Lords Sitting of 1 November 1955

Preamble
The House met at half past two of the clock, The LORD CHANCELLOR on the Woolsack.
Prayers
The Earl of Minto—Took the Oath.
SWANSEA CORPORATION (FAIRWOOD COMMON) BILL [H.L.]
Read 3a, and passed, and sent to the Commons.
GLOUCESTERSHIRE COUNTY COUNCIL BILL [H.L.]
Read 3a, and passed, and sent to the Commons.
RUNCORN—WIDNES BRIDGE BILL [H.L.]
React 3a, and passed, and sent to the Commons.

INTERFERENCE WITH REFUGEES
2.37 p.m.
LORD VANSITTART: My Lords, I beg to ask the Question which stands in my name on the Order Paper.
[The Question was as follows:
To ask Her Majesty's Government whether a Pole, Josef Malicki, was recently deported from this country; whether he was a member of the Polish Social and Cultural Association in Britain; whether his deportation was in any way due to interference with refugees in this country; and if so, whether power will be taken to close institutions which so abuse their position.]
THE JOINT PARLIAMENTARY UNDER-SECRETARY OF STATE FOR THE HOME DEPARTMENT (LORD MANCROFT): My Lords, Josef Malicki, who is understood to have been employed as Secretary of the Polish Social and Cultural Association in Britain, was deported
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on October 8. My right honourable friend, the Home Secretary, made the deportation order because he was satisfied, on considering all the circumstances, that this step was conducive to the public good. With regard to the last part of the Question, as has been made clear in the past, Her Majesty's Government will not tolerate any attempts at intimidation of, or interference with, refugees who enjoy the protection of this country, and will have no hesitation in taking appropriate action against those concerne.1 in such attempts.
LORD VANSITTART: My Lords, thank the noble Lord for his Answer, which is entirely satisfactory, and I hope that it will have an effect in checking what is a growing abuse, as I think he knows as well as I do.

NUMBER OF NATIONAL SERVICE MEN
THE EARL OF LUCAN: My Lords, on behalf of my noble friend Lord Lucas of Chilworth, I beg to ask the Question which stands in his name on the Order Paper.
[The Question was as follows:
To ask Her Majesty's Government what is the total number of National Service men at present in Her Majesty's Forces.]
THE PARLIAMENTARY SECRETARY, MINISTRY OF DEFENCE (LORD CARRINGTON): My Lords, there were 280,206 National Service men in the Forces on October 1, 1955—the latest date for which figures are available.

RIGHTS TO A BRITISH PASSPORT
2.40 p.m.
LORD GRANTCHESTER: My Lords, I beg to ask the Question which stands in my name on the Order Paper.
[The Question was as follows:
To ask Her Majesty's Government for what reason and on what authority a cautionary note was introduced and printed on British passports and for what reason and on what authority the caution first printed, which read as follows:— "This passport remains the property of Her Majesty's Government and may be withdraw at any time if

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the holder ceases to be entitled to the protection of Her Majesty's Government," has now been amended on new passports to read—"This passport remains the property of Her Majesty's Government and may be withdrawn at any time."]
THE MINISTER OF STATE FOR FOREIGN AFFAIRS (THE MARQUESS OF READING): My Lords, the cautionary note was first inserted in United Kingdom passports in 1948, in order to remove possible doubts about the holder's right to retain his passport. The present wording is not new. The change was made as long ago as 1951, since it was felt that the original wording might in certain circumstances be open to misinterpretation. I assure the noble Lord that the insertion of these notes had no sinister significance and did not indicate any change of policy as regards the issue of passports. The grant of United Kingdom passports is a Royal prerogative exercised through Her Majesty's Ministers and in particular the Foreign Secretary. No United Kingdom citizen has a legal right to a passport and in theory the Foreign Secretary has the power to withhold or withdraw a passport at his discretion, although in practice such power is exercised only in exceptional cases.
LORD GRANTCHESTER: My Lords, I thank the noble Marquess for his Answer. This is a great departure from pre-war practice—even pre-1946 practice. On the application for a passport there is no mention of these conditions, and £1 is paid for the passport.
EARL JOWITT: My Lords, if we are going to construe something technically, would it not be more appropriate if the note said: "This passport is the property of Her Majesty" rather than of Her Majesty's Government? Can Her Majesty's Government own any property at all? And what is the Government?
THE MARQUESS or READING: My Lords, I should take up a good deal of your Lordships' time if I were to answer the last remark of the noble and learned Earl, but my general appreciation of it would be highly laudatory. At the same time I will consider the point raised by the noble and learned Earl.
VISCOUNT STANSGATE: Might I ask the noble Marquess this question: on whose advice does the Foreign Secretary exercise the Royal prerogative in this matter?
THE MARQUESS OF READING: The responsibility is that of the Foreign Secretary. Whose advice it is, is not for this purpose material.
VISCOUNT STANSGATE: Would the noble Marquess be prepared to state in how many cases a passport has been refused to a British subject?
THE MARQUESS OF READING: Over what period of time?
VISCOUNT STANSGATE: Perhaps I could put down a Question. I could not expect a reply offhand.
THE MARQUESS OF READING: I can tell the noble Viscount this, that a passport has been withdrawn only once or twice in the course of a year over the past years, whereas the number of applications for passports has been in the neighbourhood of half a million; so that the number of cases is not very large.
VISCOUNT STANSGATE: Is the noble Marquess aware that during the war passports were issued without any words appearing on them about their being withdrawn? They were said to be "the property of His Majesty" or of "His Majesty's Government," but they contained nothing about their being withdrawn. Then in Mr. Bevin's time there appeared something about the holder ceasing to enjoy the protection, and subsequently, in Mr. Morrison's time, came the words saying that they may be taken away. What was the reason for tightening up these notes? Was it not an attempt of the Foreign Office to secure a control which before that time was doubtful?
THE MARQUESS OF READING: I do not think it was an attempt to secure any new control: it was merely an attempt—and I suggest a successful attempt—to make the position indubitably clear.
VISCOUNT STANSGATE: But what is the position of a foreign subject abroad who desires this personal paper for his own protection? The noble Marquess must know that the withholding of personal papers is one of the well-known methods for dictatorial government.
THE MARQUESS OF READING: I am not concerned, in dealing with British passports, about the position of a foreign subject abroad. I do not follow the noble Viscount's question.
VISCOUNT STANSGATE: I am sorry I did not make it clear. Suppose that a British subject resident abroad—
THE MARQUESS OF READING: That is not what the noble Viscount said.
VISCOUNT STANSGATE: Supposing such a person applies for a passport and it is refused, he is damnified. His position is made very difficult. Does the noble Marquess not realise that?
THE MARQUESS OF READING: There may be cases in which a passport is withheld, and it may be rightly withheld. If the noble Viscount has any particular case in mind—
VISCOUNT STANSGATE: No.
THE MARQUESS OF READING: Or if the noble Viscount likes to put down a question in general terms I am prepared to answer it; but I think we are getting rather wide of the mark of the present Question.
LORD STRABOLGI: My Lords, may I ask the noble Marquess whether Her Majesty's Government would be prepared to consult with other Governments to see whether passports could not be abolished altogether between certain countries?
THE MARQUESS OF READING: That question, again, does not seem to arise even faintly out of the present Question, but for the gratification of the noble Lord that is a matter which we always have in mind and in which we have made some progress in recent: years; and we shall continue to endeavour to do so.

BUSINESS OF THE HOUSE
EARL FORTESCUE: My Lords, on behalf of the noble Marquess the Lord President of the Council I beg to move the Motion standing in his name.
Moved, That Standing Order No. 41 be considered in order to its being dispensed with for the purpose of passing the Sudan (Special Payments) Bill through its remaining stages.—(Earl Fortescue.)
On Question, Motion agreed to, and ordered accordingly.

SUDAN (SPECIAL PAYMENTS) BILL
2.45 p.m.
Order of the Day for the Second Reading read.
THE MARQUESS OF READING: My Lords, I, am sorry to have to interpose this Bill before your Lordships plunge into the economic situation, but this is a Bill which has considerable economic consequences for a perhaps small but extremely deserving body of people in this country. It has already passed through another place and, as a result of the Motion which has just been accepted by the House, I shall, in turn, ask your Lordships to pass it through all its stages to-day. Fortunately, it is a short Bill with two objects, both of which will, I believe, thoroughly commend themselves to the general opinion of your Lordships' House. The first of these two purposes is to provide for certain ex gratia payments to former pensionable officials of the Sudan Service; and to those who are described as pensionable officials there has to be added a category which is rather bleakly described, in the language used in connection with this Bill, as "female annuitants," who are a group of competent and devoted ladies who in the past have done most valuable work in the Sudan.
The second object of the Bill is to increase the pension and allowance which Sir Robert Howe, the former Governor-General, who retired at the beginning of this year, would be entitled to receive under the Superannuation Act operative in this country. The House will recall that it is now something over two and a half years since an Agreement was arrived at with Egypt which provided for self-government and, eventually, self-determination by the Sudan. The change contemplated by that Agreement raised the whole question of the future of the not inconsiderable number of British officials who at that time were employed in various branches of the governmental machine in the Sudan. I think your Lordships will unanimously agree that the men and women who occupied their lives in that Service did a most admirable piece of work in the interests of the peoples of the Sudan.
The Anglo-Egyptian Agreement to which I have referred provided for (I will

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try to avoid a word which I greatly dislike, by saying "provided for"—thereby, I hope, dodging the word "Sudanisation") the replacement of British personnel by Sudan personnel. But it provided that no British or Egyptian official was to retain a post in the Sudan Service which, in the opinion of (and this word is officially used in this connection) the Sudanisation Committee established under the Anglo-Egyptian Agreement, might be prejudicial to the free and neutral atmosphere which is essential to the proper consideration of all the problems arising at the time of self-determination. That time of self-determination is now obviously rapidly approaching. The posts to be considered, formerly occupied by British men and women, include all appointments in the Sudan Defence Force, in the police and in the Administration.
In considering the contents of this Bill it must be borne in mind that the Agreement between the Government of this country and the Government of Egypt was not an Agreement to which the Sudan Government was a party; but the Governor-General at that time, Sir Robert Howe, had laid upon him by certain articles, 87 and 88 (i) of the Sudan Statute, discretionary powers to ensure proper maintenance of public service, and he was, further, under the direct and express obligation to see that all officials received fair and equitable treatment. And it was clearly right that that safeguard for officials should have found a place in the relevant document. On the strength of that provision, Sir Robert Howe, quite rightly, started negotiations with the new Sudan Government. The situation in the Sudan in March, 1954, was, if I may use a neutral term, very uncertain, and the officials were under grave anxieties as to their own future. In those circumstances, Sir Robert Howe gave the British officials an assurance that they would receive fait and equitable compensation for loss of career. These men, after all, had left their own country and established themselves in the Sudan with the prospect and the purpose of contributing to the good government and prosperity of the Sudan, but also of earning their own livelihood in the process of so doing. The provisions in regard to compensation which this Bill contains have—and I think it is important to bear this in mind—nothing to do with pensions. Pensions are paid by the Sudan
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Government to those who are qualified to receive them, and this Bill is concerned not with pensions but with an additional gratuity by way of compensation for loss of career.
On the representations and approaches of Sir Robert Howe to the new Sudan Government, that Government agreed to make provision for the British men and women in their service who might be replaced by Sudanese. They accepted it as a proper burden upon their own exchequer, and in so doing, I think, took a fair and creditable view of the position. But the scale which the Governor-General agreed with them—a scale which is set out in the Sudan Expatria Officials Compensation Ordinance, which came into force in July, 1954—while not ungenerous in the circumstances, at the same time, in Sir Robert Howe's opinion, did not amount to an entire fulfilment of the assurances which he had given. He felt that there was still a gap between the sum agreed with the Sudan Government and what he regarded as fair and equitable compensation, and the question was how that gap was to be bridged.
In order to bridge that gap Her Majesty's Government—I think the House will accept, quite rightly—felt in honour bound to step in to back the Governor's stand and to make up the difference between the two sums. The sum of £160,000 was set aside which would be divided up between some 270 officials, being those amongst a larger number—something over 1,000—who were serving towards a pension and who would, in other circumstances, have expected to complete their full period of service. The balance between the 270 and the larger figure is made up either of officials who were serving there on short-term contracts and not on a pensionable basis or of officials who on entering into their contracts had included a term which entitled them to receive adequate compensation in the event of Sudanisation taking place during the period or the currency of the contract. The increase which is contemplated represents a maximum increase at its highest point from £ Egyptian 8,000 to Egyptian 8,500.
Subsections (2) and (3) of Clause 1 of the Bill set out the conditions and circumstances which have to be fulfilled before a former employee of the Sudan Government can

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establish a claim to this additional gratuity. If those conditions are fulfilled and the individual is entitled to compensation from the Sudan Government, then, automatically, the additional gratuity contemplated by this Bill follows in its train. The exact calculations involved are extremely intricate, and I do not propose to enter into details of them to-day but rather to ask your Lordships to confirm the principle of the Bill. The basis of the method of calculation is laid down in the Sudan Expatria Officials Compensation Ordinance, to which I have already referred.
So much for the officials now for the second part of the Bill, which I can deal with very briefly, and which relates to the position of the Governor-General. Sir Robert Howe, the then Governor-General, was in a very special position. He was a Foreign Service officer who, at the time of his resignation for purely personal reasons early in January of this year, had held the position of Governor-General for the unaccustomedly lengthy period of eight years. The fact that he had held the post for so unusually long a time meant, obviously, this: that by permitting himself to be retained in the position of Governor-General of the Sudan, and not at the end of three or four years being promoted to a more lucrative if not more responsible appointment, he had forfeited the opportunity to retire at the age of sixty, not with the pension to which he would be entitled as Governor-General of the Sudan but with the higher rate of pension to which he would have been entitled had he been promoted—as he had every right to expect that he would be—to a more highly-paid office. When he did retire he was just on the verge of sixty and therefore of reaching what is, in the Foreign Service, pensionable age.
It will be in the recollection of the House that Sir Robert Howe during the arduous period of his Governor-General-ship rendered most admirable service in extremely difficult circumstances. The fact that that is so is best evidenced by the general confidence which was extended to him by those in the Sudan, and in particular perhaps by the real depths of affection and trust which were exhibited at the time of his farewell. What is proposed is not a very sensational increase it is merely that he shall receive an additional pension of £250 a year and
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an additional lump sum of £750. I cannot think that your Lordships will regard those as excessive recommendations and I trust that they will receive general assent.
I have only one more word to say. In London, there is a Sudan Agency which, as its none describes, looks after the affairs of Sudan in this country. There are those in the employ of that agency who have made, at some length and perhaps not always with complete accuracy, complaints about their exclusion from this Bill. By the terms of the Bill, its provisions are limited to those whose last post of service was in Sudan or in Cairo. It must be borne in mind that the conditions of service between London and Cairo vary infinitely. A man is not called upon to make the same sacrifices, or undergo the same difficulties and personal hardships, if he serves in London as he would be if serving in the Sudan. In any case, Sir Robert Howe went fully into the position and came to the conclusion that he was satisfied that these persons have not been unfairly treated, and he told them in precise terms, I think, that his assurance to the Sudan Service did not include them. They receive separate scales of pension under the Sudan Ordinance to which I have referred. Indeed, in London there has been no case of a person on pensionable service being replaced by a Sudanese. I thought it right that I should mention that matter, but I do so only to point out that the grievances, if grievances there be, have been fully considered, that there has been an advance under the Sudanese Ordinance upon what was originally contemplated, and that in the view of Her Majesty's Government these people have in no way been unfairly treated. With that, I hope not excessively lengthy, explanation, I beg to move that this Bill be now read a second time.
Moved, That this Bill be now read 2a.—(The Marquess of Reading.)
3.2 p.m.
LORD HENDERSON: My Lords, we are grateful to the noble Marquess, Lord Reading, for the exposition of this simple but important Bill to which we have just listened. Let me say right away that we on these Benches view with favour the Bill which is now before the House. I think it is right to say that the reasons for the Bill are part of the consequences of the Anglo-Egyptian Agreement. to

