why some of us are afraid of it. I can understand why noble Lords opposite do not like to consider it because, if I may say so without offence, it does err against their whole philosophy. But I cannot see why we on this side of the House seem to be so afraid of it. I cannot help thinking that the Chancellor of the Exchequer, with all his tremendous ability and with all the great success that has attended his efforts, is inclined to approach the facts of our economic system as I have always been given to understand our grandparents used to approach the facts of life. I find it difficult to see why this should be so.
  If we were to adopt a policy generally along the lines which I am suggesting—a policy of working the economic system in such a way that profits would be hard to earn but easy to keep, instead of, as now, making them relatively easy to earn but quite impossible to keep—I do not think we should be taking a leap in the dark. There are
  44
  plenty of examples to suggest that the path is a fairly safe one. First, there is our own example. We have trodden the opposite path for ten years and it has not in fact given us the results for which we have asked. Then there is the example of the United States of America, and there is the example of Canada. In both those countries the rate of productivity is much higher than we have here; the profits are much higher than we have here, and the wages are much higher than we have here. Nor do I think that the course which I am bold enough to indicate would mean abandoning the Welfare State. It would not. In my judgment, it is the only chance of saving the Welfare State. It is the only chance of expanding the Welfare State—and I should like to see it expanded. The weight of any burden is not absolute; it is relative. It is relative to the width and the strength of the shoulders that have to carry it. If you believe, as I do, that the burden we are carrying today is too heavy for us, if we cut some of it down it does not mean that at some future date we shall not be able to take up that burden again, or to carry in our stride an even heavier burden. I believe that unless we have cuts in expenditure we cannot provide incentives. Unless we can provide personal incentives, and incentives to capital, we cannot increase productivity.
  I am always being told that you cannot cut expenditure, that the political risks are too great, that the public will not accept them because the public are the beneficiaries. I believe that to be a false and shallow judgment. For one thing, the public are clearly not the beneficiaries, at any rate to the extent that they were some fifteen years ago, and nothing is more remarkable than the change that has taken place in the actual incidence of the burden on taxation. Before the war the heaviest part of the burden was borne by the rich; a relatively small proportion of the burden was carried by the less well-off. To-day, in spite of swingeing taxation—indeed, because of swingeing taxation, in my judgment—the proportion of the burden that is being carried by the rich gets smaller and smaller with every month that passes and the proportion of the burden that is being carried by the working classes gets larger and larger. The public, the electorate, are not in fact the beneficiaries of our present system.

  45
  But there is another consideration that I think even in this House we may fairly take into account. The electorate are not fools. I cannot say that I have come here "hot from the hustings," but, like others of your Lordships, I have had some considerable experience of the operation of the democratic process. In addition, I think I can say that I learned a good deal about it at my father's knee. But neither precept, nor example, nor experience, have convinced me that the British electorate will not respond to the truth when it is presented to them in sufficient numbers to let the truth prevail.
  5.0 p.m.
  LORD BRAND: My Lords, my first duty is to congratulate Lord Coleraine on behalf of your Lordships on what I thought, without using flattery or without saying the things that are usually said about maiden speeches, was a remarkable performance. I thought his speech very good, because he said a great many of the things that I proposed to say, and much better than I could have said them myself. I am sure that I speak for all your Lordships when I say that we regard him as a great ornament to this House and shall look forward to hearing his wisdom again on many future occasions. I agree, I might almost say enormously, with nearly all the things he said, and I shall not repeat those same arguments.
  Referring to what Lord Coleraine said about expenditure, I feel that, if a cut in general expenditure is wanted, it is not only through a cut in Government expenditure that it must be made. I believe that the whole meaning of a proper monetary policy is that, if a cut in general expenditure and general consumption has to be made, it should be done by the use of monetary policy, which may seem severe at the time, but is severe only because the crisis that may force a Government to do it is severe. It is really the whole community that has to cut expenditure. I agree with the noble Lord, Lord Coleraine, that taxation is much too high, but how largely to reduce it I have not yet been able to discover. Therefore, I look forward in hope to greater production and greater prosperity all round to ease the burden, unless we have some miracle regarding defence which enables us greatly to cut defence expenditure. I should like to
  46
  add that I agree with a great deal of what was said by the noble Viscount, Lord Bruce of Melbourne. Perhaps I am not so pessimistic as he is, and later in my remarks I will come to certain aspects of policy which I think have some bearing upon it.
  I was not disappointed with the Budget. For the reasons that the noble Lord, Lord Coleraine, has mentioned, I did not think that any reduction in taxation was likely. We increased our internal consumption in 1953 by £600 million. At a moment when our reserve position is still precarious, and with tremendous pressure in the future towards rising Government expenditure as the Chancellor of the Exchequer made clear, I do not think we could face the risk of reduced taxation. Contrary to a lot of Press opinion, I thought the statement of the Chancellor of the Exchequer an admirable one, and I regard the Economic Survey as about the best of its series. It seems to me that there is little excuse for those who study the Budget speech and the White Papers—not only the Economic Survey, but the other White Papers, too—not understanding the general position of the country.
  The Chancellor of the Exchequer, on the whole, had a good story to tell. No doubt he, and we all, owe a tremendous lot to two things: first, as your Lordships have heard already, to the terms of trade which have made a remarkable difference; and, second, to the remarkable improvement in the whole sterling area balance of payments, which showed a surplus this year of £320 million, as compared with £50 million last year. This was largely due to the restrictions in dollar imports, but it has greatly relieved our position and helped towards the increase in our gold and dollar balances. Also a great improvement, in my opinion, is the important steps that the Government have been able to take on perhaps a long road towards full convertibility. I regard this as the most important question of all, and I am very glad that we have been able to take these steps. Therefore, when all is said and done about terms of trade, and so on, I feel that we owe much to the prudence and ability of the Chancellor of the Exchequer's conduct of affairs.
  However, when we think of our gold and dollar balances having increased by

  47
  £240 million, we should remember that our own sterling liabilities, mainly to the sterling area, have also increased by £253 million. We have not, therefore, lived up to the ideal of the Chancellor of the Exchequer of increasing our reserves without increasing our sterling liabilities. These increased liabilities arise partly from what I have just mentioned—namely, the improved sterling area surplus—and they also arise from the fact that we have lent the sterling area £158 million in the last year. That £158 million increased our sterling liabilities; the sterling area has freedom to spend money in this country, or, maybe, to get some dollars for them. On the other hand, our own surplus, which your Lordships have already heard was £123 million, if you exclude the United States aid of £102 million, is down by £10 million, and perhaps it is worth mentioning that this small reduction of £10 million in total hides great changes. Taking into account American aid, we have a deficit to the dollar area this year of only £4 million; though if you exclude U.S. aid it comes to something over £100 million. We had a large surplus with the O.E.E.C. countries this year of £104 million, as against a large deficit last year. Our exporters have at least found a way to trade with the European countries more when they trade less elsewhere. They have, in fact, traded less elsewhere, and particularly with the sterling area, where we had a surplus last year of £367 million, as against only £179 million this year. Therefore, I feel that our exporters are to be congratulated on showing a good deal of elasticity in changing their trade.
  What I want to stress particularly is that our external position depends on our internal policy. Your Lordships will find stressed all through the Economic Survey that external necessities have to govern our internal policy. I do not know how many times I have said that to your Lordships in the last few years, but I believe it to be completely true. Internal and external solvency are absolutely intertwined. We have to pay our way, and we have to recognise that this depends on our internal policy; we have to build up our reserves without adding to our liabilities; we have to provide additional capital for the sterling area; and we have to meet our existing external debts,
  48
  which, as the noble Viscount, Lord Bruce of Melbourne, said, are very large—they are not as immediate as they used to be, but they are still very large. All this means more exports; and we have to remember that more exports mean more imports, and that all this means more production—and (this I believe to be the important point) without an equivalent increase in internal consumption. If we merely produce more and consume all the increase away, as we did so largely last year, nothing is gained: we do not have more exports, and our balance of payments is no better.
  I come back to the fact that we require an internal policy suitable to bring about this result. What this internal policy should be is, so far as I can see, one of the great differences of opinion between the policies of the two Parties in this country. The Socialist Party think that it should be brought about by controls. I believe, and hope, that the Conservative Party think that, in the main, the proper monetary policy, plus no doubt other steps if you have to take them, is the policy that is by far the best calculated to bring about the change you require in your internal situation.
  We all agree, no doubt, that we must increase production, and every noble Lord who has spoken has insisted on that point. I will say only this. I do not agree with the mover of this Motion, to whose interesting speech I listened with such pleasure, that it is by employing certain minor classes in this community who are not yet fully employed—the aged, the married women, and so on, that this will be brought about. I think it is to be done by increased output per man by those already employed. As the noble Lord, Lord Coleraine, said, that must be quite practicable. The British workman is as efficient and as hardworking, if he likes, as any other man in the world; and our employers are equally capable. I believe that results in America, Canada, Germany, and so on, show that, with proper capital expenditure and all partners in industry striving to produce more to the best of their capacity, we could easily increase the output a great deal. I suppose that sufficient room might be found for more exports now by severely restricting internal consumption by means of monetary policy. I myself do not think that

  49
  would be desirable, so long as it is possible, as I feel sure it is, to increase our production per man. While a high level of home demand discourages saving and removes incentives towards greater export, too low a level of demand in our country would check expansion in investment and, therefore, would be deleterious. Of course, it may be that external happenings, say, in the United States, might throw all plans awry. I quite agree with the late Chancellor of the Exchequer, Mr. Gaitskell, that it is undoubtedly necessary for European countries and sterling area countries to consider what they might do to co-operate in case a much more severe recession were to take place. But that, I believe, is now unlikely to happen.
  I now come to the point which I wish particularly to stress; and that is the enormous importance, to my mind, of instituting again a proper international monetary system, through the mutual convertibility of the main currencies, in which, of course, sterling must play an absolutely major part; because, as your Lordships all know, 40 per cent. of the trade of the world is still conducted through the means of sterling. To my mind, convertibility is very important from the point of view of the policy which the noble Viscount, Lord Bruce of Melbourne, advocated. You need a stable international currency system particularly for two things. One is to increase multilateral trade, and the other is to make international investment more possible than it is now. It is perfectly true that our little country appears to have an enormous task in paying its way. I think we have to go on exporting nearly half our total industrial production to keep where we are now as regards our balance of payments. That is a very great task. The best way by which our task can be made easier is not by seizing from Germans, Japanese or Americans some part of the trade they have now got, but by increasing the total of international trade.
  We can most easily increase the total of international trade by having a proper international monetary system which would allow also of a freer movement of international investment throughout the world. Why should an American private citizen now invest sums of money abroad? What encourages him to do so? There are countries in which, as soon as
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  he has invested his money, he is told that he is an exploiter. There are other countries whose exchange problems are so great that, shortly after getting his money, they may find they have not the means of paying him interest on it. There are other countries, such as the one formerly ruled by Dr. Mossadeq, where his assets would be just taken away. It is therefore necessary to introduce greater safety in the international world, and to have a stable international monetary system to get much greater private investment abroad. Some of your Lordships may have read the important Randall Commission Report in which this point is stressed very strongly. The Commission also point out that sterling is subject at times to more strain than any other currency, particularly because it is so important a currency and used so widely that, in times of trouble in the world, attacks can be made upon it which are more important, serious and dangerous than attacks upon any other currency.
  A well-founded international monetary system, with sterling as a component part of it, would therefore be of great importance to us in avoiding such speculative movements. This can come about only if we ourselves produce a strong sterling. The Randall Commission put forward a proposal that either we might get support from the International Monetary Fund or that possibly, in some form or another, the United States might give us what are called stand-by credits to support sterling in certain eventualities. My view is that we should not ask for or accept such credits unless we feel sure that we cannot get on without them, except in the extremest of crises. That is, we should never accept credit of this kind with the idea that we will draw on it next year, or in any year, to meet an ordinary deficit on our balance of payments. We must treat it as banks treat their reserves—something in their balance sheet to show that if an earthquake happens, and if everything goes wrong, they still have reserves to be called upon. But in the ordinary course we should accept a credit merely to give the world confidence that sterling has something behind it, even if catastrophes were to happen. Finally, I should like to say that it seems to me that it is on this subject—
  LORD PETHICK-LAWRENCE: If the noble Lord is going away from the

