FINANCE BILL

HL Deb 02 May 1955 vol 192 cc655-92

2.58 p.m.

Order of the Day for the Second Reading read.

THE MINISTER WITHOUT PORTFOLIO (THE EARL OF MUNSTER)

My Lords, it is customary, on the Second Reading of the Finance Bill in this House, for the debate to extend far and wide over the whole field of the Government's financial and economic policy. The observations which I shall make to the House this afternoon will not be long, but will, I hope, cover the essential topics which will be of some interest to the House. Noble Lords will be aware of the changes which have been announced by my right honourable friend in his Budget speech, and those changes are embodied in the Finance Bill before the House to-day, on which I shall have to say a few words in the course of my remarks.

I think the House will wish to know something of the recent economic developments and the prospects for the future. They are fully set out in the Economic Survey which is published from time to time, and therefore I need refer only to the more important points. First, let me try to review the general background of our economic situation. The prosperity of the nation, with rising production and full employment, has been not merely maintained but expanded. Our total production rose during the period by 4 per cent., after allowing for any price changes which may have occurred. In industry there was an increase of 6½ per cent. for the second year in succession. Both these increases were mainly the result of greater efficiency and only slightly of increases in employment.

Any increase in production over and above the present level must depend, in the main, upon greater productivity, and such progress as has been achieved is certainly a happy omen for the future. It would, however, be even more encouraging if progress had been uniform over the whole field of production. There are two basic industries—agriculture and coal mining—where, for different reasons, this progress has not been made. On whichever side of the House we sit we should all sympathise with the farming community who did so well in spite of the very severe weather of last year. This resulted in only a moderate harvest, obtained by enormous effort; nevertheless. there was an increase in livestock. The output of the coal mining industry for 1954 remained at the same level as in 1953, but was still one million tons below the output in 1952. This occurred at a time when the all-round increase in production led to ever-increasing demands for fuel. To prevent a coal shortage in industry it was necessary not only to reduce our exports but also, unhappily, to increase our imports. This naturally had an effect upon our balance of payments which we can ill-afford.

Her Majesty's Government have always been anxious to bring about a steady and continuous improvement in the living standards of all the people, as part of a general rise in the prosperity of the country. In 1953, and again in 1954, total personal consumption, after allowing for price increases, rose by 4 per cent. This expansion is due to an increase in incomes which has been spread across the whole community. Let me here take the case of the wage earner, and look back to the day when this Government assumed office in 1951. Real wage rates, after making full allowance for changes in the cost of living, have increased by something like 6 per cent. since 1951, and real earnings in industry have risen by no less than 9 per cent.

I do not wish to leave this matter of wage increases without some reference to companies, to whom my right honourable friend the Chancellor of the Exchequer has been accused, in some quarters, of disproportionate favour. Fortunately, commercial companies of all kinds, upon whom the prosperity of the nation and the people very largely depends, have continued to flourish. This is no doubt partly due to the confidence which has been generated by the incentives which my right honourable friend has given in his previous Budgets and which I believe are now coming into effect. During the last twelve months, perhaps for political reasons, we have heard much about the payment of higher dividends. I have never understood why any person who risks his money and his possessions in industrial and commercial enterprises should not receive a full and appropriate reward. What are the actual facts? According to the Economic Survey (the figures of which, I am informed, are universally accepted), as well as the White Paper on national income, dividends and interest rose by nearly 50 per cent. less than wages and salaries. These figures speak for themselves, and certainly, to my mind (though a humble one in these great financial matters), they indicate no greed on the part of the great general body of shareholders.

Another feature of the situation which deserves the attention of noble Lords is the trend in National Savings. In the past year there has been a marked improvement. As my right honourable friend the Chancellor of the Exchequer pointed out in his Budget speech, in the financial year just ended new savings have exceeded withdrawals by £120 million, whereas in the previous financial year, 1953–54, the position was the reverse, and there was a net reduction of £12 million. This means that we have seen an improvement from one year to another of over £130 million. Moreover, since 1951 the total of personal savings (of which National Savings are only one part) have shown a marked recovery from the low level to which they fell in the earlier post-war years. I consider this to be one of the most encouraging consequences of the more settled and prosperous conditions achieved since 1951.

I now pass to the subject of investment, in which there was an increase last year. New housing, which had already reached a very high rate, increased still further, and 354,000 houses were completed; but housing took a smaller, and industrial investment a larger, share of the increase. Investment in the nationalised industries rose substantially, and new industrial building has considerably increased. The increases recorded in the area of factory space for which industrial development certificates have been issued, and in the inflow of new orders for machinery, provided promising signs of an upward trend in the future plans of private industry.

I turn from there to say a few words about the difficult subject of balance of payments. The first half of last year showed a quite satisfactory current surplus of £148 million, excluding aid, or £172 million including aid. This favourable balance, however, was not maintained during the second half of the year, when there was a slight deficit. The position of the rest of the sterling area was also less favourable in the second half of the year. The main reason for this adverse movement in our position was undoubtedly an increase in the value and volume of imports which was not matched by a corresponding increase in the value of exports. The figures for the six months, October, 1954, to March, 1955, compared with the corresponding period a year earlier, were 14 per cent., as against 3 per cent.

The House will remember that to stem this movement, which was having an adverse effect upon our gold and dollar reserves and on the position of sterling on the exchanges of the world, my right honourable friend the Chancellor of the Exchequer, on February 24 last, introduced measures to restrain credit and to support sterling. It is too early yet for the effects of these measures to have worked themselves fully through the whole economy of the State, but since February we have seen a definite improvement in the position of sterling, and the movement of the gold and dollar reserves has been more favourable. Here, without wearying the House, I should like to quote some figures. Undoubtedly, there is already greater confidence abroad, one result of which is shown in the official sterling-dollar exchange rate, which has risen from under 2.78½ dollars in the third week of February to nearly 2.80 dollars; while the rate for transferable sterling has risen from under 2.72 dollars to about 2.77 dollars.

The House will see at once that the measures adopted by my right honourable friend last February have undoubtedly helped our external position, although, as I have said, their full effects can be felt only after a lapse of time. It should not be forgotten that, if we are to remain prosperous, necessary increases in imports must be met with higher exports. The main problem which has therefore confronted my right honourable friend is to increase production as much as possible and, simultaneously, to increase exports. Throughout the period that my right honourable friend has been Chancellor of the Exchequer, his policy has quite deliberately been expansionist rather than restrictive—indeed, every one of his Budgets has made a contribution towards providing further incentives for the general growth of productivity.

Here I may be laying myself open to contradictions from noble Lords opposite, but I believe that the full and vital energies of our race can be gradually sapped by a long period of excessive taxation when all incentives are seriously curtailed. I think we are agreed that the level of taxation has been much too high for much too long, and that all incentives have suffered in consequence. My right honourable friend has, I think rightly, reversed this process, which has been going on for too long. At the end of the last financial year, the Chancellor of the Exchequer had realised an unexpectedly large "above the line" surplus of £433 million, and on the basis of existing taxation could expect a surplus for the current year of £282 million. He was therefore faced with the decision, the vital and all-important decision, whether all this surplus should be retained, in the interests of the economy, or whether a better purpose would be served by a reduction of taxation.

My right honourable friend decided that the burden of direct taxation was the major factor and that, while retaining a prospective surplus of £148 million, he could give relief to a figure of £134 million. This was done, as your Lordships know, by a reduction of 6d. in the standard rate of income tax and of 3d. in the reduced rates, as well as increases in personal and child allowances. These reliefs have been broadly and fairly distributed over the whole range of income tax payers, while no fewer than 2,400,000 income tax payers have been relieved altogether. The complaint has been made from the Benches opposite—and I venture to think for purposes other than financial—that those with large incomes benefit to a greater extent than those with smaller incomes. But with taxation as progressive as it is to-day, it is extremely difficult, if not impossible, to give relief which will not benefit those who are paying a substantial sum in taxation. It is even more difficult—and I hope we shall hear the answer to-day—by tax reliefs alone to benefit those who pay no taxes at all.