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which the noble Marquess referred, which provided for Sudan self-government, leading up to Sudan self-determination. We on these Benches approved that Agreement and we welcome the progress that is being made towards Sudanese self-determination. We hope that the final stage which lies ahead will be reached in the quite near future, and passed successfully, and that the aspirations of the Sudanese people, which we have done a great deal to further, will be fully and smoothly realised.
British policy, British guidance and British officials serving the Sudan have played a notable part in these important developments. I do not believe that any country has been better or more devotedly served by British officials than has the Sudan during a long period of years. We owe a debt of gratitude to those officials, and so do the Sudanese. It is our duty, therefore, to see that these officials affected (and here I will use the word which the noble Marquess eschewed) by the Sudanisation of the Administration have fair and equitable compensation. I am sure that Sir Robert Howe, in fulfilment of the pledge to which the noble Marquess referred, did his best to get an agreement for compensation at levels which he considered fair and equitable, but this Bill seems to indicate that he was only about 94 per cent. successful. I regret that the Sudan Government could not be persuaded to go just a little further in the provision of compensation.
In the circumstances, we on these Benches welcome the decision of the Government to provide, as additional compensation, payments up to the maximum of £500 for officials at the top level of £8,000. If I understand the position rightly, all officials who come within the scope of the Sudan Expatria Officials Compensation Ordinance, and women officers who come within the scope of the Sudan Government's financial circular, and who meet the appropriate conditions set out in Clause 1 (2), come within the scope of this Bill. The noble Marquess has stated that the number of people affected is 207. It has been stated in another place that those who come within the provisions of the Bill are satisfied with the provision that is being made, and we are very glad to hear that that is so.
As was indicated by the noble Marquess, there are also another 700 to
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800 officials, most of whom were on short-term contracts which included a clause that, in the event of the Sudanisation of their posts, they would be paid a gratuity.
THE MARQUESS OF READING: My Lords, may I try to help the noble Lord? There are two classes: those who are on short contract which does not carry pension and others in whose contract there appears a clause giving them compensation in the event of Sudanisation. They are not all in one class.
LORD HENDERSON: That I understand. I am not quite clear on one point and I should like to ask the noble Marquess this question. I understand the position in respect of the Sudan Agency in London, but are there any other expatriate Sudan officials not covered by the various provisions to which I have made reference and about whom representations have been made to the Government, or is it the case that, generally speaking, the whole position will be reasonably satisfactory when this Bill becomes law and is implemented?
Finally, we on these Benches also welcome the proposals which relate to Sir Robert Howe. The late Governor-General served through a long and delicate period with great distinction, and we are all indebted to him for his devoted service. I think we must all agree that it would be wrong if he were to be prejudiced, both in respect of his pension and of his additional allowance, because of his absence from the country and because of the fact that during those difficult years he was representing two Governments. I feel that this must be a unique case; certainly it is exceptional, and it is hardly likely to arise again. We therefore support the provisions which relate to Sir Robert Howe, and we welcome the proposals of the Government in respect of both parts of the Bill. Having said that, I would only add that, as we have indicated, we shall facilitate the Government in getting this Bill through all its stages to-day.
THE MARQUESS OF READING: My Lords, with the leave of the House, perhaps I might answer the point the noble Lord made. As I understand the position, those who are affected by this Bill have accepted the provisions contained in it as satisfactory to their requirements. The second point is that those who have

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accepted the provisions of this Bill are all the persons likely to be affected by the Sudanisation arrangements in the Sudan.
On Question, Bill read 2a; Committee negatived.
Then, Standing Order No. 41 having been dispensed with (pursuant to Resolution), Bill read 3a, and passed.

THERAPEUTIC SUBSTANCES BILL [H.L.]
3.11 p.m.
Order of the Day for the Second Reading read.
THE LORD CHANCELLOR (VISCOUNT KILMUIR): My Lords: I beg to move that this Bill, which is a Consolidation Bill, be now read a second time.
Moved, That the Bill be now read 2a.—(The Lord Chancellor.)
On Question, Bill read 2a, and referred to the Joint Committee on Consolidation Bills.

VALIDATION OF ELECTIONS (No. 2) BILL
Read 3a (according to Order), and passed.

THE ECONOMIC SITUATION
3.13 p.m.
LORD PETHICK-LAWRENCE LORD PETHICK-LAWRENCE rose to call attention to the Economic Situation; and to move for Papers. The noble Lord said: When I last addresed your Lordships on economic and financial matters in the spring of this year I expressed my view that the functions of the two Houses of Parliament on such questions were widely different. Constitutionally, the other place is, by prerogative and by Statute, the sole arbiter of supply and taxation. Its Members sit there by virtue of their representative character and, as such, are charged with the duty of guarding the interests of their constituents; and they would be failing in that duty if they did not thresh out, and even wrangle over, the conflicting merits and demerits of the financial proposals as seen from the angle of those for whom they speak. Our position in this House is, of course, quite different: we do not, in that sense,
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represent anyone but ourselves, and we should be ill-advised indeed if we were to place what the Prayer calls "private interests, prejudices and partial affections" before the wellbeing of the realm as a whole. It is in this spirit that I propose to examine the present economic situation, including, of course, the proposals put forward in the other place by the Chancellor of the Exchequer.
The major historical facts are, I submit, matters of common agreement. We all remember that after the First World War there were in this country rapidly falling prices, a slump and widespread unemployment; and no-one,. I imagine, would deny to-day that those were the consequences of a deflation deliberately engineered by the Bank of England, with the approval, or at any rate the connivance, of the Government of the day. This deflation culminated in the restoration of the gold standard at its old parity. The situation continued to get worse under both Governments in the 'twenties of this country, until finally sterling was again devalued and cut adrift from any fixed relationship to gold or the dollar. The miseries of those days hit deep into the souls of the people of this country, and when, at the end of the Second World War, the Labour Government decided to pursue an entirely different policy they had almost universal support for this action. But times were very difficult. The United States, abruptly and, as President Truman himself afterwards admitted, ungenerously, cut off Lease-Lend; demobilisation of millions of men and women had to be organised; there was a world shortage of food and raw materials; and British industry had to be entirely reconstituted D n a peace basis. In those circumstances, the Labour Government, of which I was a member, realised that, while their main objective must be to restore the nation to the maximum employment of its resources, they must retain a firm grip over the whole economy so as to avoid the twin evils of inflation and deflation.
I remember well how, in the Cabinet, careful reviews were regularly presented to us of the work to be done and of the materials and manpower available for its execution. It was, as your Lordships will remember, a hard battle. Sir Stafford Cripps was dubbed "Austerity Cripps" for the part he took in winning it. He was not wholly successful. In 1949

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sterling was devalued, and later, when the Korean war sent world prices rocketing upwards, our gold and dollar reserve suffered a serious depletion. While the storm was gathering ahead, there was a General Election in this country and a Conservative Government were returned to office. After a time, things improved —whether that improvement was due mainly to the action the Chancellor of the Exchequer took or whether it was due almost entirely or mainly to extraneous causes is a question with which I am not dealing at this moment, because I want to confine myself to facts which are incontrovertible. I shall return to that point a little later on in my speech.
About the end of 1954 the situation again began to show signs of getting worse, and in the spring of this year Mr. Butler, the Chancellor of the Exchequer, took two actions. In the first place he raised the bank rate, in two stages, to 4½ per cent., and in the second place he introduced a Budget in which he remitted taxation, mostly by reducing the rate of income tax, by some £150 million a year. The deterioration continued and was not helped by several prolonged strikes. That brings me to the present day, and to a state of affairs which no-one who understands the facts and is concerned for the welfare of this country can view without alarm. Our gold and dollar reserves covering the whole sterling area are now steadily going down; the balance of trade of the United Kingdom is considerably against us, and imports are increasing far more rapidly than exports. In the first nine months of this year, whereas the exports increased as against the previous year by 6 per cent., the imports have increased by 15 per cent. Not only so, but while world trade in the first six months of this year rose by some 13 per cent., British exports rose only by some 4 per cent. While this was going on, wages and prices seemed to be chasing one another in an upward spiral; profits have been reaching record heights and, taking the year as a whole, equities have made startling gains on the Stock Exchange. All those are the recognised symptoms of inflation.
During the Recess I have been in touch with a number of people who do not profess to be versed in economic and financial matters, and they have said to me something of this sort: "Why bother
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about it? We are all doing quite well. The factories are humming; the workers are getting good wages; the shareholders are getting good dividends and there is no unemployment, so why cannot Mr. Butler leave us alone to get on with it? "For my part, I certainly do not share that view. All my life I have been an active exponent of stable money, and the fact that I was a violent opponent of deflation in the 'twenties has never disguised from me the fact that inflation is an equally dangerous evil. Both are forms of robbery. Every contract running over a period of years presupposes something approximating to the steady purchasing power of money, and when this is not maintained one or other of the parties is cheated of his right. Inflation and deflation are like Scylla and Charybdis, and it is the duty of the Chancellor of the Exchequer to navigate the Ship of State successfully between them. If that is true of countries in general, I think your Lordships will agree that there is no country of which it is more true than this island country of ours. We cannot feed ourselves or feed our mills except by trading with the outside world, and woe betide any Chancellor or Government who fails to recognise this fact!
But how is inflation to be stopped? Let me enumerate some of the remedies. The first which will occur to all of us is by increasing production. I suppose we are all agreed upon this, on whichever side of the House we sit, at any rate as a general principle. That is why the main decision of the Labour Government in 1945 was sound; and that is why full employment of every man and woman able and willing to work is essential, and why the few "croakers" who call the present employment "too full," and who want to reduce it and seek to have a larger number of unemployed, cut no ice with the majority of the people of this country. That is why it is a good thing to have a queue of people eager to use the materials and the labour, and not the other way.
The second method of trying to meet inflation is by monetary means—that is to say, by raising the bank rate. There is no doubt whatever that that method, coupled as it was with what is called open market transactions, worked during the nineteenth century. It was a somewhat blunt and brutal weapon, but it worked. It involved bankruptcies, and generally involved disastrous unemploy-

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ment. Again in 1919, it was the method successfully employed to bring about wholesale reduction of prices and the miseries of the 'twenties to which I have already referred. This was the weapon employed by Mr. Butler in 1952, shortly after he became Chancellor of the Exchequer. Many of his supporters—maybe some on the Benches that I see opposite me, but certainly large masses of them in the country—think that the bulk of the improvement which took place in 1952 was due to that policy of making money dear which the Chancellor of the Exchequer adopted at that time. I do not think Mr. Butler has ever said that himself, and I believe that he and his advisers know far too much about it ever to have made such a claim. The real fact, of course, was that the terrific rise of prices brought about by the Korean war had come to an end. They fell sharply, with the result that there was an immense change in the terms of trade. Astounding as it may seem, that change amounted to a figure of somewhere about £500 million a year.
I have never denied that raising the bank rate is one way, even if an expensive, indiscriminating and somewhat brutal way, of producing an anti-inflationary tendency. All the same, there is very little evidence that raising the bank rate in the early months of this year, 1955, had much effect. 'The joint stock banks countered it by selling securities, and, with the proceeds, continued to make advances. It was not until the Chancellor of the Exchequer gave a directive to them to contract their advances that they acted in the way he wanted. In the meantime, he had opened the floodgates further by his largesse to the income tax payers in the April Budget. The result of all that was that there has been to this day very little improvement in the situation.
The third way which is put forward is to reduce the amount of money in the hands of consumers by direct taxation. Mr. Butler did the exact reverse of that in April. But in any case it is now clear, even if it was not then, that the main overspending—and this is very important —has not been done so much by the consumer in his personal capacity as by corporate bodies seeking to get new capital equipment. It may he that some noble Lords do not agree with me in that state-
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ment. Let me just remind them of the present Budget position, taking into account not merely the figures above the line but the figures below the line. They will realise, if they do that, that at the moment there is the almost unprecedented figure of over £600 million deficit in the accounts. I am quite aware that, as the year goes through, part of that will be corrected by the inflow of the proceeds of taxation, but that is one sign.
Another sign is the large number of people in the business world who are pressing for capital in order to float their enterprises. Though it is a good thing in the main, as I said just now, that there should be a queue of people waiting to do things, if, in the aggregate, they succeed in doing more than the economy can provide for in the way of raw materials and labour, they are merely creating inflation. If noble Lords are still not satisfied, I should just like to read an extract—and this is the only extract I propose to read—from The Times leading article of yesterday, in the course of which the writer speaks of
"the unexpectedly great expansion of industrial and, to a lesser extent, municipal capital expenditure. It is this, lot any upsurge in public current expenditure or any great upsurge in private consumption, that has caused the temporary increase of the overload on the economy."
The fourth method that is sometimes adopted is by extensive control over the whole economy. When I first entered another place, the orthodox view of the function of the Chancellor of the Exchequer was that he was concerned almost exclusively with the purse of the Exchequer—that is to say, with the receipts and payments of the State Budget—and that he left the Bank of England and the City to deal with the rest of the economy, which was in that day mostly in private hands. I always opposed that view and, little by little, the Chancellor of the Exchequer has taken to himself a wider sphere of activity, which is illustrated by the form in which the Financial Statement is to-day exhibited.. In Mr. Butler's autumn Budget, he, recognises this to the extent, of issuing directives to the public sector regarding their capital policy. That is a perfectly sound thing to do, in principle. The fact that: they are public authorities, whether they are municipal or public enterprises, is the means by which he is enabled to do it most easily.

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Whether he has done what he has done wisely or fairly, I am not prepared to say. In particular, this drive on the municipalities seems to me to be conducted rather in a mean manner, by trying to force the smaller municipalities to enter the hurly-burly of the money market if they want to raise a loan and, if they come back to the Treasury, by taking a "rake-off"—that is what it amounts to —on every loan that they secure.
With regard to the private sector of industry, the Chancellor of the Exchequer seems to think it adequate to confine his attention to the indiscriminating bludgeon of an increased bank rate. Personally, I think the time will come when he and parties on both sides will come to realise, as some of us do to-day, that the Chancellor of the Exchequer is bound to exercise and enforce priorities in the interests not only of the individual but also of the nation itself. In the meanwhile, by not doing that, it seems to me that he has taken a very unfair attitude towards the wound-be smaller borrowers, people like farmers, small firms and others, who in some cases are at the present time being forced into bankruptcy.
The final method that I can see—there may be others I have not thought of—of attempting to restrain inflation is by putting up the price of consumer goods and by imposing a tax on them. To the ordinary man in the street, that seems a little like Alice Through The Looking Glass. To the ordinary man in the street, at any rate, to put up prices for the purpose of keeping prices down and keeping wages down as well, seems like a contradiction in terms. Of course, I understand the theory of it. The theory of it is that you put up the prices of a large number of things by tax. That will induce some people to go without them, even though some of them are really necessary; and even if they do not go without them, they will have less money to spend on other things. That is all right in theory, but I have an uncomfortable feeling that it is not the way it will work in practice. Let us just see how it does work.
Mrs. Brown goes to the shops. She must buy a great many of these necessaries which are affected by additional purchase tax in this autumn Budget; she is absolutely in need of them for the house-
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hold and she has to pay more for them. She comes home and says, "Bill, I cannot make do on the money that you give me every week. I must have more." He goes to his employer and says. "I must have more money because my wife cannot make do on the money I have been giving her up to now." Therefore it seems to me much more likely that this increase in tax on household articles of everyday use which the common people buy, instead of acting in a deflationary manner will act in an inflationary manner. It puts up the price of certain articles which must be bought, the housewife wants more money, the husband asks for, and in many cases will get, more wages. The wage increases will mean cost increases; cost increases will mean price increases, and the whole vicious spiral will go on.
I am quite prepared to agree that perhaps that might not happen if the ordinary citizen were convinced that Mr. Butler's Budget was a fair one—if they said, "We may not understand inflation, but we are told that it is a most terrible thing and that we are going to suffer from it. We must all take our fair share of the difficulty, and in our opinion Mr. Butler has made a fair deal." If they felt it was quite fair, I think the large bulk of the people would accept his Budget scheme. But it is difficult to imagine that that will be so. I find it difficult to understand how even Mr. Butler thinks it is a fair Budget. In his Budget broadcast on the Wednesday night, following his speech in the House, he himself said that he thought the bulk of the people would think it fair; therefore one must suppose that he is hoping that they will. But I find it difficult to take that view.
Let me put the most charitable interpretation on Mr. Butler's actions. I assume that in April he optimistically believed that his monetary squeeze would restrain inflation and that he could even afford to aggravate the inflation by giving away some £150 million by remissions in taxation. In September he realised that the squeeze was not doing the work that he anticipated it would do, so he clamped an approximately equal amount on different articles and on an entirely different set of people. Let us look at it in this way, which seems to me to be one which we are entitled to use. Put the two Budgets into one—after all, they are the combined financial provisions that the