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  question of convertibility, I should like to ask him this question. I do not think he would wish to be misunderstood. He seemed to say that he was in favour of convertibility at once. I do not think he really meant that, but that might follow from what he said. I take him to mean that, though he favours convertibility, and I think most of us do, he would not wish to see it attempted until the right time had come, when it was possible to do it without risk. Is that the noble Lord's view?
  LORD BRAND: My view is that we are not at all ready yet for full convertibility. I have never thought that we were anywhere near ready to return to convertibility within the last few years, and I do not think we are now. To my mind, full convertibility requires that, so to speak, the poor old British can convert as well as foreign countries; that we do not have to go abroad with only £50 in our pockets; that, if other people can buy with sterling every other currency in the world, we can, too. My view is that the world will never believe that sterling is a strong currency until it is strong, for the British as well. So long as the world sees that the British are not allowed to do this and that with their own currency, the world will never believe it is a strong currency. But that is going a long way, because that means that we must be very strong.
  There may be a great many citizens in this country who, if sterling were made fully convertible, in that sense would like to have a few dollars to-morrow and invest a little in the United States. That is because they would not yet trust sterling. But, once we all trust sterling, then we are nearer full convertibility. Therefore, my answer to the noble Lord is that I think that the steps recently taken towards convertibility, as long as we can take them successfully, are very good. It is indeed the case now that most people in the world except the British and the sterling area peoples can now convert sterling into dollars. A Frenchman who has sterling can, I think, perfectly rightly and officially get dollars, and so on.
  LORD WILMOT OF SELMESTON: Does the noble Lord think that the movements in the free exchange rates indicate the truth of what he has just said?
  LORD BRAND: I do not follow the noble Lord.
  LORD WILMOT OF SELMESTON: The noble Lord said that most people except the British people were now converting sterling into dollars.
  LORD BRAND: No—they are able to do so.
  LORD WILMOT OF SELMESTON: I beg the noble Lord's pardon.
  LORD BRAND: They are free to convert and, therefore, if they are legally free and sterling remains strong, they will not bother to convert, unless they have to. That was my point. I do not want to bring a strong Party note into these discussions. I believe, however, that there is a profound difference between the views of the Opposition as to convertibility and its importance and the views of Her Majesty's Government and those who support it. I believe—I may be wrong—that the Labour Party put controls much ahead of convertibility: indeed, that some prominent members of the Labour Party do not accept convertibility as the right aim but would like to keep it as a sort of trap-door or means of escape, would like to keep the possibility of changing the rate, or, in other words, devaluing as a sort of means of escape if their internal policy goes wrong; and that they put internal objectives like full employment and measures to bring about full employment ahead of the objective of a free, stable exchange.
  I, on the other hand, support a free and stable exchange as the best means to full employment and the best means of keeping full employment, because it is likely to help towards the increase of international trade, is likely to increase the flow of capital throughout the world. In that way we shall keep full employment. But I have always understood that experience has proved that a policy of absolutely full employment first is an inflationary policy: that it is difficult to prevent it from being an inflationary policy whatever controls are put on. If so, the Party that supports such a policy might find every now and then that costs in this country were too high. They might not like to take monetary steps to bring those costs down by restrictions, but might find that the easiest way out

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  would be another little devaluation which would carry them through for the time being, and so on. I regard that as a dangerous policy and wholly opposed to the interests of this country compared with the policy of gradually working towards full convertibility with the absolute determination to maintain the value of our currency when we have reached it. I do not say that we might not have a system of exchange variations within small limits, but we must be determined to maintain substantially its value. Only in that way can we get an international monetary system going and any very great improvement in world conditions. Therefore, it alarms me when I see a prominent member of the Socialist Party advocating exchange controls of all kinds to hold things together when Socialists are in power again and not a policy which looks towards the creation of a new stable international monetary system as the first objective for any Government of this country.
  LORD PETHICK - LAWRENCE: Before the noble Lord sits down, may I say, in the interests of this country and of nothing else, I think he is entirely misrepresenting the position. I have never heard any prominent member of the Labour Party oppose the ultimate object of convertibility or advocate a further devaluation. I interrupt to say that only because I think it would be a bad thing if it went out from this House that any such ideas as the noble Lord has put into our mouths were the policy of the Party sitting opposite him.
  LORD BRAND: Of course, I accept the noble Lord's statement. Nevertheless, though I did not want to mention any names, I will say this. If the noble Lord will read again that part of the Challenge to Britain which refers to this question of exchange, the dollar problem, and so on, I do not think he will find the word "convertibility" mentioned. I should have thought that the trend of the argument was against the idea that convertibility was a proper objective. I read the other day an article by Mr. John Strachey in the New Statesman saying that the first thing that any Labour Government must do is to put on the most stringent controls here—apparently something worse than we have ever had—to prevent money from leaving this country, because it was thought, I gather, that the first step
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  of the Socialist Government would be to take more money from the wealthy, and that might lead to money leaving the country. Certainly, Mr. Strachey's whole argument was for complete exchange control. He stated that you could not introduce food rationing again because it would be so unpopular and people would not now stand it, but you could use exchange control. I just give that instance to the noble Lord because I happened to read the article two or three days ago. I am not blaming Mr. Strachey for his opinions. I was asked by the noble Lord why I had been rather alarmed at the trend of Labour policy, and that is the answer.
  5.30 p.m.
  LORD GRANTCHESTER: My Lords, may I add a word of congratulation, which is also a personal one, to the noble Lord, Lord Coleraine, on his maiden speech? We have taken part together in international discussions, and I can say how much his contributions are appreciated, particularly on economic affairs, of which this afternoon he has shown us that he has such a profound knowledge.
  To-day, when the economic situation is discussed we speak chiefly of the need for greater effort, of the need for increased production and of the need for greater incentives, against a background of complicated surveys. On this aspect, the noble Lord, Lord Brand, has spoken with great knowledge and, if I may say so, I think with great wisdom. I should like to go back to a simpler conception of economies, such as the management of a household, especially in money matters. Incentives to-day are often of a curious kind and discriminatory in form. In the older conception, incentives meant money in the pocket of the worker, the producer or the inventor, and the freedom to use it. In the showing of a film we sometimes see the conclusion featured at the start and are then taken through the events which led up to it. May I use the same technique and preface my remarks with the conclusion to which they are directed? I should like to borrow the words for this conclusion from a recent leading article in the Economist—it is as follows:
  "No Budget can be sound that acquiesces in the expenditure by the State of so monstrous a proportion of the national income…. These swollen Budgets will be the downfall of the British community."

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  May I recall just three illustrations which are typical of the way in which I think we have lost our way in a maze? The first is this. I have before me the balance sheet of a typical manufacturer whose engineering products are in demand, both in this country and abroad, provided that the price is kept competitive. Two-thirds of the trading profit is seized in taxation, and in the hope of warding off the evil day of reckoning as a result of such stripping—as a concession, mind you—this company will now qualify for an investment allowance to assist it to recover some of its expenditure on new buildings and machinery for which any responsible business would provide before talking of profits. This concession is represented in some quarters as a "subsidy." The second illustration is this. A man earning as much as £2,200 a year is now regarded as eligible to apply for a grant to enable his child, if considered suitable, to go to a university. The third: what is the burden of the recent Tucker Committee's Report? Surely it is just this: that so much is taken away in taxation that a professional man cannot build up provision for his old age in retirement; so here again, special arrangements should be permitted.
  My Lords, in all these cases, the proposals are but palliatives suggested to try to keep moving an economy which is overburdened with taxation. Worse, they are palliatives applied with discrimination and arbitrarily to sectional interests. Less and less are we treated as equal before the law. Instead of being free to conduct legitimate business within the framework of the law, the same for all, we are more and more at the mercy of precarious and unpredictable conditions. One authority, writing on the new investment allowances, suggests that in the rate there is scope for adjustment from year to year either up or down, according to the fashion at the moment. Is this to be just one more variable with which we have to contend? All these manipulations of to-day (each of which adds to the administrative costs), instead of straightforward reductions in taxation, give me the impression that economists have been called in to "doctor" the economy but have been told that they must not prescribe any "medicine" which costs too much. Analysis, which is the chief function of an economist, must lag behind events;
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  and this is why planning forward on the grand scale breaks down. To make any reliable calculations the number of variables must be few.
  Let us recognise the infinite variety of enterprise and concentrate on attacking the common disease of over-taxation which is threatening destruction by sapping the life-blood of all. Let us commence by making up our minds that expenditure must be equated to taxable capacity. What, in a period which is not a period of active warfare, is the limit of taxable capacity without courting the "downfall" of the community to which the Economist refers? I think that there is general recognition among the authorities who study these matters that it is not more than 25 per cent. of the national income and not more than 50 per cent. of any individual's earned income. In some of the most progressive countries of Europe it is considered a wrongful and oppressive act for the Government to exceed these limits.
  As a further example of the topsy-turvy way of thinking and speaking to which we are being accustomed, I think the words used by the Chancellor of the Exchequer in his broadcast on his Budget, that he had "nothing to give away," stand out. Surely, it is quite undesirable to create an impression that the Exchequer can make presents. Not even the welfare services or the subsidies should be referred to as "gifts." No insurance company would speak of its payments as "gifts," and in so far as the cost is not covered by contributions, the burden of the maintenance of the aged falls upon the work of the young, and payments to the unfortunate upon their more fortunate colleagues. The average manual worker pays out to-day in income tax contributions, rates and taxes on many commodities, a considerable part of his income—possibly about one-fifth. The Chancellor of the Exchequer either takes in taxation or refrains from taking. But the Exchequer is not a mine of largesse.
  While pleading for language which is not misleading, perhaps it is appropriate for us to ask how we value, or to what we attach value, amid all the calls that are made for greater effort and more productivity. I suggest that value is not simply a matter of material conception. I suggest that enjoyment begins—except

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  possibly for the satisfaction that comes from craftsmanship in a job well done—when the necessities of life are secure; when there is shelter, wealth and food. Surely, the overall object of economic policy should be to enable citizens to earn and to keep a surplus over their necessities. This is just one of those simple matters that seem to get overlooked to-day amid the complicated reports of experts. This surplus saved should not be dubbed "luxury," but appreciated as the real basis of all culture.
  Savings are a necessary prerequisite of cultured homes. No people can become or remain cultured without the opportunity of saving and expressing their will or taste in investment, whether this takes the form of building industry, of collecting works of beauty or art, or study and travel, or simply of creative leisure. It is quite wrong, in my opinion, to listen to economists advocating that the State should "mop up" any excess purchasing power of its citizens. Purchasing power in the hands of a thrifty people is investment power, and no people will be thrifty if they are so irresponsibly and dictatorially treated by an oppressive State. It is a question of education in the broadest sense. After all, though there may have been some increase of consumption this year, consumption can go on increasing—at any rate in the matter of things that people eat—only up to a certain point.
  Since the war, millions of pounds' worth of treasures collected by the investment of cultured people have been sold abroad. Are our people to be so occupied by the threat of destruction that all culture is to die? Is life as slaves of an ever-increasing pace of production—into which, apparently, the noble Lord, Lord Pethick-Lawrence would bring more married people and more old people—an alternative worth while, particularly when it is problematical whether the risk of destruction is not increased rather than diminished by State expenditure on such a scale, at any rate after a certain point has been reached? I know that it is difficult to determine the point at which defence provokes retaliation. The noble Marquess the Leader of this House put this question in a recent debate to the right reverend Prelate the Lord Bishop of Chichester. I am not going to be bold enough to suggest that possibly
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  this point is reached when over-taxation makes cultured life, as I have defined it, impossible. I ask, therefore, for a policy to be directed, and serious thought to be given, to limiting expenditure to the revenue produced, within the limits to which I have already referred. Only so can money be kept sound, as we have already heard. I am sure that everyone in this country sincerely hopes that the Conference now meeting in Geneva will provide an impetus in the direction of lower expenditure.
  I conclude, my Lords, as I started: that we cannot continue to acquiesce in the expenditure by the State of so monstrous a proportion of the national income without courting the downfall of the British community. It is, I claim, in accordance with the traditions handed down to us who sit on these Benches to press this plea for economy in expenditure with vigour. And I am happy to recall that it was stressed by the noble Viscount, Lord Samuel, in the economic debate last year.
  5.45 p.m.
  LORD ROCHDALE: My Lords, Lord Pethick-Lawrence, early in the course of his speech, as I understood him, said he was going to base his remarks on more team work in industry, improved capital equipment in industry and more workers in industry. I certainly should not disagree with him on those points. In fact, I want to take one of those points—that relating to improved capital equipment in industry—and say one or two things from a rather narrower point of view than that from which the noble Lord spoke. It is rather significant, I think, that in all the debates in another place on the Budget proposals, in the Economic Survey, and in the speeches of practically all noble Lords who have spoken this afternoon in this House, there has been emphasis on the importance of further modernisation and an increased rate of modernisation of industrial equipment in this country. And, of course, in general terms no one could possibly do anything but agree that that is a very important factor. Unless we are constantly searching out new methods, new equipment and new ways of improving productivity, not only in our traditional products but also in the newer products which we are making today, we shall never be able to keep a hold on the export markets that we