Your Lordships will realise that I have spoken only briefly on some of the major factors connected with the economy of the country. Let me, therefore, now turn to the Bill itself. Clause 1 alters the standard rate of income tax from 9s. 0d. to 8s. 6d., and the proviso lays down that any consequential changes in the tax deductible or repayable under P.A.Y.E. shall operate as from July 6. The clause also fixes surtax rates for incomes over £2,000 a year for 1954–55 and 1955–56 at the same rate as those prevailing in the year 1953–54.

The second clause deals with the alterations in personal reliefs. For single persons, the allowance will be raised from £120 to £140, and for married couples from £210 to £240. Never before has this relief reached such a figure, and I feel that we can well be proud of what we have achieved. I must, however, point out that my right honourable friend's intention in making these changes is to meet the point made by the Royal Commission on Taxation of Profits and Income, that the starting points of tax liabilities for individuals are too low and should be raised without giving an advantage to those with higher incomes. For this reason the changes are accompanied by a cut from £100 to £60 in the band of income which bears the lowest reduced rate of tax. The allowance for children has been increased from £85 to £100, which is also a record, and will be of undoubted assistance and benefit to all parents. Provision is also made for a higher income limit for small income reliefs and for minor changes in the old age and dependent relative reliefs. The table in subsection (7) shows the new reduced rate bands and prescribes the rates of taxes on them.

I do not think I need say any more. That is the Budget which my right honourable friend presented to another place this year. In my judgment, it gives fresh incentives and new hopes to throngs of deserving taxpayers. Her Majesty's Government place abundant hopes on the ordinary citizens, who we believe will accept our policy that the expansion of our economy will, and can only, take place under conditions of ever-widening freedom. We do not accept now, and will not accept in the future, the bitter barrier of restrictions. I believe that the monetary policy that has been followed by my right honourable friend during the whole period of this Government is one which is right and proper, and I commend it wholeheartedly to your Lordships' House. I beg to move.

Moved, That the Bill be now read 2^a.—(The Earl of Munster.)

3.22 p.m.

LORD PETHICK-LAWRENCE

My Lords, we are grateful to the noble Earl who has moved this Motion for the care he has taken to expound the Bill and for the remarks he has seen fit to make in regard to it. Before I come to those, there are a few introductory matters to which I should like to make reference, because I think they will show how different the Budget is to-day from what it was in days gone by. When I first began to take an interest in political affairs, which was long before I obtained a seat in the other place, Budgets were a comparatively simple and straightforward matter. The Budget dealt solely, or mainly at any rate, with the receipts and payments of the Exchequer, and the Chancellor of the Exchequer was not greatly concerned with the finance and economy of the country as a whole, except in so far as it was reflected in the receipts and payments which he had to make and which he had to allow for in his balance. He regarded such things as inflation and deflation almost as acts of God for which he was not in any way responsible and over which he had no control.

Personally, I never agreed with that point of view. I always argued—and I argued it throughout the country—that the Chancellor of the Exchequer, as the Finance Minister of the nation, ought to concern himself with all these wider issues, and the reason why he did not do so was because he was not really fully master in his own house. Much of his authority had been usurped by successive Governors of the Bank of England, who in their board room and through their relationships with the City of London exercised a far greater influence upon the life and prosperity of the nation than did even the Minister himself through his Budget and his taxation. When I went to the Treasury as Financial Secretary in the year 1929 I found ample proof of that view that I had held. Most of your Lordships who have been junior Ministers will probably bear me out when I say that one of the first things a junior Minister discovers is that when he makes a proposal to one of the permanent officials in his office he is met with something which I can only describe as, "You had better ask Papa." But in the Treasury it went a good deal further than that: it was not only necessary to ask Papa, but it was necessary to ask uncle—namely, the Governor of the Bank of England, who was the guiding influence of a great part of the Treasury business. Not until, first, the sanction of the Chancellor of the Exchequer, and then the sanction of the Governor of the Bank of England, had been obtained, could any proposal—of certain kinds at any rate—submitted by the junior Minister be looked into.

At this distance of time I think I may quite properly disclose a private conversation that I once had with Mr. McKenna, the famous chairman of the Midland Bank. He told me that Mr. Montagu Norman, who was then the Governor of the Bank of England, had told him that if he were confronted with a Chancellor of the Exchequer who had a definite financial policy of his own he would quite willingly toe the line to that policy, even though he disagreed with it. But that was not to be the case. Your Lordships will probably realise that, taken broadly, Chancellors of the Exchequer are not chosen because they are great financiers: they are shrewd men who know how to get good advice from those who know more about finance than they do themselves. In those circumstances, the policy of the Governor of the Bank of England at that time, who was not only a shrewd and diplomatic person but also a great financier, prevailed for a great many years, as opposed to any possible policy that any of the Chancellors of the Exchequer of that time could have put up. That went on for some time, and it brought considerable trouble on this country.

At about that time several committees were set up, one of which was the Macmillan Committee, and that Committee discovered that there was no real machinery in the City of London for providing money for internal domestic investment; that was a grave gap which the City did not fill. Not only that, but no one in the City knew what, in fact, was the liability of the country abroad; and that, again, was a great gap. Whereupon Mr. Neville Chamberlain, when he was Chancellor of the Exchequer, took the first big step to change the position. He introduced the Exchange Equalisation Account, and made the important decision that the conduct of that Account should be open to Parliamentary interrogation. That meant that the Chancellor of the Exchequer and the Treasury had to be fully en rapport with the major issues of exchange and of financial policy, which had previously been the strict prerogative of the Bank of England and on which the Treasury had never had an opinion of its own until the Bank of England had been consulted. That drove a breach right through the old tradition, and was a most important factor in bringing about the change.

The next important change was made when Sir Kingsley Wood was Chancellor of the Exchequer. He was one of those shrewd Chancellors who knew when to take good advice from people who knew a great deal about finance, and he realised what a fine financier was the late Lord Keynes—then he was Sir Maynard Keynes. Keynes advised him to publish what has now become the Economic Survey and give all the details regarding the economy and the finances not only of the State but also of that much larger entity, the nation as a whole. From those days we have inherited that wonderful mine of information which successive Governments have continued to produce. The next step which, though it may sound the main feature, was really almost a recognition of something that had already happened, was the nationalisation of the Bank of England. By that time the Bank of England had come very much more into line with the Government of the day, and when it was finally nationalised, in 1946, that was only a recognition in terms of what had largely happened in practice. Following that out, the Chancellor of the Exchequer now announces that he intends that the bank rate shall be raised, and it is never denied that although it is still the Bank of England that nominally decides the change, it is, in fact, the policy of the Chancellor of the Exchequer.

The final phase of the changes that have taken place during my political life is the drawing of the line at the bottom of the Budget proper. Of course, the "below the line" amounts are of supreme importance for the economy of the country. Whereas the figures above the line are merely the incoming receipts and outgoing payments of the Chancellor of the Exchequer, the "below the line" figures, in some cases much larger sums, represent the capital expenditure and capital recovery of the nation as a whole which pass through the Exchequer. Even then it is not the whole account, because a large number of items, being purely private in their character, do not enter into the figures, though they do enter into the considerations which should affect Government policy.