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Chancellor of the Exchequer has made for the year 1955–56. Putting the two together, from the point of view of the Exchequer there is no loss and no gain. From the point of view of the public, the Chancellor has made certain remissions to one set of people and he is taking taxes to make up for those remissions out of an entirely different set of people. I do not want to press it too hard, but, broadly speaking, the people to whom Mr. Butter gave the largest share of the remissions were, as I showed five months ago, the well-to-do people, and many of the people from whom he is taking taxes are the less-well-off people. I will just put this question to your Lordships and leave the matter there. In view of those facts, do your Lordships, whether sitting on this side of the House, on the Liberal Benches, or on the Benches opposite, really consider it likely, that the ordinary man and woman in this country will think it is a fair Budget? My Lords, I beg to move for Papers.
3.45 p.m.
THE PAYMASTER GENERAL (THE EARL OF SELKIRK): My Lords, I confess frankly that I have been looking forward keenly to listening to what the noble Lord, Lord Pethick-Lawrence, had to say on the Budget statement of last Wednesday. I think it is a real privilege to hear in this House an objective critic speaking without partiality. From what the noble Lord has said, I think that is a fair statement to make. If perhaps a cloud of Socialist dogma occasionally descends on his words it is only momentarily, and in a very short time his own personality shines forth with his personal judgment, I think it is of great value to-day to have the noble Lord's view, because there is probably no subject that is more difficult to diagnose than inflationary pressure of one character or another. I say, frankly, that there is no subject more difficult to expound; certainly there is no subject more easy to misrepresent—the noble Lord has not done that at all. There is another point—namely, that however unfair inflation may be (the noble Lord called it "robbery"), any action which is taken to check inflation is necessarily unpopular. It is doubtful whether any action could be taken which would have that effect unless it were in some measure unpopular. That is the reason why inflation is to-day the Achilles' heel of democratic government. And that is true
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not only of this country but of many countries in different parts of the world.
Perhaps I should say a word about the reason why this Budget is necessary. The noble Lord opposite has run over the points and I shall just underline substantially what he has already said. I think it is about twelve months since anxiety began to be felt in regard to the pressure on the economy, but the position became clear when the figures for the second half of last year came to be analysed. It is fair to say that immediate steps were taken, first in January, and again in February, by raising the bank rate and later by restricting credit through hire purchase. I think I can claim that those efforts were not entirely unsuccessful, because in any case by April of this year the strength of sterling had improved; the drain on the reserves appeared to have stopped, and the trade figures had improved. It was largely for the purpose of strengthening the economy that some reductions in direct taxation were made. We may have a perfectly honest difference of opinion as to how important in the economy is the element of incentive. The noble Lord opposite has argued that taken together, the two Budgets do not present in all fairness the picture which he thinks they should. All I have to say is, that they take into account different circumstances and have different objectives in view. My right honourable friend said yesterday, that if he was guilty of an error it was, after all, an error on the right side, and I believe that is a fair statement. Of course, the noble Lord does not like the bank rate: he has never liked it. There is a lack of logic in what he says, for in 1919 he said that the effect of the bank rate was too great; yet his present complaint about the bank rate is that it is not having enough effect. It is not the bank rate but the manner in which it is being used; and it is upon that that judgment must be formed.
I will run over the general lines of what has happened since that time. As the noble Lord has said, it is quite clear that our economy has become overloaded. Efforts have been made to obtain more than the economy can provide, both in materials and in labour. The first half-year showed that the current account surplus was down to £17 million, which is about £150 million less than in the corresponding period of the year before.

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Frankly, this surplus is too small for our overseas capital equipment. Demands on labour were getting very heavy, and at the present time the number of vacancies notified is roughly twice the total number of unemployed. There is a shortage of steel, which became increasingly marked in the course of this year. The cost of living rose three points in June, and, as the noble Lord quite correctly said, there has been a very considerable rise in industrial investment in capital equipment. This can 'be shown by the amount of factory building which is taking place and by orders for machine tools, which have grown very rapidly this year. In itself, of course, this was excellent, but it must not become too heavy for the country as a whole. Nevertheless, it is interesting to note that one of the recent criticisms heard was that capital investment had not been going ahead quite fast enough. It is now taking a considerable surge forward.
The trade gap for June and July was about twice that for April and May, accentuated, of course, by strikes. The gold and dollar reserves fell by about £40 million for the months of July, August and September. To meet this situation the Chancellor of the Exchequer took his third action of the year at the end of July, impressing upon the banks the necessity to strengthen the higher bank rates by curtailing their own advances. This step was not ineffectual, but to-day we do not think it is enough by itself. But, as the Governor of the Bank of England said last month, to some extent the effect of this action was limited by the fact that much of the economy in the public sector was relatively isolated from that particular form of restriction.
What, then, was the Chancellor to do? Of course, we could have slipped along somehow until April without any major calamity—that was one possible course. Alternatively, we could have imposed Draconian measures, which would have left it beyond doubt that some form of inflation had set in. We have sought to take the path which the noble Lord has described as narrow, between Scylla and Charybdis, in this fourth action which Her Majesty's Government have taken this year in keeping on the narrow path which this country requires. I should like to emphasise how narrow that path is. We have an overseas
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trade, visible and invisible, of something in the order of £8,000 million. The balance we have in mind is perhaps 2 per cent. or 3 per cent. A very slight movement one way or the other would rectify the position altogether, but the situation is made much more acute by the relative shortage of reserves which we have in this country at the present time.
It is not only a question of our long-term balance of payments; it is a question of whether our currency is stable, for we could go on increasing our exports as we are at the present time. But I believe that as long as inflationary pressure is there our imports would tend to increase even faster. It is therefore essential to our overseas trade and for this country that we should succeed in achieving internal stability; and, of course, we are the bankers and trustees of the sterling area. On the whole this has been a favourable year in regard to terms of trade, and we have to bear that in mind. It does not mean that our overseas markets have become easier, because in the last twelve months German and Japanese competition has been growing rapidly and in this last year fairly heavy imports of both coal and steel have been necessary—of the order of £100 million. I am very glad to hear that the noble Lord shares the view that action is necessary—indeed, I am glad that there is, on all sides, no doubt that some action should be taken.
Turning to what action should be taken, there are roughly two views. On the one hand there are those who say that direct Government control should be imposed with, probably, some sharp increase in taxation. The other camp believes that the only practical action is a very large reduction in Government expenditure. So, broadly speaking, those are the two schools of thought: reduction of Government expenditure on the one side, and increased Government controls on the other. Controls are cumbersome instruments which necessarily involve, in nearly every case, some form of allocation or rationing. We believe that the choice of the man who buys or uses is more efficient than the choice by an official on his behalf. Let me quote the building industry as an example. It has been very striking to note that, since building licences have been withdrawn, efficiency in the building industry—that is, output per man—has very considerably increased. After six

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years of planned economy it still required the assistance of a Government Department for a boy to buy a bar of chocolate. Apart front other considerations, I can only fed that that is very inefficient. The second point is one brought out some time ago by the noble Lord, Lord Brand: that controls are infectious. If you put on one you have to put on others in order to balance; and so controls spread, bit by bit, through the whale community. My third objection to controls is that, fundamentally, they treat the symptoms of the disease without treating the cause. They give the appearance of a balance without necessarily obtaining a fundamental balance. They do not take inflationary pressure, as such, out of the economy.
May I now turn to the school of thought which says that our present problems can be resolved by much heavier cuts in Government expenditure. To some extent, we are following that line, and have been following it. I should like to quote what the Chancellor of the Exchequer has said. To-day, the Government are taking only 26 per cent. of the gross national product, against the 29 per cent. which was being taken when this Government came to power; and we are doing that despite a very considerable increase in defence expenditure and after strengthening—and I can emphasise strengthening—the social services in this country. If anyone advances that policy of reducing Govern-merit expenditure then he must say which section it is that he wants to cut—whether it is defence, the Welfare State, agriculture or food subsidies or atomic development, because those are the major issues which as a matter of policy will require to be changed if any really considerable cut has to he made. At the present time we do not think it is either wise or necessary to take any such step.
What do we propose to do? Our policy falls into two parts; first, to reduce the claims of investment on materials and labour, but to do so without damaging the growth of capital and equipment; secondly, in some way to reduce consumer purchasing power in this country as a whole—in other words, to change this country, at least in some degree, from a sellers' market to something more closely resembling a buyers' market at home. Under the first head, that of investment expenditure, come the existing restrictions on credit, to which we add reduction in Government expenditure on certain capital
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works, a careful review of the future capital programme of the nationalised industries and the reduction of capital expenditure of local authorities. Under the second heading—that is to say, the reduction of consumer expenditure—we have the hire-purchase restrictions which already exist and the increase in purchase tax. Thirdly, there is the increase of certain Post Office charges to bring the Post Office services more fully on a self-accounting basis—I understand that the purpose of the Post Office is always to be on a self-balancing basis. Fourthly, there is the increase in companies profits tax. These broad categories, of course, interact on each other and they cannot be so sharply distinguished as I have indicated.
I should like to say one further word on the question of loans to local authorities—a subject which has been dealt with by the noble Lord, Lord Pethick-Lawrence, in his speech. We shall encourage local authorities to go to the market, but if they are unable to borrow from other sources they can, of course, approach the Local 1oans Board. But the rates which the Board will set will not be the credit of the Government but the credit generally of the local authorities who are making the approach. The noble Lord says that that is a "rake-off." May I explain why we are pursuing that policy? We are punning it because it will be a policy to discourage local authorities, on the whole, from going to the Board if they can get money elsewhere. One reason for this is that if the local authorities go to the Local Loans Board, the Board have to raise their money for loans to local authorities by means of Treasury Bilk Treasury Bills, in the hands of bankers, of course, rank as liquid assets, so the effect of that is in some way to enable the banks to increase the amounts of money they have to lend. We do not want that. We think it is wrong in the present: circumstances that the number and amount of Treasury Bills should be increased by means of extra loans to the Local Loans Board.
I would say this about local authorities. There are two ways in which we can curb any extension of Treasury Bills arising from the pressure of loans for local authorities. One is by direct Government control—that is to say, to make the expenditure al the local authorities subject to detailed approval by the Central Government. We think that is wrong, not

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only because it involves delay but also because it undermines the responsibility of local authorities themselves. We have taken the opposite view—namely, that local authorities are the best judges of local priorities and that it is for them to seek their own economies. This enhances their responsibility, and I think it is the right way to give effect to that which we have in mind. I think we all of us know of instances of local projects which may be desirable but which are not strictly necessary in present circumstances.
The noble Lord, Lord Pethick-Lawrence has said that the increased purchase tax will have a very adverse effect. We suggest that the actual effect on the cost of living will be very small. I think it is worth considering what is happening with regard to personal incomes at the present time. The figures for 1954 suggest that personal incomes increased in that year by about £800 million, or possibly a little more, while real production has not risen so fast. Perhaps I may give an example of the purchasing power which comes from these personal incomes. If we add together what is to-day spent on alcohol, tobacco and gambling we get a figure which I believe is somewhere in the order of £2,000 million a year, so it does seem that these increases are playing a considerable part in inflationary pressure in the country, and it is not unfair that this purchasing power should be marginally reduced. It may be argued that what we are taking by increase in purchase tax is such a small amount compared with the rises in personal incomes that it is hardly worth doing. To that I would say that if only a few people are discouraged from buying motor cars or television sets, electric cookers, or what you will, in the way of metal commodities, it will by that much reduce the pressure on the resources and labour and materials of the metal industries immediately concerned. If, on the other hand, people do buy in spite of taxes, they will have marginally so much less to spend on other things. I do not, of course, suggest that, taken by itself, the increase in purchase tax will be anything like enough—indeed, probably none of these measures will be enough taken in isolation. Nevertheless, I believe that, collectively, they will be sufficient to bring about the relatively small improvement in the balance of payments at which we aim.
Now I would say a word about the "D" scheme. I think the abolition of
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this scheme will be warmly welcomed by most manufacturers of textiles and furniture because the existing scheme, though undoubtedly an improvement on what went before, has so many anomalies that it tends to drive people out of making better-class textiles, which are the very class most used in export. That is of course, typical of the difficulty which faces all those who wish to pursue a policy of austerity, because it is primarily quality goods which we are exporting and we cannot force a foreigner to buy austerity goods if he does not want to do so. Very much the same considerations affect the cut glass industry and the silverware industry on the products of which duties have been slightly reduced. Both are craft industries which show signs of dying out unless help is given to assist their sales by giving them a slightly better home market.
And now a word on the companies tax. The tax on companies is part of the Chancellor's policy to make some inroads into purchasing power over the whole field of our economy. I suppose it is true to say that profits are slightly easier to make in times of inflation than at other times. I would add this with regard to the recent recommendations of the Royal Commission on this matter and the reluctance which has been shown to accept a separate rate of tax for distributed and non-distributed profits. The adoption of one rate for both classes of profit would not be acceptable in present circumstances, because those who distribute heavily would gain by such an alignment of the profits tax, while those who distribute with less restraint would lose by it. We feel that it would be wrong to suggest any encouragement to increase the distribution of profits. It is for that reason that we are unable to accept the recommendations of the Royal Commission.
The noble Lord, Lord Pethick-Lawrence, may suggest that the proposals which we put forward do not contain any clear policy. I suggest that the policy is perfectly clear. We do not propose to go back to an economy of siege, and for this reason. We can never have a prosperous island in isolation from the rest of the world, however accurately and dictatorially the economy may be planned on a national basis. The policy we have

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here outlined will leave the wheels of productive industry free to turn faster and faster, within the limits of the manpower and materials available, and it should give the maximum encouragement to exports. It leaves the structure of the Welfare State completely untouched. Further, it leaves the consumer with a free choice in spending his own income.
Moreover, in maintaining economic discipline in the community we have a duty not only to ourselves but to very large populations outside this country. We have to remember that about one quarter of the world uses sterling, or currency allied with sterling, as a medium of trade, and about one half of international trade is either conducted in, or facilitated in its conduct by, sterling. Its strength is not entirely dependent on this country, but there is no doubt that we in this country can entirely ruin confidence in sterling. What we do about sterling profoundly affects ten times as many people as live in this country. As the Chancellor of the Exchequer once said, one of the strongest links among British people, after the Crown, is sterling. Therefore if to-day we are unwilling to take some trouble about it, if now or in a future time we are unwilling to make some sacrifice in order to maintain the stability of sterling, we shall be running away from the leadership and responsibility which this country is carrying at the present time.
4.11 p.m.
LORD WILMOT OF SELMESTON: My Lords, I think your Lordships must have been astonished, as I was, to hear some of the remarks of the noble Earl, Lord Selkirk. We all agree about the necessity of defending sterling and of checking inflation, but we have to take account not only of what we desire to happen, but of what is likely to happen as a result of the proposals that the Chancellor of the Exchequer has just made. The main certain and immediate effect of these proposals is to raise the prices of many household goods and the cheaper forms of textiles, and also rents, for the mass of the population. The manner in which these proposals have been presented has been received with astonishment and hostility by most of the Press and by nearly everybody to whom f have talked in all sorts of places. The effect certainly will be to lose the good will of the public in trying to solve a national
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difficulty. I think that that is a grievous thing, because without the conscious cooperation of the public at large this matter cannot be put right.
The noble Earl described the problem briefly and correctly. It is basically a matter of excess of imports over exports—a gap in the balance of payments. With what happens inside our economy, we can deal; with what happens outside we have to take extraordinary measures. And there is nothing in these proposals which is going to effect this at all. They have no direct effect upon imports from hard currency areas, or anywhere else. They are merely an attempt to stern the purchase of imported materials in the domestic market by raising prices,—but not in any obvious way. If there had been a direct cut in the permitted import of some important foreign commodity, the purpose might have been seen, but the range of goods affected by the purchase tax increases is so unrelated to imported goods that nobody can see the connection. If one looks at the White Paper to see the effect of the first proposal, one sees on page:3 "Dustbins, mops, buckets, pot scourers, shopping baskets and shopping bags." What have these to do with the import of raw materials? They may have some trivial and indirect connection, but the purchasers do not see it. If the Chancellor had cut in half the import of American tobacco (though I am not proposing this) and there had been a shortage of American cigarettes, people would have understood what was going on: that we could not afford to spend so many dollars on tobacco. That: is an example of clearly identifiable cause and effect, but there is nothing identifiable in the Chancellor's proposals.
The noble Earl spoke about abolition of the "D" scheme. The "D" scheme may seem relatively unimportant to us, but to working class purchasers it is of great importance, because what is now proposed means a rise the price of all the most necessary things to the poorest people in the corn munity—children's clothes—
THE EARL OF SELKIRK: They are out.
LORD WILMOT or SELMESTON: Thank you, I am corrected—cheap adult clothing. Household goods of every kind are raised in price by the abolition of the "D" scheme, and, to make the pill even