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  have; we shall squeeze ourselves out of world markets, both in price and variety, and so far from being able to improve our position we shall be hard pressed to cling on to what we already have. Undoubtedly, in this context, the employment of the most modern machinery can be a major factor here. It is, I suggest, what every producer dreams of; it is a matter of pride with him; he likes to be different from and ahead of his competitors.
  But it would be entirely to misunderstand and to underestimate the problem to think that modern equipment alone, by itself, can of necessity reduce costs and improve productivity. That, I think, is rather the inference one gets from what is sometimes said and from what one reads. In point of fact, I suggest to your Lordships that with the high cost of putting in up-to-date new plant, carrying with it, as it does, very high overhead charges, unless all the relevant factors are also right the installation of this plant could easily result in the opposite effect and bring about an increase of costs. For the successful—that is to say, the profitable—employment of the most modern equipment, a great deal more is called for than the equipment itself. The most important thing here is to make sure that the human side of the equation is right also. To put it in its simplest form, unless everyone connected with the working of a particular new machine understands its possibilities and its limitations and is determined to get the last ounce out of the machine, it may easily not justify the outlay.
  It is easy to say that, and I am not trying merely to shift some of the responsibility for the apparent lack of investment in private industry from owners and management on to operatives, because I readily admit that it is an essential part of good and enlightened management to be able to convince everyone under them that a new method, a new machine, is for the general advantage. Yet, for all that, the operatives themselves and their leaders cannot be absolved from all responsibility for making new methods work. That, I know, is sometimes asking a great deal, because, as often as not, a new machine must, even if it is only for a short time, create some measure of redundancy It may be only temporary
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  redundancy, but it is there. To my mind, it is therefore encouraging to realise—and I hope noble Lords opposite will agree with me on this point—that there are a number of enlightened trade union leaders who realise their responsibilities and are trying, in their own way, to put this doctrine into effect. In my opinion, it will be their own salvation in the long run.
  It must be remembered—and it is sometimes overlooked—that the rate at which a firm can increase its capital investment depends not merely on the availability of financial resources (about which I want to say something very briefly in a moment) but equally—and perhaps more than ever so, the more complex the machinery—on the resources in the way of management and technological experience that can be made available to operate that new equipment. There will be occasions when decisions as to whether one is to go ahead with some new project will be comparatively easy. On the one hand a board of directors may argue, "We have enough new schemes on hand at the moment which we have not yet fully digested, and therefore we cannot for the present embark on any more." That is a perfectly understandable and often essentially practical and proper point of view to take. One has to remember also that when most of these developments are going ahead, normal production has to be carried out at the same time in order to meet current orders. At other times it may be easy for a firm to see its way to go ahead with-out question with a new project, but I suggest that the most frequent case will be where the decision falls somewhere between those two extremes, where the way ahead is not entirely clear and where there must therefore be some measure of uncertainty and risk associated with it.
  Despite what the public often seem to think about high rates of dividend on nominal capital, I think most manufacturers would agree that the actual margin between profit on the one hand and loss on the other is apt to be very narrow indeed. That is a point that the producer must constantly bear in mind when considering any new development. I am afraid that I come back to the point that every noble Lord has stressed this afternoon—that the high rate of taxation severely limits what the producer can do

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  with his own resources. Although it may not be too difficult to obtain finance from outside—which I believe to be broadly the case to-day—he certainly thinks twice before burdening himself with extra overheads. I believe that that applies particularly to smaller industrial concerns. They hesitate very much to seek new capital when they do not quite know where it will lead them. If the project for which the new capital is required is successful and the firm makes a profit, it knows that a good deal of it will be taxed away. If the project does not come up to expectations, if it is even perhaps a failure in some respects, that firm is left with a burden that it may well have all its work cut out to sustain. The same is true, I suggest, on the personnel side as on the financial side. Clearly that is not the encouragement that is required if there is to be any startling increase in the present rate of investment. That sort of thing is bound to exert a cautionary influence upon a firm.
  As I understand it, the Chancellor clearly recognises that position, as his new investment allowance shows. I personally welcome it wholeheartedly. Its effect in course of time will, in my view, be much more pronounced than many people have so far given it credit for. It may, indeed, be substantial over the years. Having said that, I am afraid I must say that it can take us only a limited way in the right direction. I hope I shall not be accused of being ungrateful, because, after all, with this year's Budget and last year's Budget, and considering the outstanding improvement in the country's general position over the last two years, we have an immense amount to be grateful for and industry has a great deal to be proud of. Yet, for all that, and following on what I have already said, the thing that would do industry more good than anything else, and something that we must all go on aiming for as hard as we can, is a substantial reduction in overall taxation.
  I may be alone in this view, but I personally regret the continued unwillingness to consider an independent inquiry into Government expenditure. I know that the idea of another Geddes Committee is repugnant in a great many quarters. I know also that considerable reduction in staffs has already been achieved by Her Majesty's Government and I have every
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  reason to suppose that the Government will continue to press for reductions and savings as much as they can. But I very much doubt whether that process, even if it were taken to its ultimate extreme, would give the sort of reduction in taxation that is called for. I do not think it would. One has only to look at the overall items of expenditure—so much on the National Debt; Defence Services, £1,700 million; National Insurance and Pensions, £340 million, and so on, without quoting all the figures—to see that, as things are to-day, there is a limit to what can be saved merely by improving the efficiency of Government Departments. Without a marked improvement in international relations, and therefore a reduction in the needs of defence, I find it difficult to see any alternative, unless there is a change in public opinion on many domestic matters, a change that would question far more critically the need for all the services that the Government of the day is required to provide in these times, and a change that would also compel every one of us to ask ourselves far more searchingly, "Am I making my contribution to greater productivity?"
  If we are to get out of our difficulties, I find it difficult to see how we can avoid some such change of public opinion as that, and I can only hope that it comes sooner and naturally, as a result of increased national wisdom, rather than that it should be forced on us at the last moment as a step to avoid a crisis. To sum up on that point, I fail to see how there can be any major increase in the present rate of investment in private industry—which, after all, is by no means inconsiderable as it is to-day—unless there is a substantial cut in taxation.
  Some people have argued—not in your Lordships' House this afternoon—that that is a good argument for further nationalisation. They have maintained that it is a good argument for comparison between nationalised and private industry. I suggest that that would be altogether to misunderstand the nature of the problem. In the first place, I do not think that one could argue that because so much new investment has gone into nationalised industry private industry has not been pulling its weight. One has to consider the type of industry, whether it is heavy or light industry, mining or

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  transport. One has to realise that development in some industries calls for immensely more expenditure in relation to the number of those employed than in other industries. Perhaps the most important factor is that, whereas in private industry every piece of expenditure has to be critically examined to see whether it will make a proper contribution to greater productivity and lower costs, with nationalised industries I do not think the need is quite so pressing.
  Obviously, investment in nationalised industry is intended to increase productivity, but I suggest that the distinction between what is desirable and what is strictly necessary is not quite so clear-cut, and there is not quite the same compelling necessity as in private industry; so that if some project does not work out quite as was hoped, with nationalised industries, being for the most part monopolies, charges, as we all know, can be put up and the public can be made to bear them. I would hazard a guess—and I can put this only as a guess, because I cannot see how it could possibly be calculated—that if the extra productivity arising from investment in private industry were compared with that in nationalised industry, pound for pound, the answer would be heavily in favour of the private section.
  It has been asked, "If there can be so much more investment in the United States why not in this country?" That is a very pertinent question, and not an easy one to which to give a concise answer. They have high taxation, though not quite so high as ours—at any rate, not so high from industry's point of view. They certainly manage to put aside more than we do by way of saving. Undoubtedly the reports of the teams which went over to the United States show that there is a great deal we can learn from American industry. But never let it be forgotten that American industry has learned a great deal from industry in this country, and I believe that in some respects it still is doing so. I think that the comparison between industry in America and in this country can be taken too far. Certainly, we should never try to make ourselves a replica of American industry. Our tastes at home are different; our markets at home and overseas are different and more varied; our skill is different, so that there
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  are a great many factors to be considered if we are really to compare like with like. In many respects we are far from being uncompetitive. But, for all that, I readily admit that there is a great deal we can still learn from America industry. The more ideas we can borrow from the other side of the Atlantic, and the more we can do to mould them to our conditions and our outlook, the better. I certainly do not want to appear complacent—there is always plenty of room for improvement in any factory—but, taking things as they are and the conditions under which it has to work, I do not think that private industry has very much to be ashamed of to-day.
  May I take one final point? Although in industry there is nothing like the same number of private firms as there used to be, let us not forget that British industry was built up by private firms. There is still a number in existence to-day, but that number is dwindling. I feel that the Chancellor of the Exchequer has done a very good deed in putting forward the proposed reliefs he intends to give to private companies in regard to estate duty. Although this concession should go a long way towards stopping the gradual extinction of private companies, it will do something more immediately. Knowing that on his death substantial duties will have to be paid, the owner of a private company will of necessity tend to conserve such liquid financial resources as he may have, so that these resources may be available for his descendants to meet the payment of death duties, rather than, as he ought to do, invest them now in modern equipment and other forms of development. Therefore, in making this concession the Chancellor should be regarded not in any way as favouring one particular class, and doing it at the expense of some other classes, but as taking an important practical step again in the interest of greater productivity. For some years many of us have been drawing attention to this difficult matter and the Chancellor is to be warmly congratulated on the step he proposes to take.
  I hope that I have not seemed either complacent or pessimistic about the trend of further investment in private industry. I think there is no justification for being complacent and no need to be unduly

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  pessimistic. Last year's Budget concessions have hardly begun to have their effect yet, and when we add to these the two important concessions to which. I have referred—the investment allowance and the concession on estate duty to private companies—I believe they will have a substantial effect. Thanks to the joint efforts of industry generally and of Her Majesty's Government, we are moving steadily along the right road to greater productivity. Whether we are moving fast enough is another matter—many people do not think we are. But, as I said earlier, I doubt whether we can really move much faster than we are moving now without a substantial change in public opinion, which in turn would have its repercussions on overall taxation.
  6.8 p.m.
  THE EARL OF PERTH: My Lords, about a year ago, in a previous economic debate, I spoke on the importance of savings and the need to increase them. I make no apology for referring to this subject again to-day. I believe it is of the greatest importance. I am encouraged in this by the references made by noble Lords this afternoon to the importance of savings. Since our last debate we have had the Report on National Income and Expenditure. I have not read all its 100 pages or studied all its tables, but I have read with some care several articles about it, particularly one in the Economist which referred to the savings and what the figures show. They have shown one rather striking thing: that over the last seven years it is doubtful whether the savings have been sufficient to provide for the overall wear and tear in this country, let alone sufficient to help the Commonwealth. In the earlier years under review this was due to the lack of savings, particularly to the lack of personal savings. The Economic Survey for 1954 shows a somewhat better picture for last year. There is a most encouraging increase in the amount of personal savings, but the figure is what is known as a balancing figure; it is put in to square accounts. It is not a certainty, or really as great as appears, nor is its composition known in any detail. I think the most that can be said about it is that it shows the right trend. To me, it is rather a disconcerting thing that there is this uncertainty to-day about such an important figure—namely, the figure of savings.
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  The Chancellor of the Exchequer, when he made the concession on investment allowances, undoubtedly did something to help the savings for industrial re-equipment, but I wonder whether he might not have gone even further and made some tax remission to the individual, if he could have been certain that a large part of it would have gone not into personal spending but into personal saving. If the right honourable gentleman could have had that hope or knowledge, I believe it would not only have encouraged him to do this, but clearly it would have helped a great deal in relation to the balance of trade. The balance which is used up by greater purchases by the individual would be used up to a less extent, and, therefore the Chancellor of the Exchequer could have faced the remission with more equanimity.
  I have lately returned from a six weeks' visit to the United States of America, and one of the things that impressed me most when I was there was the immense effort that is being made throughout that country to get the individual, the ordinary working man, to buy stocks and shares. It may be useful if I give your Lordships a few figures of what has been achieved by that effort. There is in America a movement known as the Open-ended Trust Movement. That movement is of relatively recent origin, but to-day it has achieved a figure of four billion dollars, or an increase of sevenfold in the last ten years; and, what is perhaps more important, the number of people who are investors in that movement is 1,600,000. In this country we have an open-ended movement in a slightly different form which was started before the war, but I doubt whether the whole movement is equal to the biggest American open-ended trust, or indeed is half its size. It is only in the last year or two that this open-ended movement in this country, or unit trusts, have been allowed to try to sell again. I am equally sure that the number of people who have investments in that movement is very small indeed. Take another example, a company like the American Telephone and Telegraph Company which has 1,500,000 shareholders; or another big American company, like General Motors, which has 500,000 share-