I have made these preliminary observations because it is on them that I want to found what I have to say. The policy of the present Chancellor of the Exchequer differs from the policy of his predecessors largely in one fact. The noble Earl, Lord Munster, who opened the debate, said that the Chancellor had shown that the present Conservative policy was not restrictive. Of course, that is not correct. The raising of the bank rate is one method of restriction, and physical control is another method of restriction. It is no good pretending that the first method is not a form of restriction. It is designed for restrictive purposes. Both these methods are designed for restrictive purposes. One might argue that one is better than the other, but, broadly speaking. I think it is true that those who sit with me on this side of the House are in favour of physical controls, whereas the present Chancellor of the Exchequer, presumably supported in his views by Members on the Government side of the House, prefers monetary controls through changes in the bank rate.

If we were to be candid about this subject, I suppose that both sides would admit that there are many disadvantages in either of these ways, and when restriction has to be made it is a question of which is the more efficacious method. But the fact is that they are both designed to exercise restraint upon investment and to rein in the provision of capital equipment, whether for national or private enterprise, which, if not so reined in, would result in runaway inflation. In reference to that matter, I would only remark that it is better to have to rein in a splendid horse that wants to go too fast than to urge on a sluggish horse to exertions beyond his inclination. The Chancellor has had his way of doing it. Some people think it has been a success and some people think it has been a failure or, at any rate, it has not failed to bring injurious consequences. I certainly do not want to repeat here to-day some of the things I have said in the House in days gone by about the demerits of raising the bank rate, but I would say this: whether it is right or wrong, good or bad, I should have thought nobody could deny that it is expensive, it is ruthless, it is non-discriminating, and that a fluctuating bank rate enriches some people and impoverishes others quite fortuitously. I do not think that these things can be denied. There is no reason why it should not be applied, if necessary, but we should all recognise that fact, on whichever side of the House we sit.

I am not going to make that the main feature of what I am going to say to-day. Let us assume that the method chosen to enforce restriction is that of the bank rate. The Chancellor of the Exchequer presumably came to that conclusion at the beginning of this year when he thought it was necessary to put up the bank rate, first to 3½ per cent. and then to 4½ per cent., in order to improve our balance of payments position and keep up the exchange value of the pound. Yet in the Budget he has thought it proper to reduce taxation on a large scale. Though, of course, all reductions of taxation are claimed to be inflationary, it would appear to act in precisely the opposite direction. As politicians sitting on these Benches, even though we are not in the active conflicts of another place, we can appreciate the strong pressure on Mr. Butler to give away considerable sums in the Budget in this particular year; but as Members of this semi-detached and non-elected Chamber we should at least be aware of the discrepancy between the Chancellor's two lines of approach.

I thought the noble Earl who introduced this Bill was somewhat complacent in his discussion of the position at the present time. He dealt with the balance of payments, but I do not think he even mentioned the drop in the gold and dollar reserve. However, there are at the present time many things of which I cannot imagine the Government can be altogether proud or with which they can be altogether satisfied. Whether we analyse the recent trend in the terms of trade, which after a long period of good fortune have turned a little against this country; whether we consider the rise in exports compared with those taking place in other countries of Europe; whether we look at the heavy toll we have to pay for our imports; whether we look at the balance of payments of this country alone or at the balance of payments of the whole sterling area; or whether we look at the gold and dollar reserves which have taken a turn for the worse, I think there are a good many disquieting features there which I must say I thought the noble Earl was just a little inclined to underestimate. I do not honestly think that the Chancellor of the Exchequer is quite so complacent about those things as the noble Earl appears to be.

I do not want to go into these figures at any great length. I think what I have said covers the ground in broad outline. My right honourable friend who was Chancellor of the Exchequer in the Labour Government, Mr. Hugh Gaitskell, made an admirable speech in another place in which he elaborated many of the rather unpleasant signs in our present economy. Noble Lords who wish to be seized of the position should read some of the things he said. When I say, "unpleasant signs," I think your Lordships will acknowledge that when the economy has been going well under the present Government I have not hesitated to say so. At the present time, I think there are many disquieting features, and I believe the Chancellor of the Exchequer is fully aware of those facts.

Now I turn to quite a different aspect of the Budget, which is the distribution of tax relief. I do not personally think it is appropriate in your Lordships' House to argue across the floor the aspect of the relief given as it affects the individual; that is eminently the business of the other place. In that House, Members who are not even referred to by their own name in the debates, but are referred to as "the Member for so and so," are there to further the interests of their constituents, and as such it is only right that they should fight the battles for the people whom they represent in the country. Our position on this matter is a little different. We do not represent anyone but ourselves, and though we may have strong opinions I think it would be rather unseemly for us to start a wrangle in this House about whether somebody was getting too much out of the Budget and somebody else too little. Nevertheless, I think your Lordships ought to be aware of the true facts of the case, and I will endeavour, before I sit down, to give you a presentation of the facts of the distribution of relief which I think may surprise some of you and, from what the noble Earl said in his opening remarks, will, I imagine, rather surprise him. Personally, I do not in the least agree with the idea that in every Budget the relief of direct taxation can possibly give as much to the low tax paying person by way of relief as it can to the upper ranges of income. That, of course, is quite absurd. But when the noble Earl hears what I have to say, I think he will find that our complaint about the distribution of relief is something quite other than that and far more cogent than he imagines it to be.

Let me come, in the first place, to the question of the 2,400,000 persons who are being relieved altogether of income tax by the Chancellor's Budget. I do not suppose there is anybody on either side of the House who does not rejoice at that fact. There are one or two people who are what I might call purists in taxation and who think that everybody ought to bear a bit of income tax, even a person who gets only a few pounds a year, because it is good for him to know that there is such a thing as income tax. I know people like that and they, of course, will regret this change. Personally, I do not regret it. I think it is very sensible, particularly in view of the fact that the burden of these 2,400,000 people on the Inland Revenue officials is very considerable. I do not know how much saving will be effected by their not having to work out all these figures, but at any rate it will be of a large order and will be a great saving of time and trouble to them and to the persons who did pay income tax and will not have to pay it in the future. I do not want to underestimate that relief, but I should like to point out that as the whole relief consists of £4 million a year and as there are 2,400,000 people involved, it is something under £2 a year a head, or rather less than one half of one per cent. increase in their income. Even though it is a small relief they will be glad to have it, and I think it is an excellent thing, so far as it goes.

In passing, I should like to warn noble Lords not to be surprised if they do not find the number of income tax payers falling and gradually being reduced to the full extent by this method, because, owing to the rise in the cost of living and to the rise in income, people are continually seeping back. You may cut out 1 million one year, 2 million the next year and 100,000 the next, but you will not find at the end of three years that there are 3,100,000 fewer people paying income tax, because they gradually seep back. Though you keep on cutting them off, they continue to come back.

Now I come to comparisons with people who do pay income tax, and I want noble Lords to understand the comparison of relief given to people of various ranges of income—people whose gross incomes are three figures up to £1,000 a year, people whose incomes are four figures from £1,000 to £10,000, and people whose incomes are five figures from £10,000 upwards. I shall not say anything about the £500 a year people, because I do not think it would be fair to the Chancellor of the Exchequer. We all agree that their relief represents only a small proportion of their income. Therefore, I take as typical the £1,000 a year person (which is the most favourable income from the point of view of the Chancellor); the man with a gross income of £5,000, the man with a gross income of £20,000 and the man with a gross income of £50,000. What I am going to lay before your Lordships is the change in the net income of those four people.

Owing to the changes in this recent Budget, the net income after the payment of income tax of a person having a gross income of £1,000—and I am going to take in every case a married man with two children—is increased from £898 a year to £914 a year; that is, by 1.7 per cent.

THE EARL OF MUNSTER

Is the noble Lord referring to income tax only?