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more difficult to swallow, at the same time expensive clothing is reduced in price by the effect of the Budget proposals. This has been commented upon widely in the popular Press of all shades of political opinion. There is not a single family in the country which does not see that Mr. Butler has reduced the price of expensive goods and increased the price of goods consumed exclusively by the working class. That is a serious thing to have done.
I do not follow the noble Earl at all when he talked about the disadvantages of the "D" scheme. How can it be wrong to encourage people to buy the sort of commodities which have only a domestic market and make it more difficult for them to buy the sort of commodities which primarily have an export market? I happen to be concerned in the production of very expensive silk fabrics by a large exporter of this class of goods. It is not going to help that firm in any way because it is the quality of their goods that sells them more than the price. There is a foreign demand for high-class British craftsmanship. These proposals do nothing at all to help the export trade; if anything, they work the other way by creating a demand for higher wages. The purchase tax increases are comparatively trivial in relation to the problem, but they are having a psychological effect out of all measure to any advantage the Chancellor of the Exchequer can possibly derive from them. I say it is a most serious thing to lose the good will and public spirit of practically the entire working-class population and it has been followed by immediate demands, clamant demands, for an increase in wages on the ground that this is the last straw and present wage levels do not meet properly the cost of living.
The noble Earl said that the main objective of Government policy in these difficult circumstances is to convert the sellers' market into a buyers' market. But this would do the exact opposite. The rise in wages over the whole country, due to the wage demands set in motion by these proposals, will far more than offset any advantages which the Chancellor may get. We have to face the fact that in a few months' time, when these effects begin to load in upon us, we shall find, that not only has this Budget done nothing to meet the difficulties it set out
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to meet, but that we have a new situation of still greater rising inflation, for which we have no remedy. I suggest that that is the inevitable consequence of the Budget proposals. I apologise for dealing so long with this matter, but it is because of its wide implications. The noble Earl said that alcohol, tobacco and gambling absorbed a large part of public purchasing power, which was evidence that there is a large margin of available purchasing power to attack. But the Chancellor has not attacked these particular forms of spending. Had he gone straight at alcohol, tobacco and gambling, in a period of national difficulty, there would have been some reasonable understanding of it and I am sure much co-operation. But he has done nothing of the kind: he has gone right plumb at the basic necessities of the poorest working class house.
Now as to the pressure of investment: surely, it is the most clumsy way of trying to canalise your overfull investment programme into the most desirable channels merely to proceed in this haphazard way. Would not a wiser course be not to impose a whole range of controls on a wartime scale, but to take selective forms of investment and endeavour to canalise them into particular important channels? But what have the Government done? It is not so long since that they were forcing through Parliament a Television Bill designed to secure vast investment in a duplicate television system. The whole of this enormous effort, which makes great demands on one of the key industries, that of electronics, has to be financed by every kind of skilled exhortation to people to spend more upon consumable goods. Can the public be expected to make sense of a policy like that: diverting investment from the atomic power industry, the machine tool industry and the wide range of British specialities in scientific achievement into commercial television in order that there may be higher consumption of face creams, beer and every other thing which makes demands upon our industrial capacity?
Frankly, I do not understand upon what business principles, fiscal theory or any other logical and consistent form of thinking the Chancellor of the Exchequer has based this Budget. It seems to me that it is bound to confuse, to irritate and

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to create hostility in the maximum number of people. The opinions of the effects of the Budget are not different in the minds of people of very different circumstances. The view of the bus driver, which was expressed to me forcibly the day before yesterday, is precisely the view of the Stock Exchange: that this Budget is inflationary; that it will not curb inflation, but will increase it. Whereas before the Budget equity prices were being marked down, particularly in those sections of the equity market where inflation has the most effect, and gilt-edged were being marked up, the moment the Chancellor of the Exchequer's proposals were made known the tape showed War Loan fell by seven-eighths, and immediately equities, relying on increased purchases and increased spending, were marked up. That is the view of people who have great experience in evaluating the commercial effects of fiscal policy.
THE EARL OF SELKIRK: The noble Lord knows that equity prices were marked up immediately after the Budget of April, so that by his definition that would be a deflationary Budget.
LORD WILMOT OF SELMESTON: Not at all. That, too, was inflationary. The reason why equities were marked up in April was that the reduction of income tax put more purchasing power in the pockets of certain people, and therefore it was inflationary too. It marked up equities. This Budget will eventually put more purchasing power in the pockets of certain people also, because the wage demands, which will be irresistible, will more than offset the purchase taxes. It is an inflationary l3uclget, as I have sought to show, because the secondary effects will far more than offset the primary effects; and stock market prices do not look only to to-morrow but to next year as well. I am sure that anybody in the City listening to me will agree that that is the reason for the movement.
The noble Earl asks what we can do. If we cannot proceed in this loose way, what are we to do about it? Surely, the first thing to do is to take direct action to limit, if possible, excess importation of unnecessary things; and the other thing to do is to stimalate by every means production and export. There is no stimulation of production in this Budget. You have sickened the heart of every workman who has tried to do his best
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by making it more difficult for him to live and by forcing him, at a time when he is told there is great difficulty in the country, to support demands for rising wages. I do not think there is a single industrial leader who has ventured to speak since the Budget proposals were known who has made any kind of claim that it has eased his problems or done anything to increase his output. It will help to price him out of the export market. I suggest that not only is the Budget a complete failure to deal with the situation, but that its effects upon the life of the community will be disruptive, highly disagreeable and highly regrettable in present circumstances, and that within a short time we shall be faced with the necessity once again of dealing with a rising inflationary spiral which the Chancellor will have put into a higher gear.

ADMINISTRATIVE TRIBUNALS
4.27 p.m.
THE LORD CHANCELLOR: My Lords, with leave of the House I should like to make a statement concerning the inquiry into the practice and procedure of administrative tribunals which it was announced in the gracious Speech of June last that the. Government intended to set up. I wish to inform the House that I have to-day appointed a Committee with the following terms of reference—
"To consider and make recommendations on:

(a) The constitution and working of tribunals other than the ordinary courts of law, constituted under any Act of Parliament by a Minister of the Crown or for the purposes of a Minister's functions.

(b) The working of such administrative procedures as include the holding of an inquiry or hearing by or on behalf of a Minister on an appeal or as the result of objections or representations, and in particular the procedure for the compulsory purchase of land."

Your Lordships will be glad to hear that Sir Oliver Franks has agreed to be Chairman of the Committee and that three Members of your Lordships' House are members of it—the noble Lord, Lord Balfour of Burleigh, the noble Marquess, the Marquess of Linlithgow, and the noble Lord, Lord Silkin. 'The names of the other members of the Committee are Mr. Roderic Bowen, Member of Parliament for Cardigan, Mr. J. C. Burman,

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Dame Florence Hancock, Mr. Douglas Johnston, Member of Parliament for Paisley, Sir Geoffrey Stuart King, Major John Morrison, Member of Parliament for Salisbury, Miss K. M. Oswald, Lord Justice Parker, Mr. H. Wentworth Pritchard, the Honourable Charles Russell, Mr. Alan Symons and Professor Kenneth Wheare. The Secretary of the Committee is Mr. J. Littlewood of Her Majesty's Treasury.

THE ECONOMIC SITUATION
Debate resumed.
EARL FORTESCUE: My Lords, I am sure it is obvious to all of us that this debate will go on for some considerable time. Arrangements have therefore been made so that noble Lords can get dinner here at any time they like after seven o'clock. We shall sit right on and there will be no break for dinner. It would be convenient if noble Lords would inform the restaurant when they would like to have their dinner.
LORD SILKIN: My Lords, would it not be more convenient if we did have a break for dinner? I speak on behalf of those noble Lords who are speaking in the debate and who would otherwise have to go without dinner if there were no break. Is there any point in not having a break?
THE LORD PRESIDENT OF THE COUNCIL (THE MARQUESS OF SALISBURY): My Lords, it is always a difficult point whether to interrupt a debate for dinner or to carry right through. I am in exactly the same position as the noble Lord, Lord Silkin, except that I have to speak after him and will have to wait even longer for my dinner. My impression is that there are a large number of noble Lords here, some of whom are elderly and others who do not live in the centre of London, who are really glad to get a long debate over, if they can, as early as possible. In the interests of those noble Lords, I think the balance of consideration is in favour of going right through. Perhaps I ought to have consulted the noble Lord, Lord Silkin, before, but it did not occur to me that there was likely to be much difference of opinion about it. No doubt there are certain Peers who would rather have the break and certain
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Peers who would not, but I would put it to your Lordships that on balance the convenience of the House would be served by getting our debate completed as soon as possible.
LORD SILKIN: Would it not depend upon, how long we are going to sit? Nobody is going to object to sitting an hour or an hour and a half later, but if this debate should go on until nine or ten o'clock, is it reasonable to expect either the noble Marquess or myself to sit without the opportunity of having had a meal?
THE MARQUESS OF SALISBURY: I sympathise with the noble Lord, Lord Silkin, and I share his anxieties. I would remind noble Lords that although in many ways we are perhaps more sensible in our conduct than is another place, in another place there is never any question of stopping. I agree that the whole thing depends to a certain extent upon how long the debate is going to last. We cannot anticipate that, because we do not know how long noble Lords' contributions will be. I am, of course, in the hands of the House, but I have made these arrangements which I thought would suit the convenience of noble Lords, and I should be reluctant to change them if that was the general view.
LORD REA: My Lords, I suggest that there is a further element in the House, and that is those who are not going to speak. I think they would probably prefer that the debate should proceed and take their pick of which speeches they should listen to. I suggest that those who are going to speak could follow the same example.
4.33 p.m.
LORD GRANTCHESTER: My Lords, in an analysis of the economic situation, particularly in a time when there is little objective clarity of thought, it is well to go back to fundamentals as did the noble Lord who opened this debate. It is clearly recognised, I think, by noble Lords in all parts of this House that there are two methods by which the economy may be regulated. One is by central planning, in its advanced form leading to the control by Government of all the means of production, distribution and exchange. The other is by the operation of the market. We on these Benches believe in a market economy because this

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is democracy working in the economic field, the market economy being determined by the choice of the whole body of consumers.
In a market economy, the call of the consumer for goods determines not only production but the level of production. Demand conies from the consumer and the consumer, being selective, can withdraw his demand or transfer his demand to an alternative choice according to his judgment of competitive value. For example, a housewife may desire to provide bacon for a meal, but if the price of bacon rises beyond a certain point, she will transfer her choice to tinned fish or sausages. So the demand for bacon will fall and the production of her new choice will be increased. That is why we do not believe in priorities or in such regulation as the noble Lord, Lord Wilmot of Selmeston, suggested, for we believe that the consumer, for good or evil, if he is to remain a free man, is the person who should decide.
Under a directed economy, the consumer is denied the right of choice, and if, as is likely, the official makes a miscalculation, waste results and the Government Department trading will be saddled with a loss. In peace time, we believe that such regulation is totally undesirable and undemocratic. With this contention, as noble Lords opposite will confirm, the Conservative Party professed to agree, and they represented themselves as a far more efficient organisation to safeguard the principle of the market economy than the Party to which we belong. We are therefore entitled to expect from the Government a less vacillating exposition to the people of this country in practical terms. We should not expect the Governrnent to overstrain and overburden, by their own action, the delicate mechanism of the market or to flout the recommendations of a Royal Commission on taxation in a matter affecting one of the safeguards of a free economy. That is a point to which the noble Earl, Lord Selkirk, did not refer.
The conclusion of the Royal Commission was that retained profits are not in themselves good for the economy and, therefore, that the choice of the investor should not be arbitrarily determined for him. It is hardly necessary for me to say here that there is only one test in a market economy which can be applied
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to determine whether or not a particular industry is serving the public need and meeting popular demand, and that is whether it succeeds in making a working profit. If there is not sufficient popular demand to secure a profit, then, clearly, the industry must change its methods or go out of business. Any intelligently managed industry will not only endeavour to make a profit, but will endeavour to make the maximum profit—that is to say, it will adjust its prices to secure maximum profit. Nor must it be overlooked that a return has to be earned to-day upon the greatly increased replacement value of assets if any company is to survive. If a company can make a greater profit by reducing prices and increasing its sales, it will do so; but it is surely quite out of place for the Minister of Labour to lecture industry on the desirability of reducing profits by making lower charges. What will reduce prices, where too high a price is charged, is a competitive article offered at a lower price. It may even be an imported article at a lower price, and that is why we cannot agree with the suggestion of the noble Lord, Lord Wilmot of Selmeston, further to restrict imports.
I shall seek to show that the action of Her Majesty's Government in one direction, and the hesitation of Her Majesty's Government in another direction, have the effect of keeping up prices and profits rather than of reducing them. May i say that I have nothing against profits? The Chancellor of the Exchequer is the greatest beneficiary, and the whole structure of welfare is dependent upon the profit-earning capacity of industry. But we on these Benches must point out that prices are, in our view, artificially high for two reasons: first, because, by the action of Her Majesty's Government, most industries are enjoying an over-protected home market. Some who export seem to worry little about what price they obtain or what profit they make in markets overseas. All they are concerned to do is to secure by their exports a spreading of overheads, so increasing their profits in the highly protected home market. The way to secure a reduction in prices is to reduce the level of the protection that they are given; in fact, to minimise special privilege. Secondly, prices are artificially high because of the hesitation of Her Majesty's Government in dealing with the

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monopolistic structure in many industries. Let Her Majesty's Government draw out the kingpin of the structure—private collective enforcement by private courts and other undesirable methods.
The other factor in a market economy, and one about which a great deal is being said, is the question of wages. We believe that a man is entitled to the best reward he can get for his labour. The limiting factor, of course, comes into play when the demand is so great as to bring the industry in which he is working into jeopardy as a profit-making concern. I do not believe, as some would have us believe, that it is, in general, pressure by the trade unions that has been the determining factor in attaining the present level. Rather is it the very keen demand that there has been in a free market for labour. I think this contention is proved by the fact that there is a very wide margin between the standard rate of wages and earnings which are swollen by overtime and double employment at rates higher than the standard rate. I think the earnings exceed the standard wages by something like one-third. This shows how greatly in a time of prosperity the market economy operates in favour of the workers in industry.
We are told that, as a result of these increased earnings, the consumer has "gone on the spree" and must be restricted. Let us look at the facts. Consumer expenditure has increased by not more than 10 per cent., in terms of real income, over the pre-1938 figure. To condemn this increase is surely to hit, as more than one noble Lord has said, in a most regrettable way at the whole conception of incentives. For what do Her Majesty's Government consider any man works? What is to be the reward for higher productivity but freedom to acquire what can be procured as the result of the effort that he is making? Deliberately to restrict further this reward for labour seems to me to be stupidity. A comfortable home and, after a comfortable home, an artistic setting, decorative embellishment and personal adornment are surely the legitimate expectations of every woman whose husband works hard enough.
I have one reservation. I believe that every woman is happier if not every penny earned is spent, and if she can
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see a little saved and those savings continually growing. There is no finer form of building up a sense of security in the family. The Government's encouragement to increase saving is paltry. Why do they not call off their tax collectors who spend so much time chasing the tax on the interest of small savings accounts? I agree with the noble Lord that high purchase tax rates are an irritant rather than a deterrent. Their main effect is to create animosity—I deplore them for that reason—and to make people feel that Government is its enemy rather than its protector. The truth is that honourable Members in another place are no longer the watchdogs against extravagant expenditure, against extravagant administration and against the overspending of the people's earnings taken in taxation. Let us look again at the position. Whereas, as I have said, consumer expenditure has increased by some 10 per cent. in real values over 1938, on the same basis Government expenditure is up over 100 per cent. In actual figures it is five times the 1938 figure. Perhaps your Lordships' House could take up this task of watching the citizens' interests so ignobly dropped by Government and Opposition alike in another place.
I am aware—and the noble Earl, Lord Selkirk, said as much—that in criticising expenditure I shall be challenged as to what ought to be cut. I am going to answer this challenge by saying simply that the Government are taking from the people too big a slice of the national income: they should cut their total expenditure, for a start, by at least 10 per cent. They should apply the same sound principles of housekeeping as they are advocating and preaching to every citizen —namely, that they must cut their coat according to the cloth that can reasonably be provided. This will give an overall limit to the expenditure in which Her Majesty's Government can indulge. This is the "squeeze" which is essential. It is senseless by over-expenditure to bring about economic collapse even by instalments over a period of years, by over-expenditure even on armaments. This is no real defence policy, for the economy needs defending also if we are to survive. There is also such a thing as going too quickly with certain developments.
I suggest, too, that no country can afford to go further in assisting the less fortunate members of the community than