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  holders. None of our companies, not even the biggest, has 250,000 shareholders. The Americans set out to sell stocks and shares to the ordinary working man in the same way as they try and sell a branded product or a motor-car. Their various methods are most ingenious and, as I have indicated, they have been most successful. Of course, all of this helps immensely in the provision of the sinews to industry.
  I hope that I have given enough examples of what is being done in America to make us wonder whether there is not something on the same lines that we could do in this country. Our National Savings Movement is the equal of that of any other country in the world, as are our insurance movement and our building societies; but in getting the ordinary man to invest in stocks and shares we fall far behind America. I suggest that that is one of the things to which we should really devote our attention. I have in mind the Anglo-American productivity teams which have been so successful over the last years in getting the Americans and the British to exchange ideas on how to increase production, and I am wondering whether something similar should not be attempted by sending a team to America to study the question about which I am now speaking. That team should be composed, as were the other teams, of a foreman, a worker and an employer. But the important thing is that the average man should understand and see what he can do to buy stocks and shares.
  Further, I believe that the team would discover that there is a lot to be learned about the way the Americans encourage their employees to invest in their company. I believe that one of the best things we could have would be a worker who was directly interested in his company. I hope that the suggestion of a working team going to America to study this question will be carefully considered. It is not a Party question. I remember that one of the most eminent members of the Labour Party said that, whatever might happen, private industry must provide about 70 or 80 per cent. of the total of the country. Last year when I spoke I suggested a Working Party to study the whole question of savings. This time, the results
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  of the last year make it a little less necessary. I only hope that this further suggestion I put forward, of sending a team over to America on the same basis as the Anglo-American productivity teams, will not suffer the same fate.
  6.18 p.m.
  LORD BARNBY: My Lords, the noble Lord who initiated this debate will have a real sense of satisfaction, because it has brought out some notable contributions from authorities of national note, like the noble Viscount, Lord Bruce of Melbourne, the noble Lord, Lord Coleraine, and the noble Lord, Lord Brand; and we have just listened to an interesting speech regarding savings from the noble Earl, Lord Perth, who is an acknowledged student of that subject. In that atmosphere it is difficult for a humble industrialist to venture to intervene, but at least I have been preceded by my noble friend Lord Rochdale, who speaks with his authority as Chairman of the National Association of Manufacturers. Like the noble Earl, Lord Perth, I have just returned from three months in North America, and while there I was able to view the scene from a different angle from that which one does when one is in this country. It is to the liberalisation of trade with the United States that I propose particularly to address myself in my remarks this evening. At the Sydney Conference in the early part of this year, following earlier Commonwealth Conferences, great emphasis was placed on the need for action by the United States towards helping the balance of trade, particularly of this country. I have read into a good many of these statements by eminent speakers, on both sides of the Atlantic, not only a hope but also some expectation that it would occur in the reasonably near future. It is because I have a doubt about that that I venture to impose a word of warning, following the warning which was given with such emphasis by the noble Viscount, Lord Bruce of Melbourne, who has several times before warned his hearers, both in this House and in the country.
  I spent some time in the Senate and had the privilege, as others of your Lordships would if you were there, of speaking with a good many of the Senators and chairmen of a good many of the Committees, including Senator

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  Millikin, Chairman of the Finance Committee, Senator Wiley, Chairman of the Foreign Affairs Committee, and Senator Saltonstall of the Armed Forces Committee. Anybody who goes there will realise the regrettable division in the ranks of the Republican Party. Events of national importance have occurred in the recent past which have produced bitterness and a situation in which it will be quite difficult for the Administration to get legislation through—certainly not without the assistance of the Opposition, that is, the Democratic Party. We in this country are inclined to forget the importance of the Senate and the relationship of the Senate to the House of Representatives. In the eyes of the average Parliamentarian it is rather similar to the importance of this House with the Commons. May I remind your Lordships that in the Senate lies the treaty-making power and the financial control of the United States; it is in the Upper Chamber that great powers lie. It is because of that division that those best qualified to speak as public relations counsel, as well as the political representatives in Washington, feel grave doubts whether the recommendation of the Commission on Foreign Economic Policy, known as the Randall Commission, has much likelihood of passing. If it does, your Lordships will remember that the President has emphasised that it will be only after the normal hearings, and the escape clauses will remain. It is an illusion to think that, if tariffs were appreciably reduced and the United States then suffered from a recession—though, like others, I believe that is unlikely—it would not inevitably bring a demand on Capitol Hill for Congress to address itself to correct that.
  There is another angle to that matter which I would mention. It is the effect on the Senate of the speeches of colleagues of the noble Lords opposite, not necessarily made in this House but certainly in another place and in the country, which exasperate American opinion. There appears to be an inclination to put prejudice and Party ahead of national interest, and an attempt to sow dissension between the United States and Great Britain. That is all duly emphasised on the minds of Senators, and it is my conviction, having returned so recently from there, that great disservice is being done to this
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  country's interest by these attacks, surreptitious in character perhaps, but intended to be open attacks on the United States. Whether we like it or not, hateful as are the methods employed by Senator McCarthy—although there is probably not 50 per cent. support for him, either in the Senate or throughout the country—it is this support of McCarthy in the United States, this particular emphasis, that is lessening the chances of support in the Senate to the Administration for any proposals which may implement the aims of the Randall Commission. That is why I have ventured to introduce what might be considered a contentious note of foreign policy into an economic debate.
  I would turn just for a moment to G.A.T.T., because I am among those supporters of the Government who are heretic in this matter. I do not believe in G.A.T.T. What greater illustration of its effect could we have than the admission from the noble Viscount the Chancellor of the Duchy of Lancaster this afternoon, when he said that the Government appear to feel themselves powerless to correct a situation in one industry in this country and that they are unable to protect organised labour in this country from the effects of competition from low cost labour in other counties? I believe that Members on the other side will admit that they are going to protest against the imperilment of their living by workers of low cost countries. Let us remember that in other parts of the Dominions—Canada, for instance—where wages are three times as high as in this country, it has exactly the same effect on them as it has for us against Japan.
  Several references have been made to productivity councils. I would appeal to the noble Lord the mover of this Motion. In many industries where there is, or should be, high capital expenditure, it is inescapable, if we wish to have this high output that there is in the United States, that we must run multiple shifts. This is a matter where the noble Lord can bring a light to his colleagues, because organised labour resolutely opposes any digression from single-shift operation and will not agree to any overtime. We need no instruction from the United States as to how to increase our productivity—and the noble Lord, Lord Wilmot of Selmeston, is well aware of what I have in mind.
  LORD WILMOT OF SELMESTON: Which industry has the noble Lord in mind?
  LORD BARNBY: The one in which the noble Lord is much interested as the head of a large concern—and it is quite exhilarating to find there should be such a man sitting on those Benches: I refer to the wool textile industry. The noble Lord, Lord Pethick-Lawrence, referred to the employment of married women. I would remind him that one industry to which the noble Lord, Lord Wilmot of Selmeston, has drawn attention employs married women on a very large scale. When an appeal is made for overseas investments, I hope that the noble Lord, when he has occasion to influence his colleagues, will ensure that they give support to what I hope the Chancellor of the Exchequer will see grounds for putting into effect next year. I am sure that this matter will receive the attention of the noble Earl who is to reply to-day, though, of course, I do not expect he can make any comment on it. As regards overseas investment—that is, the enterprise of firms in developing overseas branches—at some point in our national policy there should be relief in taxation, so that encouragement is given to development of industries overseas. If we take the whole history of the evolution of industry in the United States, we find that individuals went out from this country, built up big businesses, and, when taxation was low, were encouraged to emigrate and spend their lives abroad and bring back capital to this country to fertilise industry in this country and to develop our rate of advancement. Let us hope that at some point both Parties will be in agreement that means should be found for such encouragement to enterprise abroad.
  6.31 p.m.
  LORD CALVERLEY: My Lords, I want to say first how grateful I am to my noble friend Lord Pethick-Lawrence for initiating this debate. Except for two minutes, I have listened to every word of it. I am always ready to sit at his feet and try to learn something. I was vastly interested in the remarks of the noble Lord, Lord Barnby, because he was talking nonsense when he was referring to the conditions of labour in the woollen and worsted textile industry in the West Riding. Everybody who knows
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  anything, who is not wandering over the earth but living on the spot, must realise that there has never been better understanding between management, directorate and what we call the operatives, of which I was one.
  LORD BARNBY: I must interrupt the noble Lord. He and I are accustomed to political controversy, having opposed each other in the country. I think he mistook what I said. He credited me with speaking nonsense, but the point I made was that, if high investment were made in new equipment, to operate it efficiently and get low-cost production for export necessitated more than single-shift operation. Hitherto, that has not been the practice in many parts of the woollen textile industry.
  LORD CALVERLEY: All I know is that there is a splendid understanding in the worsted and woollen textile industry. They have been the greatest textile earners in the dollar areas. Therefore, so far as the operatives are concerned, I am not going to accept that from the noble Lord, Lord Barnby, or, indeed, from anybody else in this House.
  LORD BARNBY: I am sorry but I must interrupt the noble Lord again. If he is in doubt about what I am saying, I am prepared to give him figures of two mills, identical in equipment, product and management, situated within fifty miles of each other, where production is 120 per cent. higher in one than it is in the other.
  LORD CALVERLEY: Everything in the garden is not absolutely grand. I am not complacent.
  LORD BARNBY: I thank the noble Lord, I hope he will withdraw the statement that I was speaking nonsense.
  LORD CALVERLEY: I will not withdraw what I have said. I do not want to discuss this at length because I rose really to congratulate a very old friend of mine, Lord Coleraine, on a splendid speech which was, happily, controversial. Therefore, I can reply to him in somewhat the same spirit, a Christian spirit, without what we call in this House "asperity." He said that under the Conservative Government savings went up last year and, I believe, the year before. It does not matter what Government are in