LORD PETHICK-LAWRENCE

It increases his net income by 1.7 per cent. Whereas his net income is taken as 100 before the change, it is now 101.7 per cent. I think that is quite clear. What matters to the man is what net income he is going to have. I am considering the change that has an effect upon his net income, after deduction of tax.

THE EARL OF MUNSTER

May I interrupt the noble Lord for one moment? Is he discussing the net incomes which will result to these individuals in the various categories of income due to relief in income tax in the Budget, and income tax only?

LORD PETHICK-LAWRENCE

Yes. I do not see what the noble Earl means. I do not understand the difficulty.

THE EARL OF MUNSTER

Is the noble Lord including reliefs given for children, et cetera?

LORD PETHICK-LAWRENCE

I am including all that. I am taking this from the table of what a man earning £1,000 a year gross income will pay in income tax after all the changes, the children allowances and everything else. I am including all those. I have purposely taken a man with two children to be perfectly fair to the Chancellor of the Exchequer. I include all the advantages that he proposes. I have deducted the income tax that he would have paid last year and found that he would have had left £898. I have taken from the table what the same man with £1,000 with two children will now pay in tax, and I have deducted that from £1,000. I find that that leaves him £914: that is to say, he has gained £16, which is worth having. It is 1.7 per cent. of the net income that he had last year. Now I come to the man with £5,000 a year. His net income, without the change in the Chancellor's Budget, would be £2,688. He gains by having it brought up now to £2,800—that is an increase on his net income of 4.1 per cent. I take the man with £20,000 a year; his increase is 10.8 per cent. on his previous net income. I take the man with a gross income of £50,000 a year and find that he has increased his income from £5,989 to £7,226—that is, by 20 per cent.

I remembered that in the last Budget the Chancellor of the Exchequer gave a number of small reliefs without giving any reduction in the general rate of taxation, so I thought it was much fairer to go back. Therefore, I take the years of the Chancellor's four Budgets. These are the figures I get by doing that. The man with £1,000 a year gross income now obtains an increase on his net income of 2.9 per cent.; that is for the present year as against four years ago. The figure for the man with £5,000 a year is 8.3 per cent. The figure for the man with £20,000 a year is 23 per cent. and the figure for the man with £50,000 a year is 51.8 per cent—that is to say, his net income is half as much again owing to the changes that the Chancellor of the Exchequer has made, compared with what it was under the taxation system of four years ago. The noble Earl will see that there is nothing about a larger amount. Whereas the £1,000 a year man gets an increase of 2.9 per cent., the £50,000 a year man gets an increase of 51.8 per cent. It may be right, it may be wrong, but it is no good getting away from the facts, and these are the facts.

THE EARL OF MUNSTER

The facts are not right.

LORD PETHICK-LAWRENCE

If the noble Earl says they are not right, I can assure him that I have done this calculation with great care. I think he will find that I am right. I will tell him, if he wants to know, why it works out like this. The reason for it is that whereas before the present Chancellor of the Exchequer took office, in the highest ranges of surtax, the surtax payer got only 6d. in the pound on the highest ranges of income, under the new system he is going to get 18d. in the £1. That explains how this very large increase has taken place. If these figures are not absolutely correct to the last decimal, they are right in substance. As I say, I believe these to be the facts. If they are wrong, I am open to have them disproved, but I think the noble Earl will find that substantially, even if not down to the last decimal, they represent the facts.

What are the arguments put forward in defence of this distribution of relief? The answer put forward mainly by the Chancellor of the Exchequer is that it is necessary to give incentives. Of course, there is something in that. The question then arises whether this unequal distribution of relief is really the best method of achieving the purpose. On that point, I should like to read what was stated in the issue of The Economist of April 23, at page 264: If incentive is the object, much more effect could have been achieved at smaller cost by concentrating the reliefs on the earned income allowance, and in particular by adopting the Royal Commission's proposal that it should be extended into the range of incomes above £2,000. So far as company profits are concerned, a reduction of the standard rate, which accrues to the receivers of interest and dividends as well as to the retained earnings of the companies, will lead to more spending and less saving than the same amount of money applied to profits tax. That is what The Economist says. I do not always agree with that journal, by any means, as your Lordships know. It is not always very kind to the Party I represent, but at any rate on this particular point it evidently shares a good deal of my anxiety.

The only other argument, which is not an argument which I think the Chancellor of the Exchequer has used, relates to savings. There may be some of your Lordships who will say: "It is better to give relief in income tax to some of the higher income persons because the savings on which the country's investments depend come largely from the well-to-do. Money given to people in the lower grades of income tax will probably all be spent." I will give this answer to those who make that argument: that that may have been true fifty years ago. The people at the bottom of the scale or even people of the lower ranges of income were so badly off that if they received a little more money, they bought a little more food or something of that kind; they certainly did not save it. But I very much doubt whether that is true to-day.

I have thought a good deal about this matter and I am of the opinion that the savings of this country upon which the nation depends for its investment come quite as much from the lower incomes as from the higher incomes—that is to say, that £100 million of relief given in taxation is likely to bring back quite as much, possibly a little more, in the shape of savings as £100 million distributed to the larger income receivers. I admit that that is only an opinion of mine and I cannot produce documentary evidence in support of it. I have tried to get figures of savings with an indication of the class of society from which they come. I have collected a number of figures but, on reflection, I have come to the conclusion that I should not be right to use them, for two reasons: first, because, not being in touch with official sources, it is not possible for an amateur to judge whether different sets of figures are cumulative or whether they overlap. Therefore one might very easily be counting the same sums twice. The second reason, which I think will be obvious to everybody, is that small savings are not necessarily identical with the savings of people with small incomes. Quite wealthy people invest in savings certificates which are included in the small savings category. So I think only an official source will supply the correct statistics upon which some opinion can be based.

I was asked whether I had any questions to put to the noble Earl, Lord Selkirk, who is, I understand, to reply to the debate. In passing, may I say how glad we are to see him back, looking so well; I hope he has benefited fully by his holiday. I want to ask whether he is in a position to give any reply on the point I have just raised. If it is possible for him to do so, I hope he will. I can only say that there are a large number of forms of saving which are taken advantage of by the lower income categories—there are the Trustee Savings Banks, the Post Office Savings Bank, savings certificates, building societies, industrial insurance societies, the superannuation schemes of private employers, and a number of others which probably I have not thought of. Certainly, I should hazard a guess that when you have taken all those into account they must run into at least several hundreds of millions of pounds a year, which is quite a substantial matter to be considered when the interests of the nation, to obtain savings to make investments and thereby to increase productivity, are under discussion.

So, my Lords, I draw to a close with this observation: that so far as the distribution of the Budget relief given by the Chancellor of the Exchequer is concerned, without discussing the merits, as to whether it is right or wrong to give more to one individual as against another, looking at it from the point of view of its effect on the economy of the country, I personally think that the distribution would have been better in other forms. With that, so far as I am concerned, I say farewell to the discussions in this House in this present Parliament.

4.5 p.m.

LORD BRAND

My Lords, before I begin the principal part of my remarks to your Lordships, I should like to make one or two comments about the speech of the noble Lord who has just sat down. It is true that the Chancellor of the Exchequer, in the noble Lord's early days, and in mine too, did not have to bother about inflation and deflation: it was the Governor of the Bank of England who more or less decided, in conjunction with the Chancellor, what means could be put into force to stop booms or slumps. Before the first war it was not a question of inflation, in the sense of our currency losing its value, because under the gold standard that did not happen; it was a question of stopping booms or slumps. Now, all that has been replaced by a system whereby the currency of a nation is not unalterably fixed in relation to others: there is no definite, fixed convertibility. What the Chancellor of the Exchequer tries to do is to stop inflation or deflation. The Governors of the Bank of England may not have been very good—certainly, they were not perfect at stopping booms and slumps. At present, in conditions of very great difficulty, Chancellors of the Exchequer find an equal, indeed, probably a greater, difficulty in stopping inflation. We are all looking to them, with the help of the Bank of England, to do much better than we did in the old days; but at present we live only in hope, because the tendency towards inflation is enormously strong. That is one of the points I wish to make in my remarks.

