THE ECONOMIC SITUATION

HL Deb 27 April 1954 vol 187 cc29-104

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- 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 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 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 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 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 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 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 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 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 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 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, 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.

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 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 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.

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 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 £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, 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 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 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 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 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 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. 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; 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 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 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 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 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 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 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 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 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 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.

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- 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 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 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 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 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 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 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 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 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 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 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 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 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. 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— 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 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 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 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 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 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 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- 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 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. 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, 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.

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 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 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 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 £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.

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 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, 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 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 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 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- 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.