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  power, but actually savings went down below the £6,000 million mark. That is why we had to have a great push, and this year, for four months, National Savings have exceeded the £6,000 million mark.
  I agreed with my noble friend when he said that there was a greater burden of taxation on what he called the "working classes"—we are all workers of one sort or another, but I suppose he meant those who work with their hands—and that is quite true. The noble Lord, Lord Barnby, is indignant with Her Majesty's Government because they refuse to take the control off jute. They do that for a very good reason. Neither Labour nor Conservatives, I imagine, believe in controls for the sake of controls. I say that because it has been mentioned in the debate. I was interested and impressed by the speech of the noble Viscount, Lord Bruce of Melbourne. I was brought up in the sort of economic atmosphere where we were told to preach that if you could put two or three inches on the shirt tail of a Chinaman you would have full employment in this country. That does not "wash" nowadays—at least, I do not think it does. I am not going to fall over myself and trip myself up with admiration of this Budget, but I will express my admiration of this country for accepting greater burdens. I have said before, two or three years ago, that great burdens are borne, not simply in this country but also in the United States of America. I believe that we carry a greater burden of taxation than any other country—at any rate, so far as I know, more than the Americans do.
  Before I sit down, I want to touch upon what the late Lord Simon called the "vicious spiral." Owing to the fact that Her Majesty's Government took off certain controls and subsidies which I, academically, do not like—
  LORD BARNBY: Hear, hear!
  LORD CALVERLEY:—we now have a system where the trade unions are tumbling over each other asking for increases of wages. This vicious spiral is leaving in the lurch those with fixed incomes, and especially those in receipt of perhaps a modest pension, and that is a result of the policy of the Government. I go for the groceries; I have been used to doing it all my life, although that
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  is nothing to boast about. I asked my grocer: "What about butter—it is coming off the ration next Sunday?" He said, "It is nothing of the sort. We grocers are going to be rationed, and those who want more than the four ounces of butter will not be able to get it unless there is a greater increase of supplies." Since Her Majesty's Government took office in 1951, butter has reached the price now of 3s. 8d. a pound, and it is going up again. Another notice that my grocer had on that very day, last Saturday, was with regard to tea. Tea has gone up 4d. a pound. It was 5s. a pound for a lower quality of tea; yesterday, it went up to 5s. 4d. a pound.
  All this means a heavier burden on the small income group. There are only two of us in my family. I asked for some bacon—3s. 6d. a pound. The price of bacon also has increased very much during the lifetime of Her Majesty's Government. I am afraid that the noble Lord, Lord Coleraine, is making me a little controversial now; but that is the truth. These are last Saturday's figures. In my humble opinion sugar is cheap at 7d. a pound. There is no lard. You can have what is called "baking compound," the price of which has been put up to 1s. 8d. You can buy what is called "blended butter" at 3s. 8d. I should like to ask the Ministry of Agriculture what the ingredients are. On Monday next, after May Day, Labour Day, we are going to have margarine which will go up to 1s. 9d.—an increase of 3d. It used to be 1s. when there was a Labour Government. I asked my butcher about meat, either pink or red, and he said, "Well, under Her Majesty's Government we are not being so well looked after as we were when Lord Woolton was Minister of Food." I wish to pay my tribute to Lord Woolton. I asked for some flour. I had to give 1s. 7d. for three pounds of flour. Not so long ago I used to get a stone for that price. In regard to coal I wish that we could impress upon the miners, or rather that small minority of 10 to 20 per cent., who on occasions are voluntary absentees, that the overheads are still the same, but that we have got to the astonishing example whereby the price of coal has risen to £6 a ton.
  That brings me to the real point of what I wanted to talk about—namely, that Her Majesty's Government have left us, not in a vicious spiral but in a vicious

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  circle, wandering round like squirrels in a cage, trying to get the ordinary necessities of life which cannot possibly be obtained in sufficient quantities to keep body and soul alive. That is my pedestrian, domestic standard of economics. I remember that in my younger days Mr. Lloyd George gave us what he called "Ninepence for fourpence." We rather looked that gift horse in the face, with a little suspicion. To-day Her Majesty's Government have not given us ninepence for fourpence; they have given us fourpence for ninepence.
  6.44 p.m.
  VISCOUNT BRIDGEMAN: My Lords, I gladly follow the noble Lord who has just sat down in his congratulations to my noble friend Lord Coleraine for the very wide-ranging and deep-thinking speech which we heard from him. I do so the more gladly when I remember how greatly my father valued his personal and political friendship with my noble friend's father, Mr. Bonar Law, and how proud he was to be a member of the Government of which he was the head.
  I shall not attempt to follow the noble Lords, Lord Calverley or Lord Barnby, in their textile problems, or Lord Calverley in his household budget. But I should like for a few moments to speak in a little more detail on one subject—namely, that of our exports. After all, any improvement in our economic situation can be practically expressed only in an improvement in our exports. Here I must declare an interest, because I am a director and shareholder in more than one firm which manufactures goods for export, principally engineering goods. In the Economic Survey, particularly in Part II, there is a great deal of reading which deals with this problem of exports. I have only one criticism to make of that, and it is not a criticism of matter, but a slight criticism of the manner of presentation. If your Lordships look, for example at paragraph 106 and the surrounding paragraphs of the memorandum, you will see that the whole thing is dealt with soberly and in a restrained manner, as befits the drafting of a Treasury economist; whereas it seems to me that the matters which are dealt with here are so vital for the survival of the nation that they should be printed in the thickest type, and that the boldest
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  language should be used in conveying the sentiments which are expressed.
  I doubt very much whether many people, unless they happen to be actively engaged in the export trade, realise exactly what competition and what difficulties the export trades are up against at the present time. I think one ought to remember that since about the year 1938 no one in this country had had to try to sell any goods against any real competition. That year was the last year when any salesman had to sell anything. After all, in the war the Government told the managements of all the essential industries what they had to make, and they offered essential industries a price based on cost-plus. So at that time the managing directors and the sales executives had plenty of time for activities like the Home Guard and Civil Defence; the real business went on between the Supply Departments and the works manager of the firm, and it did not matter what a thing cost, so long as it was delivered at the right time. Of course that was the way to win the war, but it is not the way to win the peace.
  After the war, things still did not settle down because industries were faced with the pent-up demand which resulted from people's inability to buy things or to get them shipped because of the war. Under those conditions, people would pay almost any price, however large, and accept almost any delivery, however bad. For that reason, the cost of production still did not come into the matter at all and the works managers, unless they were particularly good, were able to carry on with the old bad habits which they had formed in war time, working on the basis that, whatever it cost them to produce the goods, someone would buy them and no one would have to work very hard to sell them. So, throughout the period of the late Government and the earlier years of the present Government, there were constant price increases in goods caused by inflation. Those price increases were usually passed on to the customers, and because of the pent-up demand, the customers paid up; and the salesman's job was still not the business of persuading a customer to buy something that the firm wanted to sell, but to tell the customer what he could not have and why he could not have it.
  So, my Lords, until quite recently this business of foreign competition did not

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  appear in the way that one might have expected—in fact, it appeared two years later than one might have anticipated. Owing to various happenings in foreign policy, with which I do not wish to deal to-night, German and Japanese competition was about two years later in appearing than it would have been, had organisations like N.A.T.O. and the European Defence Community been treated rather differently. So it appears now, and world competition has begun in full blast, just at the time when, in the engineering industries at any rate, the steel shortage which we had between three years and eighteen months ago was felt to its full extent by the industries that use steel. About two years ago—about the time that Lord Pethick-Lawrence I think had in mind when he was making his speech—we had a state of affairs where British industry had been very much disturbed and deranged, to put it mildly, by the steel shortage; and it got a bad name throughout the world, not entirely through the fault of the manufacturers, for price increases and bad delivery. That was the state of affairs when German and Japanese competition began to be felt to the full. I do not think it would be fair to give the manufacturing industries themselves the full blame for that state of affairs. They themselves were not responsible for the shortage of steel. And the steel makers will not quote fixed prices, which makes it difficult for the manufacturing industries which use steel to quote fixed prices to their customers.
  I expect that the state of affairs was not fully realised by the general public, not even by many people in commerce and business, until the end of last year, when the Indian Government put out a large inquiry for over 500 locomotives, and it was found that the orders for every one of those locomotives went to a foreign maker. I happened to be in India at the time, and I went to call on some of the people who had given the orders to those foreign makers. I read accounts of the matter in this country, and one of the things I was unable to understand was why anyone who knew anything about this should for a moment have been surprised at what had happened. There was nothing in it to surprise me at all. Anyone could have foreseen that this would happen. Anyone could have foreseen that Continental
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  manufacturers, with empty order books when we had full ones—leaving aside the question of price altogether—started with from twelve months to eighteen months advantage on delivery alone. It was not surprising that foreign buyers were attracted by having the chance of such favourable deliveries from firms on the Continent or in Japan. But that is not a situation which is likely to last. As the order books of our competitors fill up, so the position of order books throughout the world will be evened up, and we shall be back again to competing solely on price—which is what we have to do.
  Then, as everyone knows, we have been living in a period of annual wage increases. Of course, this has meant rising costs. And we have been indulging (I think "indulging" is the right word) in these wage increases and rising costs, quite regardless of what the effect will be. And the effect will be to price us out of world markets unless every increase of wages is represented—as so many noble Lords have said to-day that it must be—by an increase in productivity. But let it be plain that, if we go on as we have been going on for the last year or two, with increased wages and rising costs without increasing productivity, then no fresh orders will come on to the books of exporting firms in this country; and before long we shall have unemployment and all the other things which belong to what we have been calling the "bad old days." Those are things which we are trying to avoid now, and we certainly can avoid them.
  For that reason I am certain that the general policy of the Budget is right, because we simply cannot afford these increases in costs of production—indeed, I doubt very much whether we can maintain our position as exporters unless we lower our costs. So I heartily welcome the tax rebate on new plant and buildings announced in the Budget. I am content to wait for details until the Finance Bill has been through another place. Generally speaking, I am certain it will encourage a very large number of people who own factories to go ahead with the new buildings and new machinery which they require. To-day, clearly, any steps of this sort have to be properly conceived; they cannot be taken in a hurry, for this will need a certain amount of time to bring to fruition. It will have

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  this great advantage which I think anyone will appreciate who has ever tried to cope with a company's balance sheet: one can finance improvements of this kind out of internal reserves, which is the proper way, instead of having to go outside and borrow new money from investors and bankers and then having to pay interest charges in an uncertain world. So I feel certain that the Chancellor of the Exchequer's offer, or rather his present to industry of these tax rebates of 20 per cent. on machinery and 10 per cent. on buildings will be very largely taken up. I certainly hope it will.
  But, when talking about that matter, one must again mention something which has been said several times already in your Lordships' House to-day. Any change, any improvement, in technique in a shop is certain to give rise to some problem or other which affects the working of the shop and the attitude of the unions. Any change, for example—it is a common one these days—from riveting to welding, is bound to have its repercussions. And the same applies to the introduction of semi-automatic machinery. I am not putting up these difficulties as something real, for I am certain that they can be overcome. They can be overcome if good sense is shown on both sides and if both sides, having paid lip-service to increase of productivity as an abstract thing, then pay equal tribute to the increase of the productivity in that particular works as a concrete thing, with the result of a lowering of costs.
  Let us suppose that the export industries have got their orders; let us suppose that their prices have been competitive, their delivery is good and their salesmanship has recovered its expert quality. We are still not yet out of the wood, because in these days we have to get paid. When talking about finance, as some of us have been doing, we must realise that what really seems to be wanted is not so much finance of the manufacturer as finance of the debtor. In the heavy industries, as we know, a large proportion of orders—certainly for capital goods, such as locomotives or railway material generally—are orders placed by foreign Governments or corporations under the control of foreign Governments. In these days, these orders have to be sought from foreign Governments. Some of us may have to rub our eyes in order to remember that
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  orders from South America have to be got by people going out to South America and selling in competition with the Germans and Japanese and people of that sort. The days are long past when orders for South America could be had by standing hat in hand outside the board room in River Plate House, waiting for the director to come out for lunch.
  By no means all the foreign Governments which want capital goods at the moment are good payers. Many South American nations are not good payers. Our friends the Turks we hope will soon gain better marks in that class. None the less, these are markets which, in principle, we want, and shall need to have if we are going to keep up the export trade of our heavy industries. Therefore we have to compete for those orders, and we may have to agree to onerous terms of payment, because, as I have said, foreign Governments are not all good payers. Often the supplier to foreign Governments is really in the same position as I was once told the tailors and the bootmakers of St. James's used to be when the young men of fashion never paid their accounts but remembered these tradesmen only in their wills. Now we are being asked in this country to accept very extended terms of payment. We are told that other countries do it. After all, one remembers the devices which the Germans had under Dr. Schacht between the wars. Do not let us forget that Dr. Schacht—at least, so far as I know—though he has no official position in Germany at the present time, has, in fact, survived Nuremberg and is now travelling round the world.
  Other Governments are undoubtedly giving incentives to their own manufacturers. It is rather hard to find out exactly what they are, but in sum total they certainly add up to considerable incentives in the way of tax rebates or allowances of one kind or another. I see in the papers of April 7 that there is a move to try and obtain a "half-holiday" in that matter. Nothing could be more welcome to the British exporter, on one condition, and that is that the "half-holiday" is arranged in such a way that we all start equal. I hope we shall not see this country passing a self-denying ordinance not to assist manufacturers while allowing other countries to do so.