I might perhaps make one other small correction. I was a member of the Macmillan Committee. I do not think we ever said that big British industry could not find the money it wanted—because any really big British company could make public issues in the City of London—but that there was a gap (it has since been called "the Macmillan gap") where industries of middle size which wanted more than a bank was prepared to lend them on overdraft, and less than was feasible for a public issue, found a difficulty in getting money. To some extent, at least, that gap has been replaced by the institutions presided over by the noble Viscount, Lord Bruce of Melbourne, and the noble Lord, Lord Piercy. To that extent, the situation has certainly improved.

Not being very good at figures, I should not like to venture on an explanation of Lord Pethick-Lawrence's percentages. I have a vague impression that the size of the percentages is due to the steepness of the progression in British taxation. If an enormously progressive tax is placed on the rich, they must gain considerably when taxation is reduced. I do not think percentages are the best means of comparison in circumstances of that kind.

Every noble Lord knows that important things have been happening in the country, quite apart from the question of the General Election. I agree here with the noble Lord, Lord Pethick-Lawrence: that certain indications show that in the next year or so we are going to suffer serious difficulties from our usual problem—the balance of payments.

I intend, however, to say very little about the Budget for it is a very simple one; the only important change is the reduction in income tax. When taxation is as excessive as it is today, any reduction is welcome. It is true that the level of consumption in the country now appears to be clearly beyond our present means, and that, if monetary policy is to put a sufficient brake on what is happening, it will have to be made very effective, either by our present Chancellor of the Exchequer or by some new Chancellor after the Election. The present Chancellor of the Exchequer can excuse himself as to income tax reduction and can plead that "if there was a baby it was only a very little one." The proportion of the amount of the total reduction in income tax which is likely to be spent on consumption in relation to our total national income is a minute figure, and I do not consider that the reduction will have any great effect in that way. I hope that, on the other side, it may encourage greater energy and greater productive effort and savings. I do not accept the critics' view that the reduction was unfair as between different classes. Any reduction in income tax must be made all round, and if that is done, and the big incomes get a similar reduction to the small incomes, it stands to reason that the big incomes get off much better than the small ones; but if you do anything else you would be imposing progressive taxation in reverse. Both coming and going, the rich, or moderately rich, man would have imposed upon him progressive and obviously unfair taxation.

Turning to the general economic position, and particularly to our Achilles' heel, the balance of payments, to which neither of the Party Manifestoes refers, it would, I know, be difficult to make the public understand a great deal about it; and to do so would not gain many votes for a Party that tried to discuss it; but doubtless Party leaders may say a good deal about it in their speeches. In this respect I believe that the year 1955 is going to be a difficult one for our country. No doubt the facts are well-known to your Lordships. The noble Lord, Lord Pethick-Lawrence, gave some broad figures with regard to the reduction in exports and the great increase in imports. I will take only the figure for this March. In that month exports amounted to £273 million and imports to £365 million, the excess in one month being £92 million. In the first quarter of 1955, imports averaged £325 million, or 23 per cent. higher than in the corresponding quarter of 1954. It is therefore quite clear that the gap between our imports and our exports is rapidly widening. I have tried to examine certain possibilities as to what might happen in the year 1955, as compared with 1954. The figures I give are nearly all hypothetical, but they may show the kind of problem we face.

In 1954, consumer expenditure in this country went up by £400 million, and it is this which accounts for the gap in our balance of payments. This was due to a genuine increase in spending by the community. It was not due, or was due only to a very negligible extent, to the less favourable terms of trade, which have recently developed. I believe that the Chancellor of the Exchequer has said he expects consumer expenditure in 1955 to increase by some lesser amount. Suppose it increases by £300 million in this next year, against the £400 million last year, how is that extra consumer expenditure to be met? Can it be met by increased production? There are indications that our production is increasing considerably, and at the present rate it looks as if it might be higher in 1955 by £300 million. I hope that it may go even further. But the recent adverse movements of the terms of trade (if they get no worse) will swallow up, with the same volume of imports, about £180 million, which would leave a remainder of £120 million. But Her Majesty's Government propose to spend a good deal more money, and we hope that there will be considerably increased capital investment, which may amount to between £100 million and £200 million, which would wipe out the remaining balance.

How then would the £300 million of increased consumption be met? There one comes to the effect on the balance of payments. Temporarily, some of it might be met out of the deficit, if we were to have a big one, because a deficit on the balance of payments enables you to cover it for the moment by borrowing abroad—in fact a deficit means that we do borrow the money for the time being from other countries, and, therefore, can temporarily meet the balance out of a deficit. It will be only temporary for it will be borrowing short. Alternatively, we might meet the deficit out of our reserves. Anyhow, it looks as though we shall certainly have very considerable difficulty in balancing our position in the next year. Clearly, too, there will be the most compelling reasons why the deterioration in our balance of payments should be checked soon; clearly, too, consumption in the country is at present too high unless it can be balanced by a big increase in production.

This balance of payments development coincides with two others. Simultaneously, as noble Lords will know, there is a demand for very large wage increases which will add to consumption; and there is a deterioration in the position of some other sterling area countries, particularly Australia, the burden of which may fall upon us and on our reserves. I read in your Lordships' Library today a message from a correspondent in Australia, from which country I have just returned. I thought the message was most apposite. The correspondent wrote The conviction is gaining ground here that there is a chronic tendency for Australia's imports constantly to outpace exports. The basic factors of full to overfull employment, labour shortages, the pressure of population-growth on resources and sustained internal spending are now being augmented by marginal wage-increases for skilled workers. All these factors tend to increase consumption. That could, I think, have been applied almost word for word to this country. I found that the problems of inflation in Australia are almost identical with the problems we have here. In particular, a tremendous discussion was going on about what they call the "margins issue," which is the same issue as that raised by the engine drivers in this country—namely, that the skilled men have not kept up, so far as their pay is concerned, with the unskilled men, and that this should be put right. There has been a decision by some arbitral authority in Australia that all margins must be increased by 2½ per cent. on the margin that existed in 1937. That has been found to be so expensive by the Government that I understand they have refused to accept it for the Civil Service.

In our present circumstances, the instrument which a Conservative Government have at hand to remedy our position is monetary policy effectively applied. In my opinion, they rely, rightly, on this and not on direct controls; and if the present Government are returned at this Election, presumably monetary policy will now be tested and must be made effective. Our difficulties here, like those in Australia, and in some other countries, arise fundamentally, I think, from the fact that monetary stability has occupied a very lowly place in the minds of the electors, and Governments cannot go much faster than electorates. The result is a tendency almost everywhere, in all countries—fortunately for us—towards inflation and to perpetuating the well-known "vicious circle." I need not enumerate its causes. I believe, however, that there is a widespread habit now of accepting inflation as inevitable. This habit exists in some business circles, too, and in industry, of course, inflation has some advantages. There is apparent prosperity; profits increase, and dividends get larger. This last is then complained of by the wage earners who are demanding high wages, and yet it is these high wages that make high dividends.

As I say, there is a widespread habit now of accepting inflation as inevitable, and believing that it is not so bad if it does not go too fast. I personally do not accept this view. I think that least of all countries can we afford monetary instability. In the first place, we are banker to the sterling area, and if, as a banker, you pay people back with money which is not quite as good as money they lent to you, you will not be regarded as a good banker. The whole sterling area looks to us to keep our money at the value it was when they put their money with us. Bankers have to be careful that they do not go insolvent and that they remain very strong. A second reason is that we have an extreme dependence on exports. So long as other countries inflate equally with us, our exports will compete with theirs. There is no reason why they should not. But, of course, if other countries cease inflation and we do not, we are in difficulties at once, and we shall be unable to compete.