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the economy can stand. Every section of the community has come to look upon the Exchequer as a source from which they can get something. We have a right to expect that the Party which has provided the present Government will call a halt to any abuses. It is not possible to provide something for everyone because, in the long run, the same people will have to pay; and, in addition, they will have to bear the great cost of administering the distribution of the benefits. What we can hope to do and what we should strive to do is to meet real need. Therefore, I welcome the moves that Her Majesty's Government are making in this direction.
I will conclude with one final suggestion. The present system of call-up is economically wasteful and, I believe, frustrating and ineffective from the point of view of defence. The whole conception of strategy, as Her Majesty's Government have pointed out more than once, has changed. Let Her Majesty's Government cease fiddling with the arrangements for call-up and make, up their minds to abolish conscription altogether at an early date. Let them make service in the Regular Forces a really attractive career for a highly trained, specialised body of men. Let them rely for any supplementary training upon a Territorial force, starting in the schools. This would ease the shortage of labour. But may I once again repeat that the overriding necessity must be emphasised, of cutting the overall figure of expenditure for which Her Majesty's Government alone are responsible. We must ask for the utmost vigour in so doing.
4.51 p.m.
LORD CONESFORD: My Lords, in addressing the House for the first time I hope I shall not be guilty of any breach of its traditions; but if inadvertently I am, I hope that noble Lords in all parts will, with their characteristic generosity, attribute it to my inexperience—4 shall try to do better next time. I believe that this subject is necessarily controversial and I hope I shall not be needlessly controversial; but it is the fine tradition of this House that every noble Lord who rises to speak shall say what he really' thinks, and with that tradition I shall endeavour to comply.
The fact that we do not to-day face a crisis does not mean that the position that
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we face is not serious. A crisis is a turning point or a moment of danger. If I may take the parallel of disease, in connection with which the word "crisis" is most usually used, one speaks of a crisis or a climax which will be familiar to every mother who has nursed a sick child, meaning the point at which a patient succumbs, or, if he survives that point, recovery is almost automatic or easy. There is nothing like that in the position which this country faces in the matter of inflation. There the danger is persistent and continuous; it needs long-term plans to combat it, and determination and persistence. In my opinion, my right honourable friend the Chancellor of the Exchequer is absolutely right to tackle the danger now, and to tackle it courageously and promptly. No member of the Government that took office after the 1951 General Election, in however humble a capacity, will ever forget the general position that we found facing us. The present Chancellor of the Exchequer was a principal architect of our recovery. Those who now see fit to attack his honour will find, perhaps quickly, that it is not his reputation that they have injured.
The nature of the present inflation is not that the activities straining our economy are themselves undesirable; it is that we are trying to do too much all at once. Broadly, there are two schools of thought about the nature of the remedy. One proposed way of tackling the inflation is by the method of innumerable Government controls, the restriction of imports, licensing and various forms of rationing and the rest. The other method, which is the method of Her Majesty's Government, is the use of the powerful instrument of credit, in which the Government regard it as their duty to maintain the value of the pound but do not regard themselves as the only wise planners in the community. If the value of the currency is maintained, many other controls become unnecessary; if the value of the currency is allowed to slide, no amount of controls will avert the evil consequences. It is not those who fight inflation who are attacking the social services; on the contrary, it is inflation that cuts the social services, by lowering the value of all the statutory weekly payments. We had some experience of that cutting of the social services before the Conservative Government took office.

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My Lords, I believe that all the main proposals of the Government at this juncture on the finance of local authorities and on the housing subsidies are on the right lines. If I do not discuss them now, it is because, clearly, there will be other opportunities at a later date to do so. I want to come at once to my points of criticism of the proposals of Her Majesty's Government. My first point is quite general. I do not believe that the right remedy for our present inflation is increased taxation. May I quote, to express my agreement with them, a few sentences of a leading article in the Manchester Guardian immediately following the Budget? They are as follows:
"In fact, it is not at all certain that increased taxation is the right way to deal with inflation. No doubt it is the Treasury's way of making the national accounts balance—on paper. But when the tax burden is already oppressive, any further addition is apt to produce human reactions that are not easily foreseen."
And, a little lower down—
"Mr. Butler rightly pointed to the fact that many other countries have run into similar difficulties of excess demand; but he did not try to explain why several of them, including West Germany, Sweden, Holland, Canada and New Zealand, are trying to restrain inflation by making taxes lower, not higher. Are we not being rather old-fashioned in looking to increased taxes as a remedy for inflation?"
I come from that general criticism, that increased taxation is not the most appropriate or even necessarily an effective method of dealing with our present inflation, to my criticism of the particular taxes chosen for increase by my right honourable friend. In my opinion, both the purchase tax and the differential profits tax are bad taxes. I submit with some confidence to your Lordships that you do not make a bad tax better by making it bigger. To take the purchase tax first: apart altogether from its unpopularity, it suffers from certain inevitable defects. The first, with which I necessarily became very familiar at the Board of Trade, is that it is constantly having distorting effects on trade and commerce, effects not in the least intended by successive Chancellors of the Exchequer who impose or alter these taxes.
May I give an example? The "D" Scheme, which, as my noble friend Lord Selkirk said, quite rightly, was a great improvement on the scheme which preceded
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it, must now go in the interests of the textile trade. I agree that it is being replaced by something much better. No Chancellor of the Exchequer, to whatever Party he belonged, had the least intention of injuring the art of the silversmith, but that did not prevent his doing so. So long as we maintain purchase tax in anything like its present form, although each year we may correct some of the worst distorting effects of the previous year, we shall always produce new distortions. The second of the great objections to purchase tax is that it would be difficult to find any tax more maddening to the business community. How on earth can a manufacturer plan the production of a product without having the least idea of the differential purchase tax to which, within a short time, it may be subject? It would be far better to scrap the whole of the present scheme and to substitute a flat rate sales tax. It would be better for trade and commerce and would be no more oppressive to the consumer.
I come now to the differential tax against distributed profits which seems to have the gravest possible disadvantages both in theory and in practice. Let me make my own position clear. I believe that if we are successful in ending inflation, as my right honourable friend the Chancellor of the Exchequer intends, and as I hope, we shall certainly make profits harder to win. That is entirely right. I also believe that profits are a perfectly proper subject for taxation. Indeed, that is the basis of our income tax. I also believe that the credit "squeeze" and other methods will have the result of compelling boards of directors, of their own volition, not to distribute as high dividends as otherwise they would; but this differential tax is not justified by any of those considerations. This differential tax on the distribution of profits discourages a company from distributing funds which it does not itself need to the equity shareholders entitled to them. I wonder why anybody, whatever his political convictions, believes that that is a good thing, for it seems to me to be both unjust and foolish.
To mention a few of the obvious consequences: it will encourage corporate bodies to borrow the money they need on loans or debentures, rather than to obtain fresh money from equities. That is not necessarily a good thing in the national

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interest. It will deprive boards of companies of their main, defence against takeover bids which may be injurious to the public interest. It will retain, in the coffers of companies, money which they do not need, to the detriment of growing industries that need it. The point was admirably expressed by that excellent daily commentator, Sir Oscar Hobson, when he said, on the morrow of the Budget, that it puts a premium on ploughing back profits into the business in which they were made though the national interest may say they would be far better employed in other businesses.
I hope that I may be allowed to pray in aid one passage of the Report of the Royal Commission on the Taxation of Profits and Income. Noble Lords will find the sentences that I am about to read in paragraph 536 of the Report:
"The mere retention of profits cannot be rated as an economic advantage; on the contrary, it would better serve the public interest that the company should be encouraged to distribute those profits which it cannot put to fruitful use, in order that there may be a chance that they may be invested effectively elsewhere. Nor is it advantageous for the economy that the level of dividends should be kept down. Whatever other considerations bear upon the problem, the market value of shares in industrial and commercial enterprises is artificially depressed and an obstacle placed in the way of raising new capital."
I have heard it suggested that this tax is not proposed because anybody can justify it in logic, but it is hoped that it will please somebody who does not understand it. I venture to prophesy that, just as the excess profits levy which was introduced with a similar idea was eventually withdrawn, with the approval of every political Party in this country, so it will he with the differential profits tax. It will eventually be withdrawn with universal acclamation. I hope that it will not have done too much damage in the interval. I am a little shocked by the fact that Government spokesmen in both Houses have assumed that this most distinguished Royal Commission, sitting first under the chairmanship of the noble and learned Lord, Lord Cohen, and then under the chairmanship of the noble and learned Lord, Lord Radcliffe, when they produced this Report, were really ignorant of most obvious facts, facts which must be obvious to any child. They made a most well-considered recommendation and I am puzzled to know what is the point of
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appointing a Royal Commission if their conclusions are treated with such contempt.
Finally, dealing with this particular tax, it seems to conflict with an idea that many thoughtful men in all Parties desire to further. There are certainly in the Conservative Party and in the Liberal Party, at any rate, many who believe that it would be a great gain to the State if more workers, snore trade unionists, and, indeed, more trade unions, owned ordinary shares. I share that view, and may I express, in a brief proposition, what puzzles me very much? I can, I think, understand the view—in fact I hold it—that profits are good and should be widely distributed. I can, I think, also understand the view—though I disagree with it —that profits are bad and that their distribution should be discouraged. But I confess that I have the greatest difficulty in following the logic of those who hold those two views simultaneously. Philosophers, both before and since Aristotle, have held that two contradictory propositions cannot both be true. I must confess, however reactionary it may appear, that I agree with the philosophers.
There is one hope that I would express in conclusion. I hope that in the lifetime of the present Parliament the taxation of the enterprising and hard-working professional man and the middle classes may be lightened, and that they may share in some of the increased prosperity —which I think they do not yet share. After four years of Conservative government, as after six years of Socialist government, it is still roughly true that the only lawful method by which a poor man can become rich -is by sending in a winning entry to the football pools. I think there should be the alternative of a lifetime of hard work and beneficent enterprise.
5.12 p.m.
LORD BRAND: My Lords, I do not think it is necessary for me to congratulate the House on the new acquisition, Lord Conesford, to whose remarks we have just listened, I am sure, with the greatest appreciation. Lord Conesford will obviously be a tremendous support to this House—I do not say to these Benches but to all Parties—in putting forward arguments of the brilliance and force that we have heard to-day. I hope that we shall hear him often in the future. I may

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add that, so far as I am concerned, there was hardly anything in his remarks from which I differed. I do not intend to detain your Lordships for more than a few minutes. I had it in mind to make rather a different kind of speech, but I decided, on hearing the noble Lord, Lord Pethick-Lawrence, to limit myself to some few comments in answer to what he said. I will not deal in detail with any of the taxes which the Government are to impose. Generally speaking, I agree with the noble Lord, Lord Conesford, in his view that taxes are not the best way of dealing with inflation. They may be necessary—I do not know, if it is impossible to reduce expenditure, it may be necessary to support the monetary policy by other measures. But for this, taxes obviously have not nearly the same virtue as a reduction in expenditure.
I was most interested in the remarks of the noble Lord, Lord Pethick-Lawrence, and I agreed with a good deal of what he said. His main point, however, was the advocacy of renewed controls. He suggested that as private capital expenditure appeared to be, so to speak, the "nigger in the woodpile," even more than consumption in causing inflation, he would propose again to exercise over private capital expenditure the control that was exercised under the Socialist Government. Further, as I gathered, he held that this control should replace monetary policy altogether. May I remind him, first of all, that there is in existence a Capital Issues Committee which considers all capital issues and which, presumably, therefore still exercises a certain discretion, though of recent months, no doubt, it has looked with a much more lenient eye than hitherto on new capital expenditure. I imagine that the noble Lord wants to go further than this and would have control definitely exercised in the Treasury over all such expenditure.
Now I think it is important to bear in mind that the way inflation occurs is that the total expenditure of a country in all its different aspects becomes too great. The noble Lord may have read a letter written by Professor Pigou which appeared the other day in The Times. The professor pointed out that the income of a country is merely the reflex of the country's expenditure, and that if you are
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to control the evil of too much in the way of income you must control expenditure. At present, our expenditure in this country can be divided, broadly, under the following heads: expenditure on defence, ordinary central and local government expenditure (including expenditure on the social services subsidies), capital expenditure by the Central Government and local government (the Chancellor of the Exchequer says that the latter amounts to 25 per cent. of the whole), capital expenditure by the nationalised industries, current consumption by the population at large, and, finally, capital expenditure by private industry. Under all those headings, it appears that no Government at present can, find means of making direct reductions. There is no proposal—perhaps it will come in the April Budget—for a direct reduction of Government expenditure or of local expenditure, except through the effect of higher rates of interest. And all these items, put together, are so large that at present we find that when we come to the thing that probably we count on more than anything in the world for our future prosperity—namely, new private capital expenditure—a little increase in that overthrows our balance altogether and we are told it is that which is the main cause of inflation.
I take the view that the right method is not a return to controlling private capital expenditure but to rely in the main on monetary policy, which the noble Lord, Lord Pethick-Lawrence, does not appear to rely on at all. The object of monetary policy is to reduce the general level of expenditure and activity below inflationary level. It has been the experience of many countries that that has been the successful outcome of the use of monetary policy, and I believe that that will be the result here. We are now seeing bank balances reduced, the control of the quantity of money severely exercised and a high bank rate. I believe that the interest rate, particularly, will exercise considerable control over private capital expenditure. In a few months' time it may be that we shall find that these influences have done their work. Certainly this policy has proved effective in other countries, and to my mind it is vastly superior to attempting again to control directly our incredibly complicated financial machine by civil servants in Whitehall.

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The noble Lord, Lord Wilmot of Selmeston, proposed, I gather, as a remedy for inflation merely the control of imports—whether of dollar imports only or of imports as a whole, I do not know. While that might have some definite effect on our balance of payments, in my opinion it would not effect the main cause of inflation, which arises from the amount of credit and money available in the country. So long as that remains as it is, and incomes remain as they are, no control of imports alone will do away with the tendencies to inflation. I am much inclined to agree with Lord Conesford about the demerits of taxation as a means of producing stabilisation, but I would not say that in present circumstances I feel certain that the Government are wrong in depending only on other sides of their policy and in not taking measures to absorb a small additional part of total consumers' incomes by taxation.
I should be astonished if the noble Lord. Lord Wilmot of Selmeston, were right and that the great mass of the British people are going to revolt, so to speak, because a slight additional burden is placed on them. I read to-day in Hansard of the small effect of purchase tax on the ordinary family, not in any way commensurate with the large increases in wages they have recently had; yet the noble Lord suggests that there is going to be a sort of revolution against any effort of this kind, even if its object is to control inflation, which would be far more ruinous to them. Taking the class to which the noble Lord, Lord Conesford, has already referred—the professional man—that class has taken a beating without a murmur, and is taking a beating now. I believe better of the British people than to think that they will condemn a Government trying to carry through certain measures to control a situation which otherwise may be disastrous to them.
I do not think the British public understand what inflation means. An experienced German told me recently that the Germans, having gone through two great inflationary periods, would react violently if they believed that inflation was coming again in Germany. Every German would stop working, he said, and would get rid of all the money he had by immediately buying anything real that he could get hold of and which he thought would maintain its value. The British public do not realise the enormous disadvantages of
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inflation nor, may I say, do a great many economists. They talk glibly about the stimulating effects or a little inflation. That seems to me comparable to saying that a temperature of 100 degrees is a stimulating and desirable thing, though it may be only a prelude to its going up to 103 degrees or 104 degrees. I hope that the views expressed by the noble Lord, Lord Wilmot of Selmeston, do not represent the real feeling of the British public.
House adjourned during pleasure.
House resumed.

ROYAL COMMISSION
5.30 p.m.
The following Bills received the Royal Assent:

Sudan (Special Payments)

Validation of Elections (No. 2).

House adjourned during pleasure.
House resumed.