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  I hardly think that that would assist our export industry. When supplying things, it is very cold comfort to have to lose an order on payment terms because the best terms to be got are so long-dated that the Export Credits Guarantee Department cannot cover the transaction.
  May I therefore say a word about the Export Credits Guarantee Department—or rather may I say two words: first, about the operation of Part I, which is the ordinary credits, and secondly, about Part II. So far as Part I, credit arrangements for ordinary transactions, is concerned, I would say from my own experience that the Department deserves nothing but great praise. I am sure that many others who have anything to do with them would agree with that. When we get to Part II, however, we are not in quite the same position. That part deals with political credits, and the Export Credits Guarantee Department, if I understand the matter aright, are only the agents in the matter, the principals being the Chancellor of the Exchequer and the people in the Treasury. Although one does not like to say so, my feeling is that more and more it is impossible to obtain important orders for capital goods except on Part II terms. If Part II terms are not made to fit the world situation at the present time, we shall lose a certain number of orders. When I say that, I have good reason for thinking that the matter is fully realised. I feel, however, that this position will extend, and although one does not like giving political credits when the matter can be dealt with on a straight consumer basis, as I have said, the customers are foreign Governments and the operation of Part II of the Export Credits Scheme will, in practice, have a great effect on our success or failure in obtaining orders.
  To sum it up, I would say this. I am sure that we can improve our manufacturing procedure and that we can cut costs. I am sure that we can recapture the art of salesmanship, which I believe has been partially lost. Some firms have already set a most magnificent lead. But it will not do any good to improve our salesmanship unless we are in a position to quote fixed prices and deliveries, and we cannot quote fixed prices so long as we have a continuation of the rise in this country of wages and prices without any serious attempt—and I put it like that—
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  to increase productivity accordingly. Unless we can meet this situation, as the noble Viscount, Lord Bruce of Melbourne, has said, our competitors and not we ourselves will be getting the orders and we shall be having unemployment. So this is the moment for courage and energy, which we have, but certainly no time for wishful thinking, which we have to avoid. If we are to avoid wishful thinking then management, labour and Whitehall must do everything they can to see the facts of world trade as they really are.
  7.4 p.m.
  LORD MELCHETT: My Lords, with your Lordships' permission, I should like to draw attention to just one aspect of the economic problems which beset us at the present time—that is, the question of the supply of food and the balance between the amount which is imported and the amount which we produce in this country. Although this is only one part of a many-sided problem, it is so fundamental that all our efforts to balance our international trade and to restore the value of sterling can be set at naught unless we pursue a sound policy in this respect. If there is any need to emphasise the importance of the supply of food in relation to other operations of the economy, it is necessary only to examine the figures in the Economic Survey for this year to see that last year, out of all the foreign exchange that we earned from exports and re-exports, nearly half was spent on importing food. And after allowing for adjustments on the account for freight, insurance and other items, the cost of our imported food amounted to just under half of the total costs of all our imports. Therefore, in considering the question of food supplies, we are dealing with half of the whole of our balance of payments problem.
  In the White Paper we are told that we cannot, in the long run, depend on the balance in the terms of trade remaining as favourable as at the present time, and several of your Lordships who have spoken this afternoon seem to have endorsed that view. But in the very next paragraph we see that even in the present exceptionally favourable circumstances, due to the enormous increase in the volume of food imports last year, the cost increased by about £100 million. The

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  worsening in terms of trade, even if it arose from a decrease in export prices rather than from an increase in the price of imported foods, could nevertheless make the burden of buying our food from abroad, which is running at a level of about £1,320 million a year, almost impossible to deal with.
  With this background it is most disturbing to see the trend which has developed during the past year in our policy towards the production of food in this country. A turn has been made away from expansion. Production targets have been postponed for two or three years, and the effort is now being directed towards reducing the cost to the Exchequer by bringing production costs more into line with world prices. The result may very well be that we shall be able only to maintain the present level of agricultural output and not to extend it—indeed, before long we may have to face up to a contraction in output of certain commodities, and there is already talk of such contraction within the agricultural industry itself. In any case, the full result or effect of the present modifications in policy towards our agricultural industry will not be apparent for probably two or three years, and if we do have a drop in output it will then take at least another two or three years to reverse the process, and that will involve us once again in enormous expenditure.
  The point I wish to try and put to your Lordships is this. Surely the only reason for risking a policy which may make us more dependent on importing food, or even maintaining our present dependence on the importing of food from abroad, can rest only on our being certain that we can buy our food more cheaply at the present time, and on our confidence in being able to get it cheaply and in sufficient quantity in four or five years' time. On the question of price, it seems to be largely agreed that at the moment world prices of food are below the prices we guarantee to farmers in this country. But is this really true? So long as the pound is protected by exchange controls and import restrictions it must be over-valued, and I submit that it is not permissible to translate international prices of food into terms of sterling at the present official rate. If we allowed free international trade and
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  maintained a solvent balance of payments position, the value of the pound would certainly be reduced. In these circumstances, it is quite possible that the level of agricultural prices that are guaranteed in this country would be no higher than the prices we should have to pay for similar imported commodities.
  Moreover, there is no doubt that the value of the pound is dependent, to a certain extent, on the high level of agricultural output in this country; and if we tried to import more of the so-called "cheap foods" available in the world markets, it would increase the strain on our available foreign exchange, and in the end could result in the price of all imports becoming more expensive. Indeed, it may well be true that during the last year, or even over a longer period than that, it has been possible to maintain the rate of 2·8 dollars to the pound only because of the high level of food production in this country, achieved by paying prices to farmers which appear to be much higher than world prices. I submit that possibly these prices are only apparently much higher, and that in fact the price difference may not exist at all, or is only very slight.
  Before we abandon this position by trying to relate our home agricultural costs to so-called world prices, which are viewed through an artificial exchange rate, and thus possibly reduce or prevent the further expansion of food production in this country, surely there are many vital points which should be considered. For instance, we buy nearly one-quarter of all the grain that is offered in the world markets. If, as a result of decreasing our own production and attempting to buy more at the attractive prices which are offered, we seriously increased the demand on the world market, we might well put the price up against ourselves. That would have serious repercussions, because nearly all livestock production in this country, which forms an important part of our diet, depends on imported feeding-stuffs, and the danger of putting up the prices of feeding-stuffs, as well as of grains for human consumption, would be very great.
  I do not want to detain your Lordships, but there seems to be one other vital point in this connection. A large number of countries from which we import food are themselves subsidising their own

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  farmers. This is particularly the case in some countries in the Middle East, and, of course, in the Americas. It appears that many commodities are being landed here at prices which only just cover the cost of production in the countries of origin. It seems to me that we must consider very carefully whether some of these countries will be able to continue to maintain these heavy subsidies on their own food production from which we are now benefiting. If they are not able to do so, or if the subsidies are reduced, the volume of production will go down and in any case the prices will go up.
  In making our long-term plans, are we really going to ignore the warnings of such eminent Members of your Lordships' House as the noble Lord, Lord Boyd-Orr, about the expanding world population and the increasing demand for food which we can expect in years to come? I know that it is not a fashionable argument to-day, but have the facts changed since the crisis of 1947, and the years just after when such enormous weight was given to that argument? Certainly at the present time there are many countries in the Middle East which are exporting surpluses of grain to us but which, with the present trend of development, will probably have no surpluses at all in about ten years' time. There seems to be considerable confusion about this whole question of the price and supply of food to this country. As I have tried to point out, there may not be the great difference which is apparent between the costs of importation and production in this country. I am very much afraid that we may forfeit our long-term future by trying to take advantage of immediate expedients, and I would urge Her Majesty's Government to reconsider very carefully their present policy towards the great agricultural industry of this country, because otherwise I think that many of us will live to regret it.
  7.18 p.m.
  LORD RENNELL: My Lords, unfortunately I did not have the advantage of hearing the noble Lord, Lord Pethick-Lawrence, so I am afraid that I do not know whether I would agree or disagree with him. In the past I have frequently found myself in agreement with him, and I sometimes think he has almost been in agreement even with me; but I
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  shall be unable to comment on his remarks. I should like to pick up one point out of the remarks of the noble Lord, Lord Brand, which the noble Lord, Lord Pethick-Lawrence, may find as controversial. Before doing so, I should like to say that I have listened with great interest to Lord Melchett's extremely interesting and thoughtful remarks, not only, on farming in this country but on world agricultural prices generally. I think his speech is a very great contribution to this debate.
  The point I should like to pick up, and bring my remarks back in one of the famous circles to which the noble Lord, Lord Calverley referred, is that of convertibility. I believe that in theory we all have complete convertibility as our objective. Whether the service which is paid to this doctrine in many quarters is only lip service, I am a little more doubtful. I will try to show what I mean. The first thing that I think must be mentioned is the remarkable change which has taken place in the standing and status of sterling in the world, especially in the last twelve months. In many quarters it may not be fully realised what exactly has happened. In point of fact, what has happened is that on the sterling-dollar rate, which is the test, I suppose, of the value of sterling in terms of other currencies generally, not only have we been for some time, practically speaking, at par on the present rate of 2·80, but for some months past sterling has been above par, at what is called the upper gold point, or practically on the upper gold point, at which gold would be imported into this country, other things being equal.
  If I may remind your Lordships of what has happened, it is this. The dollar-sterling official rate bracket is 2·78 to 2·82 dollars to the pound. The actual quotation on the official market last night for sterling was 2·81⅞–2·81 15/16, which is practically on the upper gold point. That in itself is not, perhaps, a remarkable phenomenon. What is much more remarkable is that the various other forms of sterling—transferable sterling, for instance; that is, sterling held by persons outside this country which they can transfer into their own country, including dollars—is at practically the same level; that is to say, it is well over the lower gold point—last night it was 2·79½ dollars. The sterling which is used for buying

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  American securities in this country, in the form which is allowed and has been allowed for some years past, is equally round about the same level, at 2·79 dollars. What is perhaps even more remarkable is that the current rate for dollar notes in this country, and for sterling notes in New York, is practically on the official level, too. That means that all the various forms of sterling, as used in the complicated controlled market in which we are still, are practically at par. As compared with that, substantial discounts existed on these other forms of sterling a year to eighteen months and two years ago.
  The effect of all that is, incidentally, with the various lightening of restrictions that has taken place in the last few months, and indeed in the last few weeks, that any holder of sterling outside the sterling area—and that is an important point which I will come back to in a minute—can use the sterling which he has for practically any purpose he requires, including the conversion of that sterling into dollars or gold, or into other currencies, or use in trading. Therefore, so far as the person outside the sterling area is concerned, to all intents and purposes, subject to some sometimes rather complicated methods of doing it, sterling is convertible—is practically fully convertible. That would appear, and has appeared, to indicate to many persons abroad that we are on the verge of complete convertibility. The meanings of the convertibility of sterling to a person outside the sterling area and complete convertibility are, of course, something quite different.
  I entirely agree with the noble Lord, Lord Brand, and other speakers that complete convertibility, in the sense of a person in this country, such as the noble Lord, Lord Pethick-Lawrence, having the facility to convert his sterling here into dollars, is not with us: it cannot be with us for a long time, I believe, and ought not to be with us for a long time, until certain radical changes have taken place in our economy. The radical changes to a great many people abroad are merely the strengthening of our gold and dollar reserves. But that is only a symptom of what is happening, and does not represent the condition under which convertibility
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  can take place. The condition under which complete convertibility can take place—that is to say, the situation whereby any member of your Lordships' House, or anybody else, can take his sterling and go abroad with it, buy American securities, buy gold, settle in the South of France, or do anything he likes with it—does not depend upon a given size of a gold reserve: it depends upon these and other people having enough confidence in sterling not to wish to do it, and also having enough confidence in this country not to wish to invest their money outside this country; and contrariwise, for other people abroad to have sufficient confidence in this country to wish to invest their money here.
  What are the conditions which are a prerequisite of that happening? They are two, and they remain, to my mind, the principal and, at the present moment, almost insuperable difficulties to convertibility. One is the level of taxation here. Nor will someone overseas wish to invest money in this country if as much of his profit is to be removed from him by the Chancellor of the Exchequer as is the case now. Equally, people in this country who have money to invest will not feel that they should for their own, for their country's and for their descendants' sake invest their money here, where so much of the profit will be removed from them, when they can invest their money in countries where the profit will not be removed from them.
  That takes me to this point: unless there is a reduction in taxation here, I do not believe that complete convertibility can take place. Even if there were a reduction in taxation here, complete convertibility can still not take place, in my view, so long as there is a large body of opinion in this country that proposes to nationalise industries and concerns if they come back into power—and according to certain speakers, whose names will be familiar to the noble Lord, Lord Pethick-Lawrence, to do so without compensation, or even without adequate compensation. Secondly, they will not wish to invest in this country, and some people in this country will prefer to invest their money elsewhere, if they are to be threatened not only with a con-