If we do not provide the sterling area and the world, for which sterling means so much, with a stable sterling currency, I think that other countries—Germany, for instance—may seek stability without us. And if, on the contrary, we continue to inflate we shall get into immediate difficulties. The German workman, unlike the British workman, has full knowledge of what inflation means. There is still a generation which has experience of it, and the workers are not going to risk it. Nor would the British worker really accept it, if he knew what it might mean. We should therefore not contemplate for ever leaving ourselves open to the evils of inflation, to constant balance of payments crises, constant uncertainty in the world about sterling, constant labour troubles and strikes, constant injury to the fixed income classes, constant trouble about inflationary profits and increases in share values (which are then inevitable) and distrust in all monetary values. A very prominent businessman said to me recently that he did not think inflation mattered if it went only at the rate of 1 or 2 per cent. per annum. Well, if you take a holder of Government securities—you having advised him to invest in British Government securities—and tell him that, of course, there is likely to be a 2 per cent. annual inflation, so that he must take it that in ten years he will have lost 20 per cent. of the value of his money invested, he will not be very pleased. In twenty years he would lose 40 per cent.

I could go on with various other arguments against inflation, but I think I have said enough. I have no illusions about the great difficulties in stopping it. It means a change of heart in electorates, and certainly a change of heart on the part of Governments. I should like here to read to your Lordships a quotation from an article by a friend of mine, Sir Dennis Robertson, who is one of the most prominent economists in England and also one of the most fair-minded of men. In an article which he wrote recently he said: Such minor modifications"— he was referring to certain policy modifications— in policy or propaganda would still, however, leave us face to face with the two major mutually-reinforcing obstacles to genuine long-term stability of prices—the monopolistic powers of trade unions and what may be called for brevity the 'full employment pledge'. As regards the former, I do not wish to be too pessimistic about the hopes widely entertained that experience of the mutual damage that can be inflicted upon one another by bodies of workpeople attempting to force up their own wages will eventually impose a greater moderation in the use of monopoly power. But I think there has been an excessive naivetè over this matter in the past; and I would myself rather stress the importance of ensuring that the preachers and propagandists of moderation are given a favourable climate in which to operate. And that to my mind means reconstructing so far as is possible, the framework of monetary discipline within which in the old days the fashioners of trade union policies were well, if only subconsciously, aware that they were obliged to act. I believe all that to be true, though I am sure that a cold shudder goes down the backbones of many noble Lords when the words "full employment" are mentioned.

I have read certain criticisms of the Conservative Manifesto, but I myself find it an admirable document. It was intended for intelligent and adult men and women. It is moderate in statement and clear in reasoning. As to the Labour Manifesto, with its red banner in front, no doubt I am prejudiced. I do not feel that it is directed to wholly adult men and women, but to those classes of the electorate who are looking for some gift or other. It reminded me of a parent thrush going to its nest and finding a lot of little ones with their mouths wide open, waiting for worms. Every class in the State has been considered by the Labour Party from that point of view—"How can we find a worm for this or that section?"

If the Labour Party is returned, I take it that, although we have a difficult situation, either the huge expenditure contemplated in their Manifesto will be entered into, in which case I see no chance whatever of stopping inflation, or that side of the Manifesto will not be implemented and the Labour Chancellor of the Exchequer will be given a chance. Then I imagine that what he is likely to do is not to use monetary policy—though perhaps he will go on with the 4½ per cent. bank rate; I do not know—but to return to quantitative import restrictions, which I think will lead to many other restrictions and get us further and further away from a free and stable system. If the Conservative Government are returned, no doubt we shall see the greatest possible effort to retain the present freedom and to find a solution through effective monetary policy.

There is one good reason for feeling optimism in this country. From the examples of the United States, Canada and other countries, we know perfectly well that, if we like, a great increase of production is possible, a much greater increase than we have had up to now, if all parties—employers and employed and savers of capital—co-operate to secure it. In my opinion, there is no reason why we should not attain it in a few years. It may well be, indeed, that in the next year or two we shall see a big increase of production as the fruit of all the capital expenditure we have made in the last few years. But we must somehow avoid recurrent crises, and for this we require a different policy—not simply restriction, but a policy which will secure both stability and freedom. It is just as important that all Parties should pursue this objective together as to have a bipartisan policy for foreign affairs. No doubt I shall be told that that is absolutely impracticable. But it is of vital importance to the world that our currency should be stable. If we could only discover some common policy on this question, it would be an enormous step forward. I have never seen the possibility of full convertibility with one Party in the State taking the view that it does about steel: namely, that when it comes into power it will pursue quite another course. That is not the way in which we can persuade the world to have complete confidence in sterling.

4.36 p.m.

LORD BRABAZON OF TARA

My Lords, it is always a pleasure to listen to the noble Lord, Lord Brand, because he speaks with such authority on an abstruse subject and he deals with it objectively. The only fault I found in his speech was when he tried to indulge in Party politics. I think he stands above Party politics. I expected a little shadow- boxing and we have had it up to now. I appreciate that anything we say in this House on the Finance Bill is a pure waste of time, because we cannot do anything about it; but it is true to say the same of speeches in the Lower House, so we need not be worried about that. We are practically the same in both Houses.

I want to raise a point as an ordinary man in the street. The question I want to raise is the question of surpluses. The Budget of last year has produced the enormous surplus of £400 million. I may be a simple soul, but I have a strong dislike of being overtaxed to the extent of £400 million. We talk about next year's expenditure on the basis that we have this surplus. The assumption is made that exactly the same taxation will go on under exactly the same world conditions and that exactly the same surplus will occur. And the question is asked: "What are we going to do about it?" That is not what occurs at all. What happens is that the surplus is used for paying off the National Debt. That is what happens to it ultimately. I know that it is a tradition and the practice in the Treasury to put the surplus for the redemption of the National Debt. That is called true Gladstonian finance, a theory which is held by all Treasury officials with the fervour of religion. When that theory was started, there might have been a possibility that one could pay off the National Debt, but to-day £400 million towards paying off the National Debt is just a drop in the ocean.

I think we have to take a new outlook on this matter of surpluses. We all know that if this country is to be successful in the world and hold its own, it wants an immense amount of capital equipment, for which vast sums of money are required. For the development of electricity, ports and roads, capital equipment is urgently wanted. We are always told by the pundits that we cannot afford it. The tragedy of it is that we have already paid for it, but we are not allowed to use it. This £400 million, which we could use so readily for equipment, is going back for the sterile purpose only of reducing the National Debt. I suppose that next year there will be the same demand for new capital expenditure on these necessities, and the Government will say that they cannot afford it. But supposing they were persuaded to spend it, what would be the result? We should have paid for all that capital equipment exactly twice. We have paid for it this year and it has not been used, and we shall have to pay for it again when the Government make up their mind to spend it. What company in the world would ever think of wiping off their capital and at the same time asking for money for capital expenditure? It is a situation which I frankly think is ridiculous in these days. It may indeed appear revolutionary, but that does not mean it is not common sense to deal with surpluses from a capital commitment point of view instead of paying them back to the redemption of the National Debt. I know that I cannot ask the Minister who is going to reply to say anything in favour of my proposal, because he would be torn to bits by Treasury officials; but that does not mean that it is not a right policy and one which should be thought of seriously in the future.

4.42 p.m.