THE ECONOMIC SITUATION
Debate resumed.
5.43 p.m.
LORD BALFOUR OF INCHRYE: My Lords. I should like at the outset of my remarks to associate myself with the congratulations which were given by Lord Brand to the noble Lord, Lord Conesford, on his maiden speech. Unfortunately, he is not at the moment in your Lordships' Chamber, but that does not in any way detract from the warmth and sincerity of the congratulations that I convey to him. I am sure that in all parts of your Lordships' House we shall look forward to the contributions that the noble Lord will make to our debates. What has been a loss to another place is undoubtedly a gain to your Lordships' House. In speaking after the authoritative speech of the noble Lord, Lord Pethick-Lawrence, to whom I feel we are indebted for initiating the debate, and the speech of the Paymaster General, I am not at all sure, in racing parlance, that I am not running in a class beyond myself. However, I am bold enough to take part in the debate for two reasons: first, because I believe that noble Lords should

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say what they feel about the present situation; and secondly, because never since the war have so many economic experts proved so wise before the event and shown themselves to be so wrong after it.
Since 1946 successive Chancellors of the Exchequer have been consistently confounded in their forecasts and remedies for our national economy. At varying periods since 1947 we have lurched from one balance of payments danger position needing emergency measures to another. Each time successive Chancellors of the Exchequer, of both the main Parties, have had confidence in the effectiveness of their emergency steps; and each time their confident assurances have been destroyed by subsequent events. I wonder how many times your Lordships have listened in this House, and have heard in another place, perorations from Chancellors of the Exchequer, from Financial Secretaries to the Treasury and from other Ministers exhorting us to work harder, to export more, to have restraint at home, to save more, to sacrifice, and to have confidence in the future, followed, usually, by another emergency a few months later. Successive Chancellors of the Exchequer have tried to defeat the symptoms of our internal conditions, but they have never overcome the basic causes in a world of economic disequilibrium. I only wish that I had complete confidence that Mr. Butler was not repeating this process of not getting to the root causes in his Autumn Budget.
On the internal position, reduction of Government expenditure on a large scale was virtually rejected by the Chancellor of the Exchequer, and I understood the Paymaster General to-day to say that it was neither wise nor necessary—indeed, he challenged those who advocated large reductions in Government expenditure to say where such reductions could be made. The main heads are the National Debt Service, Defence, Law and Order. Social Services, Foreign Affairs and Colonial Administration and, last but not least, subsidies amounting to some £400 million a year. I believe that the noble Earl's challenge is perfectly justified. I believe that we have now, for better or worse, got past the position where we can look for any large major reductions in Government expenditure without changes of Government policy—changes
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which would be impossible for any political Party in this country to contemplate if it wished to survive. Maybe thirty years ago we could have checked the automatic growth of cost, and we might have scrutinised and controlled more wisely the expenditures upon which we embarked in those years. But that time has gone by, and the Welfare State is here to stay and is admitted by all Parties. No great economy is possible unless we take a major policy decision which, I repeat, would be unacceptable to any political Party.
Nevertheless, there is one direction where I feel that there could be major reductions in Government expenditure. I think the Government have had great courage and are to be congratulated—though I know that here noble Lords opposite will not agree—on their new financial provisions for housing subsidies; and I hope that the same courage will be shown in the direction of other subsidies. I believe that it is wrong that all of us—members of your Lordships' House and many others should still enjoy the benefit of food subsidies to something around, I think, 10s. to 12s. a week. I am puzzled to know why purchase tax should be increased on a number of everyday articles, a step which is bound to stimulate wage claims. Whether or not such stimulation is right and moral is beside the point. The increase in the purchase tax is stimulating wage claims and although it discourages consumption it does so only by increased taxation towards a revenue surplus which is already bubbling. Why not discourage consumption, not by taxation but by bringing us back to reality by a reduction of food subsidies?
In this connection, let me say at once that on political platforms it has been said that there was some pledge given by the Conservative Party that we would not touch food subsidies. It is quite true that a pledge was given that we would not reduce food subsidies without compensating those who would be adversely affected by such reduction. I should like to see those who can carry the true cost of our food carrying it, as most of us in your Lordships' House can. I should like to see the Government compensate fully and generously, so as to restore the position as it is now, all State recipients of covenanted and uncovenanted pensions, benefits, allowances and salaries, so that such reduction in food subsidies, bringing those

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who can afford it back to reality, should not press upon those who are the poorest and lowest paid in the community.
I should like to say one word about the profits tax increase. The noble Lord, Lord Conesford, regretted—and I regret it—that its effect is comparatively small. It is true that since 1946 wages have risen by some £2,900 million and dividends by some £280 million. It is true that the adjustment we have seen of the dividend level over the last two years is really economically fair and is still incomplete. Having said that, we must realise that psychologically dividend increases are made an issue and a cause of fresh wage demands. I regret it. I do not praise those who make these increases of dividends a spearhead for political action and agitation for higher wages, because, economically, it is not justified. Nevertheless, we have to accept the world as it is and not the world as we should like it to be. If wage demands are not to be pressed upon the Government, then the Government have to carry the responsible trade union leaders with them. That is why I am glad, as I am sure others are, to read today that the Prime Minister, the Minister of Labour and the Chancellor of the Exchequer are about to meet the leaders of the trade unions. I should have liked to see no increase in profits tax but a Government appeal for a holiday for one year from dividend increases and wage increases—not imposed, in respect of dividends, by legislation but by Government appeal and Government pressure, as Sir Stafford Cripps did in 1947. Then we might have had more time to look round and think and at the same time have avoided the rather pernicious effects of increased purchase tax that the noble Lord, Lord Conesford, dealt with so ably.
But we have to go deeper than the immediate treatment of symptoms. The root cause is that we are not paying our way in a competitive world. I believe the Government will, sooner or later, have to review our world trading position and prospects in the light of our present trade policy. The noble Earl, Lord Selkirk, said that internal stability was essential, that is true; but the balance of payments rectification is, I would submit, just as important as rectification of the internal position. We can take little real comfort from the trade figures. It is true that industrial production is running 5
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to 6 per cent. above what it was at this time last year, but, as the Chancellor of the Exchequer said in another place, that is only part of the picture. Against this, our rate of expansion is lower than that of our Continental competitors, particularly Germany. We are all going up a moving staircase but others are overtaking us on the escalator. The gap between exports and imports in terms of money values has doubled in two years, and meanwhile imports have risen some 15 per cent. for the first nine months of 1955.
There is small comfort to be found in the Chancellor of the Exchequer's statement that exports to the United States are doing better. The facts are these. Between 1950 and 1954 inclusive, the United Kingdom exports to America have averaged £140·6 million a year. Imports from America have averaged £288·4 million. Our dollar imports for the first three months of 1955 are no less than 63 per cent. above those for the corresponding quarter last year, largely because of the liberalising of a large portion of our dollar imports. If it were not for the United States defence aid and offshore purchases, we should have to consider forthwith cutting dollar purchases to a greater degree than we control them at the present time. If Congress chose to cut dollar aid, we should immediately have to take those steps, for we cannot rely upon the myth of liberalised United States trade. When we consider bicycles or watches and the speeches of those in authority in America, it gives us no hope, now or for the future. Really, we are "kidding" ourselves if we think that America is going to become an easy importing country for our goods. It is not pleasant to reflect, and perhaps it is not widely enough realised, that when one smokes, visits the cinema or eats, several puffs of the cigarette, some portion of the seat on which one sits and some portion of the meal one eats are taken on the back of the American taxpayer. Such is our position after eight years of economic policy based on the final aim of indiscriminate liberalising of international multilateral trade, a policy based on ever freer entry into our markets and acceptance of any and every form of competition in our export markets. It is a grave policy, but is: it one that we can really sustain in the world of to-day when we have willingly and deliberately

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loaded our production costs with the overheads of high wages and Welfare State taxation, plus a defence bill on an enormous scale? I believe that the difficulties of this policy are already being increasingly thrown up. Take Lancashire and the textile trade. The President of the Board of Trade has said: "You must look at Lancashire as a whole." There are new industries taking the place of the old. In other words, part of Lancashire must be regarded as expendable. Some fifty mills have closed down this year. Where this breaks down is that a free trade economy requires to assume that labour is mobile. Generally, and in Lancashire, labour is not, for a variety of reasons, social and economic, mobile. Hence, the increasing short-time working and distress. This free trade policy runs into trouble when our costs of production are higher than those of our competitors. Importers of goods from foreign countries without obligation of reciprocal favourable treatment will buy as cheaply as they can, wherever they can. We are increasingly in many directions pricing ourselves out of some of the markets of the world because of our costs. Talking about British quality and skill does not really offset higher costs and late deliveries.
I would ask the Government this question. If we wish in some directions to sustain a preferential standard of living for labour in relation to labour of competitive bidders, must we not take steps to sustain a preferential market position, where we shall sell at an advantage because we offer the buyer some economic advantage worth while to him? This is not a revival of the old Tariff Reform policy; it is not a revival of the old Free Trade versus Tariffs controversy. It is the application of common sense in the economic world of to-day. The old tariff reformer is certainly outdated, but I find the economic rigidity of the advocates of absolute non-discrimination in any form far more severe in their outlook than any adherent to the Amery school. They are the ones who are the real doctrinaires when they stick with absolute fervour to non-discrimination and the rejection of preferential bargains when desirable and obtainable. Their horror at condoning the slightest breach is something to be seen. Yet I believe the march of events is increasingly and slowly showing the impracticability of adhering to the various
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doctrines of free trade. I am not advocating tariffs or controls; I am advocating ad hoc remedies (I do not mind what they are) for particular economic situations. I would conclude by saying that the Government are tackling the symptoms of our economic sickness with great courage, but I fear with some inadequacy, for the root causes remain with us yet, and sooner or later they will have to be faced. I pray that the Government will face them soon, and not too late.
6.1 p.m.
EARL DE LA WARR: My Lords, I must ask your Lordships to forgive me if I do not follow very closely the main trend of the debate. There are only two points that I wish to make—the first very general and the other, I believe, intensely important, and one worth making again and again until something is done about it. The economists can talk, and Chancellors of the Exchequer can do what they like, about taxes or bank rates or cutting expenditure and investments. All those things can doubtless be fitted into an economic policy, but I remain convinced that the surest hope of meeting this present problem of inflation is that of developing an expanding economy with expanding production. If only everyone in this country were producing all he could, without any restrictions, whether by employer or employed—restrictions all too often based on controversies and disagreements of the past, on class war and on short-sighted fears—then I believe there would be more goods than we have to-day, far more than enough to absorb the surplus purchasing power that to-day we are calling the cause of our inflation.
On this point I was particularly impressed by what I saw lately during a visit to America, where there seems to be an entirely different industrial psychology, an entirely different attitude on the part of the American workers, who seem to feel that the more profits their employers make, the more chance there is of their having higher wages. Whether it is a matter of good will or common sense, I do not know. We should like both, but I am prepared to settle only for common sense, if that is all we can have. One thing is quite clear. The American trade unionist is just as tough as the trade unionist here in making sure that he gets a fair share of a profit. High production

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and high profit are the joint objectives of employer and employed. The sort of thing that we are reading of to-day, the strike in the Rolls-Royce works over a man who is accused of doing too much work, would be something utterly fantastic in America: there he would be the hero of the factory. Cannot we get this attitude here? Ought we not to ask ourselves why we have not got it?
I believe that the Government can help a great deal. Naturally we must all welcome what was said by the noble Lord, Lord Balfour of inchrye, on the coming conference with the T.U.C. I think that for the same reason we must regret certain speeches that have been made in another place during the last few days. I cannot help believing, however, that, much as the Government may be able to help, the problem is essentially and primarily one for industry itself—indeed, for each industrial firm. It is not just a matter of discussions and conferences with certain chosen responsible trade union leaders. There must be a great national—I have in my notes "propaganda," but I strike out that word and say "educational" drive, particularly through the national Press, partly, of course, through ministerial speeches, but so far as possible primarily within each and every factory, between those who know each other and who know the condition of each other. What we have to get away from is this attitude of the "boss" being the enemy. We have to get on to the plane where the "boss" who makes good profits is the source of good wages and is the best friend of the working man. Given that changed attitude in industry, I believe that we shall hear no more talk of autumn Budgets. We are not asking for the moon, because this attitude already exists in the United States, and I cannot see why, given the necessary effort, we cannot reproduce that psychological condition in this country.
My Lords, I now move on to my second point—a very different one. In another place the Chancellor of the Exchequer referred to the question of the overhaul of agricultural subsidies, and I think the noble Earl, Lord. Selkirk, just touched on them here to-day. No one could possibly dissent from what the Chancellor of the Exchequer said, but I think there is cause for some disquiet. I do not know how your Lordships behave when you go to see the dentist,
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but I believe that there is a great deal to be said for starting to make a fuss and for even a slight noise before the drill actually gets into the most sensitive part of your nerves. I think this is the moment to say something, before anything has been done. At the present moment there are two popular, but I believe dangerous, illusions—dangerous not only to the agricultural industry but to the country because of the importance of agriculture as a dollar sale.
The first illusion is that all farmers are tremendously prosperous, especially after the last harvest. It is perfectly true to say of a number of well-capitalised farmers, probably with fairly good land, that they are doing quite well; and the Chancellor of the Exchequer deals with them through his taxation department. The other day the Minister of Agriculture told us that he had "a song in his heart." Well, he can sing as loud and as long as he likes about that type of farmer; but he knows as well as I do that the bulk of the land in this country is in the hands of the smaller farmers, and that the bulk of the food produced in this country must come from those farmers who are not so well off. To begin with, they did not get a great deal from the wonderful weather. Many of them did not have a large harvest, and a great many of them convert grass and fodder crops into milk. Although some fields carried a good harvest, in fact others gave a great deal less grass. I took the precaution yesterday of speaking to the Milk Marketing Board and asking what information they had on the position of the dairy industry in this country. They informed me that 14 million gallons of milk less were sold this summer than last summer. That figure, with bonus payments and so on, would he worth something like £2 million, taking no account of the supplementary feeding which was necessary. Therefore, some small farmers are not better off; certainly, many of them are no better off than the workers. especially when we take into account the fact that wages are a certainty and profits are not.
There is one other illusion, and that is that the amount of assistance agriculture is receiving to-day is something unique in the economy of this country. The amount that it is receiving is not unique. The form in which it is being compelled to receive it is unique; and it is unique in that it is much mere obvious to the

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nation than, for instance, the assistance received by industry through tariffs. What are the facts? The subsidies to agriculture amount to a little over £200 million—some people put it at £250 million and others at just under £200 million, according to whether they say it is a subsidy to the consumer or the farmer, so let us put it at just over £200 million. The value of agricultural production is about £1,200 million—I am deducting from the total figure horticulture, which we know is assisted by tariffs. That means that the assistance received by the farmers is something between 15 and 20 per cent. of the total value of their total production.
The other day I was sitting between a manufacturer of motor cars and a manufacturer of bicycle tyres, and when they, knowing that I was a farmer, asked me about the "feather-bedding" of my industry, I asked them what they thought of comparing this 15 per cent. to 20 per cent. assistance that we were getting with the 33⅓ per cent. tariff that they were enjoying. Being fair-minded men they admitted that I had a point. But the fact is that there are far too many people who have not been made aware of that point. I know that it is easy to overdo the analogy. There are considerable differences between the assistance given by a subsidy and the assistance given by a tariff. and therefore I do not want to spoil the point by over-stressing it. But it is a point, especially if Ministers mean what they say—as I know they do—when they say that agriculture is one of our greatest dollar savers.
Last year the increased volume—that is volume in value—of food produced by agriculture, as compared with pre-war agricultural production, was something over £400 million. Much of it actually represents a saving in what would have had to be spent in dollars. If that rate of increase is to continue, or even if the present position is to be maintained, the Chancellor of the Exchequer must be careful in any reconsideration of these subsidies. We have every confidence in him, and we have every confidence in the Minister of Agriculture, but it seemed to me that it was worth intervening now, before any harm is done, because we all know that it is much easier to maintain
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confidence in an industry than to restore it.
6.13 p.m.
LORD ARCHIBALD: My Lords, I shall not detain the House for many minutes, partly because I intended in any case to speak very briefly and partly because the noble Earl who has just sat down has in his second point covered part of the ground with which I wanted to deal. I should like to ask the noble Earl, Lord Selkirk, whether there was not a slight discrepancy between his reference to-day to agriculture and that of the Chancellor of the Exchequer in another place last week. The Chancellor, after referring to economy in the carrying out of our defence commitments, went on to say:
"This same criterion of economy and efficiency will have to be applied at the right time to the range of subsidies which fall within the field of my right honourable friend the Minister of Agriculture, Fisheries and Food."
As the noble Earl, Lord De La Warr, has just said, that is quite unexceptional if it means only that the subsidies are to be applied with due economy in their administration; but that I think is not what it implies, because economies in administration could be effective at once; there would be no question of doing it at the right time. If, therefore, the sentence has any substantial meaning it must mean that there are going to be cuts in the subsidies at the right time: that is to say, at the February Price Review. The outcome of that we shall not know until possibly March or April.
Now the evil of the present situation, to my mind, is the element of doubt which is in it—the element of uncertainty, the lack of clarity. Very little attention has been paid to this matter either in the other House or until the noble Earl, Lord De La Warr, spoke here this afternoon; but it has not escaped the attention of farmers and farm workers. I have been approached already by a number of farmers who have wanted to know how I interpret the statement. I was bound to say that I did not know any more than they did, but that on the face of it it indicated that there was going to be a cut in the subsidies in the Spring next year. Now I suggest to you that it is quite unfair to any industry to leave it in a state of suspense for so long a period.