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  tinuation of the existing level of taxation but with a penal taxation directed against capital and against other forms of investment here. It therefore follows from what I have tried to say that I do not believe, even if our level of productivity was as satisfactory as it ought to be—which as yet it is not—that convertibility can come, so long as there is a latent feeling, both in this country and in other countries, that in certain circumstances taxation, instead of being reduced, might rise, and that property might be nationalised, possibly without adequate compensation. Those are the real obstacles to convertibility, and while the present Government have not seen fit in this Budget, and I think rightly, to reduce taxation on account of both commitments and a certain attitude of mind (about which I want to say a word) I regard the policies advocated by many friends of the noble Lord opposite as being outstandingly the principal obstacle which prevents complete convertibility from being even in sight.
  A great many remarks have been made in your Lordships' House on the subject of productivity, and I would add only one thing. It is only by productivity that we shall get the savings which are necessary to implement the policy so well and thoughtfully outlined by the noble Viscount, Lord Bruce of Melbourne. The question of investment abroad, urgent as it may be, ultimately is dependent on the volume of savings. If there is no money here to invest abroad we cannot invest abroad, whatever our machinery may be. Those savings can come only from more productivity from our given labour force. That productivity is possible. It is possible, as the noble Lord, Lord Coleraine, and others have suggested, that productivity can be improved considerably by allowing the fruits of man's labour to stay with the man who labours instead of removing them and putting them into the Treasury.
  That policy, in its turn, depends mainly on an attitude of mind which seeks not to spend money but to leave money where it has been earned, and not always to have the best but to have what we can afford. I believe that not only in Government Departments and Her Majesty's present Government, but right through the country in local authorities and elsewhere, there is an attitude
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  of mind that believes that we can do only with the best. I believe that that in former years has been a great obstacle in the development and building of houses. We were always trying to build houses that were just a little better than the country could afford. We meet this form of extravagance in local authorities, of which I will give only one example—it is too late to go into the matter in any great detail. In a certain local authority not far from London, there has been voted by the local authority a sum of £2,000, which will reflect itself in the rates, in order to provide heaters for the cars of the officials of that local authority. No doubt it is nice to have a heater in your car in winter, but the question is not whether that local authority can afford it; it is whether it is the type of expenditure that this country can afford.
  We see in every part of England what I believe many of us would regard as outrageous expenditure for the provision of the best possible school, the best possible home and the nicest possible garden. There is an attitude of mind which prevents the reduction of expenditure, and that in its turn creates the difficulties from which the Chancellor of the Exchequer and future Chancellors of the Exchequer do and must suffer. So until that attitude of mind is changed, and until many of the doctrines that are preached by the Socialist Party that "We must have this and must have that" are also changed, we shall go on spending and will have to raise taxation a great deal more than we can afford, thereby removing from the people who work the incentive to work harder in order to save some of that money and spend it themselves.
  THE PAYMASTER GENERAL (THE EARL OF SELKIRK): My Lords, it is a formidable task to reply to a debate which has ranged over such a wide variety of subjects as that which we have had this afternoon. If may make one preliminary remark, I feel that some of the speeches have been rather unnecessarily pessimistic on a short view. I will deal in a moment with the long view. For instance, I must confess that I was thinking the noble Lord, Lord Pethick-Lawrence, might have been a little warmer in his commendation of the Government's efforts. After all, we have taken to heart every one of the admonitions which he gave us last year.

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  I will go through them. The noble Lord complained of the estimating. In an expenditure of £4,259 million we were only £15 million out. In the estimates of the Revenue we were dead right. The noble Lord complained that stocks and works in progress were down. Well, we see that they have gone up. He complained of the level of production, so we have put it up 6 per cent. He complained of employment, so employment has been put up. Furthermore, exports are up 10 per cent. Over the year, and—what I might describe as his "King Charles's head"—we have reduced the bank rate. That is a summary of achievements which might have earned something, perhaps, from the noble Lord's warm heart.
  I should like to take this opportunity of congratulating the noble Lord, Lord Coleraine, on his speech to us to-day—a speech full of common sense and forthright judgment. He emphasised productivity, which the noble Lord, Lord Pethwick-Lawrence, did not bring in. What I should like to emphasise is that in a number of spheres productivity this year is up quite a good deal. The noble Lord, Lord Coleraine, mentioned the motor industry and the building industry. In the building industry, which is a very important industry, there is an increase of 9 per cent., with a labour force increased by only 1 per cent. Agriculture is another field where increased productivity has enabled the production to rise in the last three years from 48 per cent. above the 1938 level to 56 per cent. above. The noble Lord, Lord Melchett, whose speech was extremely interesting, asked whether there was any question of reducing production. As I understand the position, it is that unlimited, uneconomic output, is not to be encouraged but, so far as the output is economic and there is high efficiency, then output is to go on as far as it can possibly be taken. I am sorry that the noble Lord did not raise the interesting points which he made in the debate last week on the agricultural position, and I hope he will excuse my not dealing with some of the other points. There are other industries, such as steel, in which the output has risen by 1¼ million tons this year. In oil, large investments have been made over a number of years and they are now showing considerable returns. For the first time we have had no electricity cuts during the winter this year. Admittedly,
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  it was partly due to warm weather, but still I suggest that that is a step forward. The noble Lord, Lord Rochdale, says that our productivity is not going fast enough, and I could not disagree with him. But, none the less, it is making fairly good progress.
  When we were discussing this last year, your Lordships may remember that the noble Lord, Lord Macpherson of Drumochter, expressed some anxiety lest peace should "break out" and be followed by disastrous economic consequences. I think the events of the year have shown clearly that the assurance which I was able to give at that time were fully justified. Peace, by which I think the noble Lord meant the termination of the war in Korea, has come for nine months at least, without the slightest unfavourable reaction in our economy. Such effect as there may have been on the United States has so far not been very extensive, and there is no sign at the moment to show that the present decline in United States production is more than a readjustment of stocks which will reverse itself in due course. The latest figures I have show that unemployment in the United States in March was not appreciably higher than in February. However, there is usually some seasonal fall in unemployment, so we should not assume that the forces which are reducing activity have yet worked themselves out.
  However, the implications of developments in the United States are being closely watched and, as the noble Lord, Lord Brand, suggested, co-operation with the sterling area, O.E.E.C. and other countries, should prevent any serious repercussions. The Chancellor of the Exchequer has said that in certain eventualities he may reconsider his Budgetary policies. I think it is fair to say this. It is a testimony to the robustness of the economy of this country that a 10 per cent. reduction in production in the United States, bringing a 10 per cent. reduction in our exports to the North American continent, has been taken without embarrassment; and, indeed, it is noticeable that our exports last month were among the highest that this country has ever had. It is for that reason that the Chancellor of the Exchequer was fully justified in speaking as optimistically as he did about the North American continent.

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  I cannot refrain from saying one word in support of what the noble Lord, Lord Coleraine, said about the achievements of the last two and a half years. They represent a remarkable recovery, and perhaps the more so because the imminence of national bankruptcy in the autumn of 1951 was in no way apparent, from any outward and visible signs, to the general public of this country. Indeed, when we consider that two and a half years ago we were suffering from the throes of inflation and a serious balance of payments crisis, the recovery which we have achieved may, I suggest, be marked as one of the most notable economic achievements of this country for a number of decades. Inflation has gone; our overseas trade is balanced; our gold reserves are up; production has risen; consumption has risen; employment is high; we are building more than 300,000 houses a year, as we said we would, while bearing at the same time a heavy defence burden.
  The question is, if this is the case, why is it that this year we have not been able to reduce taxation, about which a number of noble Lords spoke? The answer is simple: the economy is enjoying full employment and a high level of production, and our resources are reasonably fully employed. The Economic Survey suggests that the general level of demand is likely to remain high, with production high and employment high. In those circumstances, I think the Chancellor of the Exchequer was inevitably right in saying that to hold the present balance of the economy, it is not possible to make any reduction in taxation. But, if that is so, what about expenditure? Why could not Government expenditure be reduced? I think we must ask this question. What reduction in expenditure could be carried out by any Government returned to power in this country? Of course, any Government can cut expenditure and carry out economies. We have done so. If I may give one example, there is a reduction in what we call the trade and industry Departments—that is to say, the Ministry of Labour, the Board of Trade, and the Ministry of Agriculture—of about 17½ per cent. of staff in about two and a half years. But, important as that reduction is, it is not in effect the major issue of how to achieve serious economies in expenditure. I suggest that we have to look at the matter in this way. After the
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  war we started an immense programme of social services. May I give your Lordships an outline of that? Much was outlined, either before the war or during the war. In 1946–47 the costs of education, housing, health and pensions, taking generally the social services were about £500 million. In 1954–55, the estimate is about £1,200 million. Even allowing for changes in price, that represents an increase in real expenditure of somewhat more than 50 per cent.
  LORD PETHICK-LAWRENCE: Are those figures for a three-year period?
  THE EARL OF SELKIRK: No, a single-year period. The years are 1946–47, and 1954–55. Those are the two I took. I think your Lordships may remember that in the last Budget, I think it was, of Sir Stafford Cripps, in 1950, the criticism made was that there was no margin for any eventualities. It is common knowledge that since that date we have been able to double the defence expenditure. Last year we were able to reduce the rate of taxation, and we have been able to do that with a balanced economy. I suggest, with great respect, that for this country that is an enormous achievement. But it must be remembered that in any question of expenditure it is essentially in the social services or in defence that any really big saving can be made.
  I find myself much in agreement with the noble Lord, Lord Rennell, when he comments on this desire for perfection, because it seems to be fairly true that Parliaments as a whole, and certainly here, are more anxious to spend the taxpayer's money than they are to defend the taxpayer from the rapacious grasp of the tax collector. That is certainly true of this House, and I daresay that it is even more true of the other place. It certainly makes it more difficult for the Chancellor of the Exchequer to lighten the burden on the taxpayer. I find myself substantially in agreement with what the noble Lord, Lord Brand, said, that the way to proceed is to increase production and thus to raise the national income so that we can carry this burden more lightly than we have done in the past.
  The noble Lord, Lord Pethick-Lawrence, asked me two questions on the Finance Bill. I must make it clear that it would be most improper for me to discuss the Finance Bill, even in the most