LORD GRANTCHESTER

My Lords, I had not intended to say anything this afternoon, but I was surprised to hear the noble Lord, Lord Pethick-Lawrence, use percentages for part of the argument that he was putting forward. That reminded me of a book that is full of the misleading results of the use of percentages, called, I believe, How Not to Use Statistics. As the noble Lord used percentages in the way that he did, perhaps it would be useful if we looked at the percentages that different categories of taxpayers pay in tax. The £1,000 a year man pays 8.5 per cent.; the £2,000 a year man 20 per cent.; the £5,000 a year man 42 per cent.; and the £20,000 a year man 75 per cent. If percentages are to be given in the way they were given by the noble Lord, Lord Pethick-Lawrence, then I think these percentages also should be given.

I was glad to hear the noble Earl, Lord Munster, say that the level of taxation is too high. Certainly with the level of taxation at £4,600 million we cannot expect the value of our money to be maintained. I listened to the Chancellor of the Exchequer in another place saying that he had been through all items of expenditure. If we come down to percentages again, on £4,600 million the reduction of taxation is £134 million, which is about 3 per cent. Surely it is possible to find some means of saving a greater amount of the £4,600 million expenditure, and I would urge that there should be a further and more rigorous investigation into that amount of expenditure to see whether, instead of 3 per cent., at least 10 per cent. cannot be saved.

EARL JOWITT

I rise to ask this question of the noble Lord, Lord Brabazon of Tara—but I see that he is not here.

THE EARL OF SELKIRK

He asked to be excused because he has to go to a meeting.

EARL JOWITT

I was going to ask the noble Lord this purely factual question. He assumed that the surplus on the Budget is allocated to the reduction of the National Debt. Is that right? The National Debt between 1954 and 1955 has gone up by nearly £400 million. I believe that the surplus is used—I speak as a child in this matter—for all sorts of other expenditure, such as loans to local authorities, loans abroad and so on. I see the noble Viscount, Lord Waverley, sitting there, and he could tell me in a moment whether I am right. Is it right to say, as the noble Lord, Lord Brabazon of Tara, said categorically, that the surplus is used for the reduction of the National Debt?

VISCOUNT WAVERLEY

I think it is purely a matter of accounting.

4.45 p.m.

THE EARL OF SELKIRK

My Lords, I think, if I may confirm that, that it is generally used for paying what is known as the below-the-line expenditure. When noble Lords opposite were in power they deliberately set that figure high as a form of forced savings. That practice has not been followed so closely recently.

We always enjoy listening to the noble Lord, Lord Pethick-Lawrence, speaking with that great objectivity and experience which he brings to our discussions. I am bound to say that, on the whole, I thought his economics better than his politics. When he was talking on an economic level I found him most interesting, especially in his reminiscences. I would pick him up only on one point. He said that the Exchange Equalisation Account was subject to Parliamentary control.

LORD GREENHILL

Parliamentary question.

THE EARL OF SELKIRK

I do not think the operation of that account is open to public inspection.

LORD PETHICK-LAWRENCE

What I meant was that the policy employed now is under the Chancellor of the Exchequer and is open to Parliamentary question and that, as a consequence—and this is the point I was making—the Treasury must have officials in the Treasury who understand it, and who work it, instead of the whole thing being dealt with, as previously, under the control of the Bank of England.

THE EARL OF SELKIRK

I appreciate what the noble Lord says. I thought he meant that Parliament could get details of the operation of the account, which, of course, would be nonsense. The noble Lord asked about small savings. I am sorry, but I cannot give him an answer to that question. It is one of those subjects on which we have not got full information. I can give the noble Lord figures about general savings, which have increased substantially in recent times.

LORD GREENHILL

Am I not right in thinking that figures for the National Savings Movement are available, but that there are many more institutions which collect savings, the figures for which are not easily available, although in past years I believe they have been collated, in response to a Question in another place?

THE EARL OF SELKIRK

I do not think they are necessarily relevant.

LORD GREENHILL

That is another matter.

THE EARL OF SELKIRK

One of these is building societies. Their figures may increase, but they may or may not be small savings. It is for that reason that I do not think the figures are particularly relevant to the point.

I was rather pleased to hear the noble Lord, Lord Pethick-Lawrence, speaking more gently about the high bank rate. He merged the Bank rate with physical controls and said that it was a matter of choice. That, of course, is a closer proximation to our point of view. The noble Lord used to be a violent opponent to the use of the bank rate as a control. But it seems to me that there is one great difference between the two: the use of the bank rate leaves the individual with a choice, whereas once you have physical controls, whether you degenerate it into rationing or not, you take away the individual's choice. The noble Lord says that it is non-discriminatory. But every law in this country is non-discriminatory. That is the whole point of law: that it does not discriminate between individuals.

LORD PETHICK-LAWRENCE

Everything must be non-discriminatory in respect of individuals. You must not stop Mr. A from doing something that you allow Mr. B to do. The point I was making was that when you have a physical control you restrict the enterprise of things which are of no national value, but allow those of national value to go forward. But raising the bank rate may prevent an important enterprise from getting the money and allow an unimportant and useless enterprise to get it because it is financially stronger.

LORD GREENHILL

May I supplement that point by asking in what sense is it a matter of individual choice? What choice is there when the bank rate is raised? Is it suggested that a Government will increase the bank rate for reasons other than very pressing reasons, and not necessarily internal reasons? They may be external to domestic necessities.

THE EARL OF SELKIRK

The bank rate leaves a choice because the man is free to use it or not. But if you have your steel or meat rationing, you have no choice—the decision is made for you. The noble Lord seemed to me to step right into this point because what he suggested is that some official should discriminate. That is highly discriminatory. This official would decide that one important business is in the national interest and the noble Lord's is not. That would be an example of very sharp discrimination.

LORD PETHICK-LAWRENCE

The Capital Issues Committee.

THE EARL OF SELKIRK

That is still retained, but on the whole we think that discrimination between officials is bad. A man may decide that it is worth getting money at a high price because the particular project is important.

LORD GREENHILL

I dislike interrupting again, but I think there is a danger of being misled. It is quite true that when the Bank of England decides to raise the bank rate potential borrowers in this country may hesitate to borrow because of the increase. But that, I suggest, is not the whole reason for imposing a higher bank rate. It may also be in order to avoid balances, other than sterling balances, leaving this country. That is another reason for raising the bank rate, so the matter is not quite so simple.

THE EARL OF SELKIRK

I never suggested that it was simple. I entirely agree that it is a most complex matter. Perhaps we might leave that for the moment. I should also like to pass over the question of the accusation that my noble friend Lord Munster is complacent in this matter, and pass to the question of the distribution of tax reliefs. The interesting thing which emerges is that the noble Lord, Lord Pethick-Lawrence, said he would like to distribute these reliefs in other forms. By that I understood him to mean other forms which could be described as electorally more popular.

LORD PETHICK-LAWRENCE

I was quoting the Economist.

THE EARL OF SELKIRK

I under-stood the noble Lord to say "distribution in other forms." He also quoted the former Chancellor of the Exchequer, Mr. Gaitskell, who referred to reduction of tax on tobacco, beer and petrol. Surely, that proposal is inflationary in character, and certainly more inflationary than a flat reduction in income tax.

LORD PETHICK-LAWRENCE

The noble Earl must not misquote me. What I said about Mr. Gaitskell's speech was that he pointed out the various things that were going wrong in this country at the present time, and I thought the noble Earl, Lord Munster, was too complacent about it. I was supported in that by the noble Lord, Lord Brand. What I said about the reliefs was that there were other forms in which they could have been given; and in order to show what other forms there were I quoted the Economist.