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May I ask noble Lords to consider what the reaction would be in any other industry if they were told that there was a threat hanging over them for four or five months? Suppose, for example, that the Chancellor of the Exchequer were to say, "We cannot consider the maintenance indefinitely of the 33⅓ per cent. protective tariff on the motor car industry, but we will deal with that at the right time in four or five months." How would the motor car industry react? It would have visions obviously of a lower tariff, because it could only mean that, and of a flood of Volkswagons, Fiats, Peugeots, Citroens and so on coming into the market. Would it expand production in the face of that threat? Would it go ahead with new schemes in those four or five months while it was waiting to know how heavily the axe was going to fall? You will say, "But nobody would treat the motor car industry like that. It is a dollar earning industry." Then why treat agriculture like that? Agriculture is a dollar saving and other foreign currency saving industry. I suggest that this is really something very serious and we are entitled to ask that there should be a clarification of the position.
What is the reaction among farmers? Of course they are considering not expansion of production but how they can safeguard themselves. That extra bit of liming they meant to do—that can be postponed; the extra fertiliser for that field that did not do so well—that can be done without; and that other field can go down to grass. I have already heard that big farmers have been discussing how they can change over to a system of a stockless, five-and-a-half-day week farming with less effort to themselves and with a smaller investment, and therefore less insecurity for them than they have in their present mixed farming economy. But make no mistake, that sort of changeover means not an expansion but a contraction in agricultural output. The Chancellor of the Exchequer's statement, added to the credit squeeze (and I am not saying that the banks have acted harshly or unfairly with the farmers), I think can only in the outcome produce a reduction in agricultural output. As agriculture is a dollar saver it is obvious that a reduction in agricultural production in this country must of necessity have a bad effect, an adverse effect, on our balance of payments situation. In this I think
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I can claim I am not putting any Party point of view.
To reinforce that, may I draw the attention of noble Lords to a very temperate statement in The Times yesterday by The Times agricultural correspondent. At the end of his article he says:
"Still more important a t the moment, when there is so much general talk about subsidies, is a clear statement from the Chancellor affirming that Agriculture can continue to rely on the deficiency payments system to provide price stability."
That is just what we asked for, a clear statement. The Times correspondent also says:
"In the past few days there has been so much talk about abolishing or reducing subsidies of all kinds that farmers (and farm workers are as much concerned) wonder how this may affect them."
That is entirely in line with my own experience of talking with farmers and farm workers. Farmers to-day are finding that the price of practically everything they use is going up. They are faced with the possibility of a wage increase. There is an application coming before the Agricultural Wages Board. I am hound to say that personally I hope that farmers will be faced with a higher wages bill, because I believe that the discrepancy between agricultural and industrial wages in this country has come very near to a scandal. But if farmers are going to pay higher wages, as I think they should, they must be in a position to do so. In a situation where costs, including wages, are rising and they have the prospect of lower prices for their products, they must, in that double squeeze, play for safety and therefore for lower production. Frankly I do not expect the noble Marquess, Lord Salisbury, to reply to this point to-night, for I gave no notice that I was raising it; but I am asking that there should be from Her Majesty's Government at an early date a clear and unequivocal statement as to what is intended with regard to the carrying out of the Agriculture Act, 1947.
6.24 p.m.
THE EARL OF PERTH: My Lords, the Chancellor of the Exchequer in his Budget speech said that the restriction of credit had applied less rapidly than he had expected or intended. I believe there are two main reasons for this happening, although I also believe that, if it had been left to itself, that restriction would in the end have achieved what it set out to do.

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We have already heard one of the reasons given by several noble Lords—namely, that the area of expenditure sponsored by the Government is, or has been to date, very little affected by the credit restriction. The latest move in regard to housing is, however, most important and most wise. The second reason has also been touched upon—namely, the surge of spending for the re-equipment of industry that has taken place. This surge of spending has taken everybody by surprise and I believe it was largely due to the fact that last year, before the Election, industry, while drawing up plans for re-equipment, did not dare to put them into force. Then, when the Election results were known and political stability lay ahead for four years, companies, large and small, started on their plans for modernisation and re-equipment.
In itself that is a very good thing, for re-equipment of industry is vital to this country which depends so much on production and competitive prices for export. But at the same time, and hand in hand with this re-equipment move, have gone increased wages, increased incomes and increased spending. Clearly there is not room for all these things at the same time without serious inflation. It is trying to get a quart out of a pint pot. Again and again Her Majesty's Government, recognising this position, have appealed to people to restrain their spending and for restraint in wage claims and dividend distributions. But such is human nature that very little attention has been paid to these appeals. I wonder how many of us here can conscientiously say that as a result of these appeals we have not spent money on something on which we should have liked to spend some money. Again, I wonder how many people throughout this country have put something extra aside. If only every wage-earner would increase his savings by five shillings per week I believe that we should have had no problem and no need of a Budget; but we have not done so, so we have had the Budget.
I believe that, in a large measure, the Budget has been designed as a psychological attempt to bring home to people the need to go carefully. Most unhappily, it does not seem at this moment that it will achieve that purpose, and it would indeed be tragic if, as a result of it, we found new demands for wages and
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generally increased spending. Surely the last years have shown that these regular annual demands for increased wages benefit nobody. The immediate result is increased spending, higher prices, and all that goes with them. It is an upward spiral and a vicious circle, though perhaps that is a mixture of metaphors. I am wondering whether there is not perhaps some way of breaking this spiral: and here is my first concrete suggestion, to which I hope trade union leaders will pay great attention. In some way or other a part of any increased wages should be in the form of a deferred spending.
I have in mind a practice similar to one adopted in the United States. There, a short while ago, the big unions who deal with the automobile companies asked for a new type of wage increase which was called a "guaranteed annual wage." In effect that was something of a misnomer but the result was that a part of the wage increase was not immediately available to the worker for spending in the ordinary way; the benefit came through a fund which was to be accumulated for a purpose which might arise in the event of unemployment or distress. I wonder whether something along those lines could not be followed here if there are, or have to be, increased wage demands. I do not know exactly what form that fund might take; that would be for the unions to work out in conjunction with the employers. I suggest that something along those lines, particularly at this time, might be of real benefit. Following the same line of thought, I wonder whether something of the same kind could not be done in regard to increased dividend distribution. Although there are appeals to "go slow," increases are sometimes right and proper. In such cases could not the increased part of dividend distribution be in the form of a Government security encashable only at the end of two or three years? I know that such an arrangement might be somewhat complicated to operate, but for a Government Department which can think up anything like P.A.Y.E. and make it work, nothing should be too difficult.
Lastly, on this question of trying to hold back spending, I come again to the question of savings. I believe that is the real weapon which the noble Lord, Lord Pethick-Lawrence, did not mention in giving the ways to defeat inflation. Would

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it not be possible, at this moment, for Her Majesty's Government to think up some new medium of saving which was frankly and deliberately attractive and which might be limited to those who are wage-earners? It need not be of very long duration, but, for the time, it might serve to mop up some of the surplus spending power. In general, it seems to me that the problem at the moment is very largely one of timing. There must be restraint of personal spending. I have tried to indicate one or two ways which have occurred to me of achieving that end. It would be much better and easier if the individuals themselves shower such restraint and agreed to defer spending in the ways I have outlined. Then, before too long, the whole country should have its reward. In the meantime we should have constant prices and there would then be increased production of goods and a higher standard of living for one and all.
6.32 p.m.
THE EARL OF CROMER: My Lords, I have just returned from a short visit to Canada and the United States of America. Wherever you go in those two great countries you see the most tremendous expansion taking place, and everyone to whom you talk tells you of plans for yet further expansion. I arrived back here the day before yesterday to find a mental attitude of contraction and people talking of cutting back this or cutting back that. I know that our circumstances here are different from those of the two countries I have mentioned, but, nevertheless, the contrast is very disturbing. Earlier this year the Chancellor of the Exchequer was reported to have said in a speech that it might well be possible for us in this country to double our standard of living by 1980. Are we at this point to lose our nerve, when the whole of the rest of the world is going ahead around us?
Our problem, as we know only too well—we have been told about it to-day at considerable length—is inflation. It seems to me that we are all agreed on the longterm solution of this problem, which is to produce more goods. However, the various palliatives which we have been offered in the post-war years, and the further dose which was administered last week, are no cure for our complaint. As for the credit squeeze which is intended to reduce bank loans by somewhere about £200 million, what use is that when wage
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increases already granted this year up to July amounted to £218 million? Even these figures, vast though they are, are small in comparison with the total current expenditure of the Government, amounting to some £4,500 million. It seems to me that the basic fact is that too large a proportion of our national effort is going into non-productive services of one sort or another, and insufficient into production.
In order to survive we have to export into highly competitive world markets which do not enjoy welfare schemes such as we have here. If we want these welfare schemes, it means that we have to work for them, as the rest of the world certainly does not owe us a living nor has it learned to expect soft living. We have, therefore, the alternative of working hard enough to maintain our present welfare services and, if fortunate, gradually to increase them, or continuing as we are doing at the present time, in which event they will become nugatory, because so far as the balance of payments situation is concerned, never have so many people had so few visible mean; of support. One of the encouraging signs I see is the figure; of new factory buildings and machine tool deliveries, both of which are running at record rates. Whatever else is cut, stimulation must be given to every form of capital investment which will increase our output, as it is only in the newer factories that full advantage can be taken of modern technological advances. I was, therefore, somewhat horrified to hear the noble Earl, Lord Selkirk, suggest that this is a sector of the economy which might be cut.
The unfortunate thing is that British industry is more heavily burdened, both individually and collectively, by taxation than industry in any other country in this highly competitive world. There is no doubt in my mind that the greatest single cause of inflation in this country is the high rate of income tax which makes possible the high rate of Government spending which, in itself, it basically inflationary. The Blue Book of National Income and Expenditure for 1955 shows that the Government, out of their vast income, managed not to spend on current account—though they find other ways of using it —only 41d. in the £ out of every £ collected, whereas companies and corporations managed to save, after paying tax, no less than 7s. 9d. in the£out of

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their profits, and whereas even the unfortunate individual, again after paying his tax, managed to save 1s. 2d. in the £ out of income. From these figures it is not difficult to see who are the savers and who is the spendthrift. But, apart from the fact that the Government spend practically every penny they receive on current account, the National Debt in the last two years has increased by no less than £882 million. There is inflation for you.
It is all very well to say that the cost of central Government is now only 26 per cent. of gross national production against 29 per cent. four years ago. I should like to ask what proportion of that change is due to the increase in the gross national production rather than to any decrease in Government expenditure. Furthermore, it really cannot be accepted that there is not room for considerable economies in Government administration. There is not one of us who in our day-to-day lives does not see, at one time or another, examples of Government waste and extravagance. At the end of July there were 1,315,000 people, not counting the Armed Forces, in central and local government service—that is, one in sixteen of the working population of the country. The productive segment of the economy just cannot bear this load.
Of course, major reductions in expenditure must come from policy changes, but I do not agree with the suggestion of the noble Earl, Lord Selkirk, that people who criticise Government expenditure should say where the cut is to come. It is surely up to the Government to give a lead and not to wait until they have changes forced upon them by a deteriorating economic situation. High taxation is undoubtedly responsible for a considerable amount of extravagance in private business as a whole, as the knowledge that the proprietors will in any event receive less than half of any profits earned leads managements into undertaking all sorts of projects which may be highly desirable in themselves but which certainly are not essential and which increase the demand for goods. High tax rates also stimulate speculation at the expense of investment. Even a capital gains tax, which I understand some people would like to see, would only conceal the symptoms without in any way curing the malady. People have also mentioned bank rate. The bank rate is perhaps not
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so effective as it used to be and surely the reason for this is clear, in that the incidence of tax renders bank rate about half as effective.
Lastly on this matter, but certainly not least, is the point which the noble Earl, Lord Perth, made—namely, that taxation is the greatest single deterrent there is to saving, and it is absolutely essential to reduce our current consumption of goods and to encourage saving in every way. I would suggest that to do that we need an unearned income tax allowance just as much as an earned income tax allowance. It is absurd for small savers to be taxed on the interest they receive from the Post Office Savings Bank and like institutions. We all want to see this country prosperous on a sound basis and this can come only from increasing industrial investment, which will result in the creation of new wealth. This new wealth should be spread as widely as possible throughout the community. But the redistribution of existing wealth does not improve our position in the world by one iota. We need a new expansionist outlook so that we can look to the future with confidence, without looking over our shoulder to the past the whole time to see what is going to catch up on us. We need to have the firm belief that we are building soundly for the future. I believe that at this time in history and in technological progress the Government has the greatest opportunity which has existed in years to show real leadership.
6.41 p.m.
LORD COLERAINE: My Lords, may I first of all congratulate my noble friend Lord Conesford on the interesting and witty speech which he made earlier this afternoon. I was glad to find that his journey along the passage to this House has in no way dimmed or diminished the wit with which another place had often been regaled. In fairness, I must also congratulate him on his speech because I agree wholeheartedly with so much of what he said. The hour is late and I do not wish to detain your Lordships for longer time than it will take to make and develop one single point, the point which was made by my noble friend Lord Cromer.
I am not so much concerned with the actual Budget proposal of the Chancellor of the Exchequer as with the solid, unassailable and disagreeable fact that, ten

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years after the end of the war, we are still in the grip of a dangerous and debilitating inflation, and in the autumn of 1955 our economic situation is still as precarious as it was in the autumn of 1947, the autumn of 1949 and the autumn of 1951. In these ten years we have had, for six of them, a Government which believed in physical controls and in the central planning of the economy, and, for rather more than four years, a Government which believes in the use of the monetary mechanism and in the relatively free play of economic forces. Yet these two Governments, basing themselves on diametrically opposite policies, seem to have arrived at precisely the same result. The result is continuing inflation and chronic instability in our balance of payments. It seems to me that there is only one deduction to be drawn from this situation. If physical controls and economic planning lead to inflation and instability in our balance of payments, and if control by use of the monetary mechanism leads to precisely the same result, it must be that there is some other element in our economic situation, some element which is common to the policies of the?resent Government and their predecessors, which is producing these disturbing results. That seems to me to be the inescapable conclusion.
There is a missing link in the argument, to which nobody pays sufficient attention. Just what that missing link is, is no doubt more debatable, but I agree wholeheartedly with the noble Earl, Lord Cromer, that the element which has been common to the policy of this Government and that of their predecessors has been this vast public expenditure—a public expenditure which should think is unparalleled in any other country in the world outside the Soviet Union—coupled with an enormous burden of taxation. I am not an economist and it may well be that I over-simplify the argument, but I have no doubt whatever that the main cause of our unending difficulties is excessive public expenditure—by Government, by local authorities and by nationalised industries. This public expenditure first of all intensifies the problem of inflation and then, because of its consequent effects, makes in far more difficult to solve the problems of inflation.
Of course, there is a sense in which public expenditure and private expenditure alike contribute to an inflationary
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position. In one sense, it does not matter who disposes of the excessive purchasing power, so long as that purchasing power is disposed of. But I think that that is only half the story. In my judgment, public expenditure is far more dangerous than private expenditure, for the reason that public expenditure is far more difficult to control. If a private firm wants new plant to improve productivity, it has to consider its resources, how these can be augmented by help from the bank and so on; but when a public authority considers its programme of expenditure, it has to consider only what it wants. Payment will come through an adjustment in the rates of taxation or by raising the price of its monopoly. What is called the public sector of finance is overshadowed by this fatal motto, "Only the best is good enough." Time and again one hears, in this House and in another place, in debates on public expenditure and on public needs, that only the best is good enough for the public. Therefore only the best is ordered. For this reason, I think that public expenditure contributes enormously to the general inflationary position. In my judgment it also makes it far more difficult to check inflation. At any rate it makes it impossible permanently to get rid of the inflationary situation.
We cannot really 'dispose of an inflationary situation by restriction—more than one noble Lord has made that point already; all we can do is to damp down the symptoms. Then, once we have stopped treating symptoms, as we are bound to do sooner or later, we find the disease making itself apparent once again. I feel strongly that we cannot hope to get rid of inflation by restriction. We can get rid of it only by expansion, and we cannot hope to get expansion when industry is labouring under the burden of taxation which, I believe, largely cripples it to-day. But it is not only industry that is under this burden; so is the individual himself. I agreed with a great deal that my noble friend Lord Conesford said about purchase tax. Surely it is an illogical position for us to say, as we all do, that the only real cure for inflation is expansion, and then All the time, when there is a crisis, to try to get expansion by restricting consumption.
I do not deny that there are moments of crisis when that is necessary, but the point I am seeking to make is that those