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  superficial manner. It has not even received its Second Reading in another place. Your Lordships are fully aware of the jealousy which is felt in this matter, and rightly so. The noble Lord is right about Clause 12. It deals with the calculation of purchase tax in cases where delivery is made direct to the retailer by the manufacturer. The noble Lord also asked a question in regard to Clause 15, which deals with the investment allowance. I have not a great deal to add to what has been said. I am glad that the allowance has been welcomed by the noble Lord, Lord Rochdale. I am sorry that the noble Lord, Lord Wilmot of Selmeston, is not here because he was pressing earlier this year for some concession of that character. It is made applicable to the same class of cases as initial allowance, but with the addition of research establishment and agricultural buildings, but it does not include motorcars or second-hand equipment. I have here figures which the noble Lord may be interested to know. In the case of plant worth £1,000, with an expectation of life of fifteen years, taking four-fifths of the fifteen years, which is the agreed life, the cost is written off in twelve years. On such a basis, a 20 per cent. allowance is permitted and shows the following results: in the first year, without initial allowance, it would be £200; with a 20 per cent. initial allowance, it would be £400; with a 20 per cent. investment allowance, it would be £400. If we take it up to the fourth year, without initial allowance it is £590; with a 20 per cent. initial allowance it is £693 and with a 20 per cent. investment allowance it is £790.
  LORD RENNELL: That is the amount written off, is it?
  THE EARL OF SELKIRK: That is the amount written off. That means to say that nearly 80 per cent. will be written off at the end of four years. At the end of twelve years, in the first two cases it would be £1,000, and in the third one it would be £1,200.
  If I may look to the future for a minute, I thought the noble Viscount, Lord Bruce of Melbourne, was a little pessimistic, although I am bound to say that one can take a very gloomy view of the extreme distance ahead. I hope he will agree that, whilst it is proper to warn
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  people, pessimism at the present juncture may be misinterpreted. I hope therefore that I can say this to him: that we are in some measure carrying out, admittedly not on the scale which I know he would like, the sort of development of backward areas to which I know many people attach even more importance than almost anything else. For instance, the Colombo Plan is now well under way. We have released sterling from the International Bank for investment overseas, and there are other such schemes. I should have thought, with the serious development in technical asistance, that we have certainly encouraged measures to meet the point which the noble Viscount had in mind.
  If one looks further forward, I do not disagree with what Lord Pethick-Lawrence said, that there is a narrow balance and that it requires unstinting vigilance. I should like to draw your Lordships' attention to three points which seem to me to occur whenever you look at this matter. The first is production, the second is savings, and the third is exports. Whenever you examine them you come back sooner or later to these problems. In the last year the export position has improved. We are, in fact, in the first quarter of 1954, up about 8 per cent. on the first quarter of 1953. That is satisfactory so far as it goes. In examining the balance of payments figures, the noble Lord, Lord Pethick-Lawrence, suggested that it was not strictly proper to include in the figures mutual defence aid. Well, in the first place, the whole necessity for defence puts us to heavy expenditure. We are spending something in the order of £350 million overseas on military account. In the second place, we are also spending something like £65 million a year in servicing the loan which a Socialist Chancellor of the Exchequer got rid of rather quickly. So that is tacked on to our balance of account. In those circumstances, on proper consideration I do not think it is unfair to include the relatively small amount of defence aid which comes in now.
  I would ask the noble Lord to look again at this question of the terms of trade. It is said quite frankly in the Economic Survey that the terms of trade have been worth £200 million to £250 million to this country during the last year—or, as the noble Lord said, some

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  £600 million in two years. That is a nice argument for an economist, but I wonder whether it is a good argument. What we have done is to turn a more favourable position to our advantage. Our terms of trade have helped us to rectify our overseas deficit. But during the earlier period there was a sellers' market, when one could sell virtually anything that was produced. It seems to me that here the right point to look at is that when we talk of favourable terms of trade we are referring specifically to the United Kingdom, whereas for the greater part of the sterling area, upon which, of course, we are so dependent both for exports and for imports, the terms of trade have an effect probably diametrically opposed to that which is produced in this country. If our terms of trade get better, theirs get worse; accordingly, we have nearly as much to lose by the terms of trade moving in one direction as we have to gain by their going in the other. It may be that I am putting it too high, but I merely emphasise that a great deal of what is lost on the roundabouts is to be picked up on the swings.
  On the general question of foreign policy, we are pursuing a liberal relationship so far as we can. Examples of that are liberalisation in terms of trade with Europe, the treaty with Japan which will allow more sterling goods to be produced for purchase in Japan, and the United States of America recommendation of the Randall Committee, which has been commended by the President. We welcome this development, and in spite of the warnings by Lord Bruce of Melbourne and Lord Barnby that it may have little effect, we consider it to be a step in the right direction, and we hope that the Export Credits Guarantee Department will derive some value from consideration of the remarks of the noble Viscount, Lord Bridgeman, in that respect. After all, in the world of exports the Government can give only encouragement and facilities. The question really depends on individual traders, and on their energy and skill which enable development to take place in this field. I am glad, therefore, that the noble Viscount, Lord Bridgeman, emphasised the difficulties of competition which are being met in many different fields.
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  The noble Lord, Lord Pethick-Lawrence, asked about the European Payments Union. Perhaps the noble Lord will excuse me from saying very much about that. Discussions are taking place at present. We agree that it has served a very useful purpose, and we hope that in the future it will continue to do so. What we are anxious to do is to balance the Union on a high level rather than on a low level. That is rather the way in which the discussions are proceeding at the moment. We think it is an essential part of any prolongation of the Union that the creditor countries should take positive steps to right their position in the Union. The noble Lord referred to G.A.T.T. I would say only this to my noble friend Lord Barnby: that we do not want to enable other countries to impose quantitative restrictions. Whilst we like to retain the greatest freedom ourselves, we have to face the prospect that other countries will impose conditions to suit their convenience which we, in our own way, may find very inconvenient. But in any case, there is going to be discussion among the Commonwealth countries before the next meeting of G.A.T.T. in the autumn of this year.
  The noble Earl, Lord Perth, who told me he had to leave, emphasised the importance of savings. This year there has been a very welcome increase in savings. I do not disagree with him that the figures of savings are lacking in certainty, but, none the less, they are pretty striking. In 1950 the record of personal savings, which of course includes sole traders, for instance in agriculture or in retail business, was £100 million; in 1951 it was £300 million; in 1952, £800 million, and in 1953 £900 million. That is, of course, a notable increase. But I should like to tell the noble Lord, Lord Pethick-Lawrence, that there has been an increase of capital development and investment, and he may find it worth noting in Table 6 of the White Paper on National Income and Expenditure, that the combined savings of both persons and of companies about equal the combined total of fixed investment, both public and private. So far as I can see from the figures, this is the first time that that has happened, at all events since 1948. Of course, the important thing is that savings and investments should proceed hand in hand. We need

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  savings urgently. It is also important that investment should proceed.
  I will now move to the third point, which is production. The noble Lord emphasised the manpower question. There are about 750,000 women in part-time employment at the present time, about 80 per cent. of whom are married. I think, therefore, that fairly extensive use is being made of these women at the present time. Six per cent. are in the category of professional and technical, which includes teaching. However, that point will be considered by the Department concerned; I do not want to be led into the delicate and controversial subject which is being dealt with in letters to The Times at the present time. Therefore, if I may, I will leave that point. The Watkinson Committee has been examining the question of extending the period of employment of older people, and its preliminary Report, which came out last autumn, makes it clear that there is an identity of interest, which I do not think many of us really doubted, between the individual and the State. The majority of people are happier if they can continue working longer, always provided that the right type of work can be found.
  May I go on to investment and production. In this lies, I think, the chief opportunity for carrying the burden of defence and maintaining the social services. If we are to continue the standard of life in this country, we must extend our productive capacity. If we compare progress in this country with developments in the United States and in Germany we find that there really is no room for complacency. I am certain that, as noble Lords have said, we can raise production in this country faster than we have done in the past few years. During his winding up speech in the other place, Mr. Robens, on behalf of the Opposition, put tremendous emphasis on the provision of adequate plant and equipment—and I think quite rightly so. It has been a matter of comment that fixed investments in nationalised industries have increased substantially during the last year, whereas in the private sector the changes have not been significant.
  I think it might be well worth while examining this for a moment, because, of course, we are interested in re-equipment in both these fields. In the first place,
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  during 1951–52 the shortage of steel was the dominating factor in all big industrial developments and schemes of re-equipment, and those without priority were undoubtedly held back. Certainly some industries were held back. In this respect, nationalised industries, such as electricity, mining and transport, held a considerable advantage, because they were given high priorities at different stages since the war. No doubt many of our developments are only now reaching their full impetus. I think it is worth noting that it was only towards the end of last year that the National Coal Board succeeded in reaching their planned level of investment. Secondly, in the difficult days of the spring of 1952, much capital equipment had to be exported. I should add that the initial allowances were suspended between 1951 and 1953—indeed, effectively between April, 1952 and April, 1953—and no doubt this had considerable effect.
  I think we have frankly to acknowledge that our attitude towards new equipment is in many cases unsatisfactory, and I suggest that we may have to take an entirely new view of this subject of capital investment. Someone recently described the foundation of American progress as being summed up in the words "creative destruction," or perhaps metabolism that applies to an organism. No doubt this is true. No one who has been to that great continent is not impressed with the constant renewals with better plant, the tearing out of the old and replacing with the new, so that plant and equipment are turned over rather like stock-in-trade, only of course not quite so fast. I am inclined to think that, as a people, we in this country regard capital as something which is fixed and permanent, and revenue as the only thing with which we are immediately concerned. If we want progress and expansion it is up to us to show the initiative and make the efforts to achieve it. The resources and the opportunities are there. The Budget aims to maintain an economic climate in which these opportunities may be exploited. In particular, the investment allowances provide a further incentive for increasing investment and raising productivity.
  The Government have been pursuing a policy which they think is calculated to set the people free, and we have gone

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  quite a long way in that. Imports from sterling area countries continue to be virtually unrestricted, and half the imports from non-dollar, non-sterling areas to-day are free from restriction. There is now complete freedom to purchase cereals from overseas, and arrangements have been made for the return of all non-ferrous metals to private trade. Building licences are very much easier. There have been notable relaxations of restrictions in trade with O.E.E.C. countries. Sugar and sweets were de-rationed last year, and it is intended that the de-rationing of food shall be completed this year. General allocation of steel was brought to an end in May of last year, and licensing of the use of soft woods in the autumn. Import trading is now substantially in private hands. Commodity markets have been reopened in tin, lead, copper and zinc. Thus we have virtually restored freedom to the home economy by abolishing controls over production and consumption. No doubt, the aim of convertibility lies ahead. I am glad that Lord Pethick-Lawrence, at all events in principle, seems to agree, but I am inclined to agree with Lord Brand on this point. We have taken these steps because we believe that they conduce to the efficient operation of trade and industry. Recent events have shown that to be true. They have contributed, I am sure, in many ways, to the strength of sterling at the present time. This freer trade, we believe, will bring back a higher degree of prosperity and thus contribute to a higher standard of living.
  But there are even wider considerations. In the international field, the close relationship of traders throughout the world is important. The contracts they make are of mutual advantage and the general influence of such contact and trading is civilising in its effect. This is not all. Freer trade means a common interest in the economic welfare of other countries. It emphasises that that interest is not only in their political and military strength but also in their economic life and their general standard of living. This attitude is the antithesis of that produced by any form of economic nationalism, which is sometimes so difficult to distinguish entirely from highly centralised planning. Economic nationalism postulates an indifference to the welfare of other
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  countries so long as we, at all events, can insulate ourselves from the influence of outside fluctuations.
  I suggest that even more important is this fact: no dictator has ever established himself on a régime of liberal trading which permitted the free intercourse of his people with those of other lands. The weapons which he builds into his armoury always include rationing, controls and regimentation. Liberalisation of trade is, therefore, a bulwark against any totalitarian régime. When anyone thinks kindly of an all-powerful State, even if it is wholly beneficent in intention, he is, none the less, creating the climate—perhaps even building the scaffolding—which can be used to bolster up the power of a dictator. On the other hand, I do not think that we can be accused of returning to the doctrine of laissez-faire. The State must always continue to ensure fair play, to ensure that the strong do not take advantage of the weak, that all have a fair chance—and, in fact, generally to hold the ring for fair competition. In doing this, it must ensure a high level of employment, and a stable level of prices, and so give the opportunity for a rising standard of living. These are our objects and our progress so far has been good. We seek now to carry them further and to give a fuller emphasis and acceleration to our economic progress.
  8.6 p.m.
  LORD PETHICK-LAWRENCE: My Lords, at this late hour, I am sure that I should not be serving the interests of your Lordships' House if I were to attempt to make a second speech. I will therefore content myself by saying two things. The first is that I thank the noble Lords who have taken part in this debate. There have been a number of speeches, which I have heard with the greatest pleasure and interest, including, of course, that of the noble Lord, Lord Coleraine, whom I remember sitting opposite in another place not so very many years ago. I should like to thank the noble Earl who has replied to me, and to congratulate him on the immense amount of important matter, so clearly and so well expressed, that he got into a very short space of time. For the rest, I would say only one word more. I take in good part the share of darts

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  which I have received from nearly every speaker who has risen. I think my speech was not exactly what they expected, and that perhaps they read into it a great many things that were not there. However, I am used to some misrepresentation and, after a considerable number of years of Parliamentary life, I take no ex-
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  ception to it. I shall look forward to fighting again another day. I now beg leave to withdraw my Motion.
  Motion for Papers, by leave, withdrawn.
  House adjourned at eight minutes past eight o'clock.