THE EARL OF SELKIRK

I am glad to hear that. I got the impression that the noble Lord intended to make what I describe as more popular reliefs. If the noble Lord is going to talk about percentages in the higher ranges of income, perhaps we might look at it from another angle, because these percentages can be made to represent anything you like. I should like to remind the noble Lord of this fact. If we divide our people into five categories, and compare the level of taxation under the present Bill with the level of taxation when the Labour Government were in power, it will be seen how we stand. Of course, we must recognise that we have in this country a progressive system of taxation. We all agree about that, but it does not mean to say that it is possible to have an equally progressive system of tax reduction. In fact, as I shall show, we have a powerful regressive system of tax reduction.

May I give the figures? Persons with incomes of over £2,000 a year would have paid 12 per cent. more tax under a Labour Government; those with incomes of £1,000 and £2,000 would have paid 37 per cent. more; those with between £500 and £1,000 would have paid 75 per cent. more; those with between £250 and £500 would have paid 100 per cent. more, and those receiving under £250, 400 per cent. more. There is a marked regressive element in the manner in which taxes have been reduced in the four Budgets which my right honourable friend has produced. It is important to look at the matter from that angle. I think everyone agrees that there should be a much more marked disparity between the married and the single person. That has certainly given a curious twist in some aspects of the graduation, but I think it follows the lines of the suggestion of the Royal Commission—indeed, in many respects, it carries them rather further.

The noble Lord, Lord Pethick-Lawrence, suggested that we were rather complacent. I do not think anyone underestimates the importance of what the noble Lord, Lord Brand, has said to us, and, if I may say so, we have every year examined some aspect of the economy which needed careful examination. Your Lordships may remember that two years ago, at the end of the Korean war, we were concerned in case the dislocation which might follow would lead to certain unfortunate trade reactions. Last year we were concerned about capital investment and the trade recession in the United States of America. That might have been a serious matter, but the latent strength of the economy of this country enabled us to ride through without any serious disadvantages. To-day we are concerned, as we have been reminded, with inflationary pressure and with balance of payments problems. We are quite aware of that. We do not want in any way to pretend that these problems do not exist. But I do think we must recognise that the general structure of economy in this country is much stronger than it was four years ago. My noble friend told us of certain action taken in February, which was pretty strong action. One has only to quote the words of Mr. Gaitskell, when he spoke of it in extremely strong language. My noble friend has said that saving is still up, which is an important point.

I should like to compare one or two of the aspects which exist to-day with the conditions which existed in the spring of 1952, because there has been a considerable development during that time. In the first place, the latest figures, for the spring of this year, show that production is up by somewhere about 16 or 17 per cent., and exports by about 20 per cent. The noble Lord, Lord Pethick-Lawrence, using figures which were quoted by Mr. Gaitskell, said that this compared unfavourably with other countries. You can jostle the dates about as you like, but I think the noble Lord may agree to this: that for the last two years our exports have compared favourably with those of all countries except Japan and Germany. The noble Lord may take it that the rise in that sphere is something with which we may be fairly satisfied.

I am aware of the points made by the noble Lord, Lord Brand, and I will come to them in a minute. The Economic Survey shows that there is an encouraging sign in the private sector in regard to the development of factories. Many of us can vouch for that from our own personal experience. I would also add this, because it enlarges the point. In the period from 1952, wages and salaries have increased by £11,000 million. We find that personal incomes from rents, interest and dividends have increased by about £170 million. That is a very big increase in demand and in that sense gives a much better assurance of the home market necessarily, as such.

LORD GREENHILL

What inference is to be drawn from those two sets of figures?

THE EARL OF SELKIRK

The inference to be drawn, to my mind, is that in the first place it reflects substantially the increased industrial production, which can be set at about 132, over 114 in 1952. Accordingly, it ensures a sounder home market on which the export trade can be based.

May I turn now to Lord Brand's statement, which, as I have said, no one can fail to take seriously. The noble Lord blames internal consumption, which I think is a little too much for the difficulties we are in. But what the noble Lord emphasised—and I am sure he agrees with me here—is the importance of increased production, as such. There can be no doubt about that. Of course, that is going on.

LORD BRAND

And the importance of increased capital expenditure. That is why I do not want to see ordinary consumption go up too much, because we want to spend in order to have greater production. We must be sure to spend enough capital.

THE EARL OF SELKIRK

I appreciate that point. I can give the noble Lord my figures, if he likes, of capital expenditure. They are encouraging at the present moment. The noble Lord is worried about the question of full employment. That is the point where politics and economics necessarily go apart, because here we are dealing with a question which cannot be answered entirely in terms of economics. It is a matter on which political Parties are united in this country, and, I suggest with great respect, not for any idle reason; they are united because there is a considerable moral issue concerned which I do not think anyone can possibly misunderstand. The second point mentioned by the noble Lord concerned the monopoly of the trade unions.

LORD BRAND

May I say that I think the noble Earl misinterprets me? He has in mind, I think, that, as things go at present, full employment can always be assured. Of course, if that is so, if there is no danger whatever in the future about full employment plus stability in currency, I am all for it. But my view is that nothing in the new economics can make certain that, if we have bad times or if our money situation becomes bad, any Government can keep full employment here. I want currency stability in order to maintain, not to do away with, full employment. I think we have not yet really begun the experiment of full employment. It has to go through all sorts of difficult times, particularly in a country which depends on foreign trade. At any rate, I am as much for full employment, if it can be maintained, as is the noble Earl.

LORD GREENHILL

May I offer a comment on this question of full employment? For myself, I think it is mainly an economic reason, although it has a moral value. In the interesting account which the noble Lord, Lord Pethick-Lawrence, gave of the significant changes that have taken place in recent years, one that I did not hear him give was the one that Keynes was responsible for in his well-known book. We do not need to be Keynesian supporters in order to realise the great significance of the change that his book effected in our attitude towards employment. Many of your Lordships will remember that he goes to the length of saying that it would pay to dig a hole and have it filled by someone else if you can keep up the employment factor during times of unemployment. That is a totally opposite conception from the kind of conception that used to be in vogue and which I rather suspect is held by the noble Lord, Lord Brand, today. In 1930 or 1931 the May Committee examined our bad industrial position, and the only remedy they could suggest was the cutting down, instead of the expanding, of services, with the result, of course, that we had deflation—

SEVERAL NOBLE LORDS: Order, order!

THE EARL OF SELKIRK

My Lords, I am grateful for what the noble Lord, Lord Brand, has said. I wanted to clear that point up, because it seemed from what he said that he was putting the importance of full employment too low. May I refer to one other point raised by the noble Lord? He talked about the monopoly of the trade union organisation. I think we should to-day recognise what happened the day before yesterday. In the circumstances, it is fair to recognise the immense measure of responsibility which those who are carrying that high power are facing at the present time.

I have been interrupted a good deal. I think I have been speaking to your Lordships too long. My noble friend has really covered the matter in point, but I think to-day it is fair to recognise that we have had four remarkable Budgets in the last four years. Those Budgets have brought the United Kingdom and the sterling area broadly into balance. We have maintained full employment; production has increased, and increased very considerably; and the social services over the whole field have been extended, particularly in the field of housing. Initial steps to achieve equal pay in the Civil Service have already been introduced. Rationing has been abolished, with the single exception of coal; and we have absorbed the burden of a very heavy Defence programme, whilst at the same time reducing both direct and indirect taxes.

In that respect, it is interesting to note that, compared with the last year in which the Labour Government were in power, direct taxes have been reduced by £787 million a year, which is a substantial sum. I think it is fair to say that almost every section of the community now has a higher standard of living with a much wider choice of consumer commodities at their disposal. This is a very solid achievement, especially when viewed in the light of the difficulties which beset the Chancellor of the Exchequer when he came into office and which I think the country will very readily recognise.

On Question, Bill read 2^a: Committee negatived.

House adjourned at nine minutes past five o'clock.