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moments will continue to recur, as they have recurred all through the past ten years, unless the fundamental policy is to expand production. If a man is overweight there are two ways he can get his weight down: there is the young man's way, of taking exercise, and there is the old man's way, of putting himself on a diet. I do not want to take away from the great achievements of the present Chancellor of the Exchequer in freeing economy, but it seems to me to be a legitimate criticism of his policy the whole way through that he has relied far too much on diet; and, though he has talked about the need for exercise, he has not really created the conditions in which exercise is possible. Those conditions I believe fundamentally to be a real cut in Government expenditure and what is called the public sector of the economy.
It may be said that I am pushing at an open door—and, indeed, I hope that I am. Certainly it is true that the measures which have already been announced by the Chancellor of the Exchequer, by the Minister of Housing and so on, foreshadowing some restriction in expenditure in the housing field, some prospect of a rational adjustment of rents, and some control of local authority spending, are the most helpful things that have come from any Government since the end of the war. It really does look as though Her Majesty's present advisers mean, for the first time, to go to the root of the problem. At the same time, I must confess to some feeling of scepticism. I can think of no Government since the war that has not said that public expenditure would be cut; yet it has continued to mount. The Chancellor of the Exchequer, speaking yesterday, said, unless I misunderstood him, that in the measures he was taking to check the expenditure of local authorities, or the extravagance of local authorities, he was making certain that no local authority would he embarrassed. It seems to me that unless local authorities are embarrassed to some extent there can be no conceivable worthwhile check on local authority expenditure. The Chancellor of the Exchequer has continually said, too—and I think he said it again in his Budget speech—that it is impossible to get any worthwhile economy without a major change of social policy; and that was something he was not prepared to contemplate. If our policy is such that it is
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landing us in these continual crises, in this unending inflation which, to quote my noble friend Lord Conesford again, is gradually wiping out the middle and professional classes in this country, then surely it must be called in question. It is rash to an unbelievable degree to pretend in those circumstances that there is nothing questionable about it.
In this House we are not directly concerned with the electoral process, though many of us in our day have had some experience of that process. I have the feeling that Governments since the war, whichever political Party they represented, have been unduly nervous of the electorate. I feel strongly, both from my reading of history and from my own experience, such as it is, that when you tell the electorate the truth, and put it before them candidly and honestly they accept it; but if all you offer them is just the easier of two easy options, then I think they accept that. In another place in the last few days there have been some not very friendly exchanges across the floor about who deceived the electorate more or less, or who did not deceive the electorate at all. I believe that under our electoral system there must inevitably be some deceit, inasmuch as one must always put the best complexion one can on one's own case. But if there is one thing that is worse than deceiving the electorate, it is treating the electorate as children; and that is something of which I believe all Governments have been guilty, to some extent. since the war. I hope that the present Government are going to make a departure from that, and that the extra-budgetary measures which are foreshadowed will be put forward boldly and candidly before the people of this country. When that is done, I believe that the Government need have no fear.
6.59 p.m.
LORD DOUGLAS OF BARLOCH: My Lords, I have a great deal of sympathy with the concluding passages of the speech of the noble Lord, but let me return to the central point of our discussion. It is agreed that the troubles from which the country is suffering at the present moment are due to inflation. That is the thesis of the Chancellor of the Exchequer: it is accepted, I understand, by the ex-Chancellor of the Exchequer, and I do not gather that it has been contradicted by anybody who has spoken to-day. But if

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that is true—and I personally agree—then surely the autumn Budget is quite irrelevant to the situation. Inflation is not a budgetary phenomenon; it is a monetary trouble. It is true that it may be connected in some ways with budgetary problems. It can arise if a Government, instead of raising the taxation which is necessary in order to meet its expenditure, expands the note issue or the circulation of credit. Conversely, if inflation has taken place it can happen that the amount of revenue which is being obtained out of the Budget is no longer sufficient to meet expenditure upon a higher price level. In those ways, it is true that inflation is connected with budgetary policy. But it is quite untrue to say that it can be put an end to by fiscal measures, because it does not arise out of them and is not directly connected with them.
Here is the curious position in which we stand at the present moment. It is not suggested that Ehere is any great difficulty in balancing the Budget. The amount of extra revenue which will be obtained in the remainder of this fiscal year is a relatively small amount and, therefore, these measures are not required for purely fiscal reasons. We are told that purchase tax is being increased in order to prevent people from spending— or rather that what it will do is to prevent them from getting as much for the money which they do spend. It will not prevent them from spending, but it will divert part of what they spend into the Exchequer. What is the result of that? It is an addition to the cost of living. It is all very well for the Chancellor of the Exchequer to say that increases in taxation should not be made the basis of claims for increases in wages. In principle, that doctrine is absolutely true but every one of us knows that when pi-ices are raised as a result of indirect taxation of this kind, the ordinary man and woman is quite unable to know how much of the increased price which he or she is paying is due to extra taxation and how much is due to other causes. If my memory serves me correctly, I believe that in the compilation of the cost of living index indirect taxation, such as the purchase tax, is taken into account as part of the prices by which the cost of living index is determined—one of those things which, in all wage negotiations, is most frequently referred to. So the result of
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this increase can quite easily be to encourage more demands for wages and to nullify the policy which is embodied in the Budget, even so far as it goes.
Far better would it have been to pursue a totally different policy: to reduce expenditure and the taxation which falls upon commodities in this way. After all, in an economy in which production is increasing year after year, the natural consequence ought to be that the price of commodities should gradually but steadily fall, and if that happened a great many difficulties would be mitigated. It would no longer happen that the level of pensions, of fixed incomes and so on, would be pressing against a rapidly increasing cost of living, causing demands for higher sickness, pension and other benefits. If it is the fact, as it is, that in our economy, which is expanding and in which production is increasing from year to year, instead of the general level of prices falling it is rising year after year, there can be no clearer evidence that inflation is at work. It will not be remedied by the proposals which are made by the Government, whether budgetary or extra budgetary. It may or may not be right to look at the subsidies which are being paid out of the Exchequer for housing. I, personally, would not deny that it is quite a mistaken policy to subsidise the rents of people who are perfectly well able to pay a fair economic rent. It is true, on the other hand, that this system has been in existence for a long lime, and it will require great skill and care to readjust it without inflicting hardship upon people whose lives have been adjusted to it and some of whom are in a condition in which it might bear hardly upon them. But, in principle, no doubt it is something That ought to be looked at.
If that is looked at, there should also be equal consideration given to the subsidies which are paid out of the Exchequer, to a much larger figure, to agriculture, in which exactly the same kind of needless expenditure occurs. Everyone knows that when you guarantee prices for farmers you are guaranteeing prices both for the marginal producer and for the producer who can carry on perfectly well without them. If the one problem is going to be dealt with, the other ought to he dealt with, too. If a substantial saving could be made in the amount Of money which

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is paid out of national taxation in unnecessary and useless subsidies, it might be all the more easy to reduce that taxation which falls indiscriminately and with the greatest hardship upon the poorest people—indirect taxation which is levied through purchase tax.
Therefore, on every ground I say that these proposals are mistaken and are not directed to dealing with the real problem. Inflation is a monetary problem. It arises because either the circulation of notes or the circulation of credit is increased. The Government possess ample powers to deal with these matters. They control the note issue. They control the Bank of England. They are able to regulate the monetary and credit circulation of this country without an autumn Budget and without fresh legislation of any kind. Therefore, these proposals are quite irrelevant and quite unnecessary for dealing with the problem as the Chancellor of the Exchequer himself has stated it, the problem of inflation. This is being made an excuse for doing a number of things which are not related in any direct fashion whatever. It may be right, or it may deserve consideration; but all this is resulting, as the noble Lord who has just spoken said, in giving the people of this country a false perspective of what the real problem is, and rendering them all the more unwilling to accept the measures which are necessary in order to deal with it.
7.10 p.m.
LORD SILKIN: My Lords, it would be remarkable if the fourteenth speaker in a debate of this kind, with so many exceedingly well-informed and thoughtful speeches, had anything original or new to say. I am not going to pretend that I have anything new that I can offer to this House, but I feel it is worth while reviewing the debate so far as it has gone, to see what is the measure of agreement that exists in this House and the points upon which there is complete or partial disagreement. We owe a great deal to the noble Lord, Lord Pethick-Lawrence, for the objective way in which he opened out the debate and thereby set the tone for the subsequent discussion. I hope the House will forgive me if I say that, in the years that I have been in this House —not a great many—I do not remember a single debate which has been conducted in co objective a manner as the
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present one. The Government themselves can take cold comfort from that fact because noble Lords on both sides have felt themselves free to say exactly what they liked. I do not think there has been a single speech in this House on the Chancellor of the Exchequer's proposals which has been wholly commendatory, except that of the noble Earl, Lord Selkirk, which of course we anticipated; and I imagine that we shall have another speech which is wholly commendatory from the noble Marquess, Lord Salisbury. But even Lord Selkirk was not quite in his usual form. I thought he was very subdued in supporting the proposals of the Chancellor of the Exchequer. We shall listen with great interest to the tone in which the noble Marquess will be supporting them.
There is a great measure of agreement in this House on the proposals that have been put forward. Every speaker recognised that inflation was in existence and that it had to be dealt with. There was some difference of opinion as to whether it was necessary to deal with it by means of a Budget, but I think the general consensus of opinion was that there could be no legitimate criticism against the Government for having introduced an Autumn Budget. I myself take that view. The questions that we have to answer are: Are the proposals that have been put forward calculated, in the short run and in the long run, to deal effectively with the question of inflation? Are the proposals fair and equitable; are they going to be fair? Those are the main questions that we have to consider. The debate, on the whole, has centred round those two questions. Other matters have been raised. For instance, the noble Lord, Lord Coleraine, raised the question of Government—and I imagine that in Government he meant to include local government—expenditure. I make no complaint at all about that. His view is that a policy which necessitates public expenditure should not be regarded as sacrosanct, but should be open to consideration. And, while he recognised that it was impossible to get substantial reductions in expenditure without alteration in policy, he took the view that we should not necessarily assume that policy cannot be altered. That is the view which a good many people in the other place have taken, and it is the policy which one or two noble Lords have taken here. The

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trouble is that no-one is prepared to say categorically what changes in policy should be made.
The noble Lord, Lord Coleraine, quite rightly felt that one of the defects of our democratic system was that people were afraid at Election time to say clearly and frankly what their policy was; that there was always a gloss over it. In this House we need have no gloss of that kind. Would the noble Lord and others who take his view say exactly what are their views as to the kind of changes in policy that we ought to make which would result in reduction in public expenditure? That is a difficulty which all of us who have been concerned with public expenditure have to face, in the long run. I know that one noble Lord—I think it was the noble Earl, Lord Cromer—said that we all know examples of cases where there is extravagance in public expenditure. I suppose we do, just as there is in private enterprise; but those things, when one totals them all up, will not amount to any significant sum. It remains true that, if you want to cut down public expenditure, you have to alter policy. I invite any noble Lord who takes that view to say in what direction he would alter it. It is necessary to be specific.
Coming to the Budget proposals, those of us who have spoken from this side of the House take the view that they are inequitable. I also find them inconsistent. It is difficult to reconcile the Budget of last April, where there was relief from taxation to the extent of £150 million, with the Budget of a few days ago, where taxation was imposed to roughly the same amount. It may well be—and other noble Lords who have spoken have taken the same view—that the Chancellor of the Exchequer was mistaken last April in the policy which resulted in his reducing taxation. I think he himself has suggested that he might have taken too optimistic a view. That, of course, does not give one complete confidence that he is necessarily right on this occasion.
The Chancellor of the Exchequer, in dealing with inflation, is relying upon a variety of methods. One is monetary control. Noble Lords, including the noble Earl, Lord Selkirk, who have chided us on this side of the House with wanting to reimpose control on the child's piece of chocolate (which, of course, he knows is
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not what we are seeking to do) will remember that even the present Government have not entirely got rid of controls. Monetary control is, after all, by definition a form of control. There is a variety of controls: there is the capital investment control; there is even a money control. So that the present Government have not got rid of controls; there is not complete freedom, anyway. However, the Chancellor of the Exchequer is relying to a large extent on monetary control. Monetary control, by increasing rates of interest and by exhorting the banks to lend less money, must of course have the effect of reducing the total amount of expenditure; but is it operating fairly as between one individual and another, or one concern and another, and is it going to operate in the most effective, efficient manner from the point of view of the interests of the country as a whole?
Many deserving and important small concerns are being harassed by their hankers to pay an overdraft which they had every reason to believe they would not be harassed about—concerns which are doing really good work in the public interest but are, nevertheless, being forced to restrict their activities by means of this control. There are other concerns who, fortunately for them, may not be under the necessity of depending upon the bank at all, who are therefore free to spend and expand as much as they like, even though their expansion is not necessarily in the public interest. I feel that this financial control is indiscriminate in its effect and is not calculated to produce the most efficient results. Furthermore, it is intended to operate much more harshly on the activities of public undertakings than those of private ones. Government control over the activities of the nationalised undertakings is, of course, far more effective than their control over private undertakings, and where a private undertaking under no necessity to seek financial assistance from its bankers it is free to expand as much as it likes, whether or not its activities are in the public interest.
Let us take a simple example. I am not directing my remarks to any individual or concern in particular, but there is nothing to prevent an undertaking which concerns itself with football pools from enlarging its business, and its premises, and taking away an increasing

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amount of the labour reserves of the country if it can finance its activities without going to a bank. To undertakings of that kind, an extra 1 or 2 per cent. in the cost of money is not very important; their profits are such that they can take 1 or 2 per cent. in their stride, and nothing that the Government are doing will affect activities of undertakings of that kind. So I take the view that, from the point of view of monetary control, the proposals of the Government are not necessarily going to be effective or advantageous.
Then we take the other method by which the Government propose to control expenditure—that is by taxation, by imposing the purchase tax. Here I cannot improve upon the case that was made by the noble Lord, Lord Conesford, in his excellent maiden speech. This purchase tax is imposing some hardship. I do not want to overstate the case; I do not think it can be calculated in terms of percentages of the cost of living, but it is imposing some hardships on individuals. I think it is fallacious to say that it represents one point in the cost of living, because when you have to incur this expense—when you need certain kitchen equipment or clothing or things of that sort—it represents a very considerable outlay on the part of the individual who is living on a very fine margin and to whom every shilling counts. This kind of expenditure is going to operate very harshly, particularly on people with very low incomes who have no money to spare. A woman who has to spend 10s. extra on a winter coat where the expenditure of that 10s. might make all the difference between buying a coat and not buying a coat, is not going to be impressed by the statement that the increase represents only one point in the cost of living. To her it is a real, tangible additional expenditure of so much money which she can ill afford.
That is why I take the view that, whether or not it is logical, this extra purchase tax is bound to have an effect on wage claims, particularly on those which have already been made, which are under consideration or which are on the point of being made. I think they will just turn the scale. I will mention one in particular—namely, the wage claim of the agricultural workers. The agricultural
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workers are living on the bare borderline of subsistence, particularly those who are on the minimum wage—of whom there are a great many, though admittedly a large number are getting more than the minimum. But those who are on the minimum wage can ill afford even an extra shilling or two a week; and this will just turn the scale. If they had not a strong case before, the increased taxation will certainly have the effect of making their case very much stronger. I feel that it is going to be exceedingly difficult to resist the claims of the agricultural workers for more wages and of other workers in a similar position.
I would submit that the imposition of the purchase tax is both inequitable and ineffective in achieving the result that was anticipated. It is inequitable because it hits certain classes of people far more than others. I understand that one of the extraordinary effects of the new purchase tax is that if you buy a suit of clothes for £40 you are going to save money, compared with what it cost before the imposition of the new purchase tax whereas if you buy a suit for £10 or £20 you will have to pay more. It is going to be difficult to "explain that one away" I should welcome it if the noble Marquess would have a try at it and explain to the House why it is equitable to reduce taxation on higher priced goods and to increase it on lower priced goods, and in what way that helps the economy. How does it affect the problem of inflation? How is the problem of inflation relieved by putting the purchase tax on things that are made of material which is not imported? The Chancellor of the Exchequer made the case that we import metal, that metal can be used for the manufacture of motor cars, and that it was better to make motor cars out of the imported metal than to make pots and pans and kettles and articles of that kind —a piece of reasoning which I do not quite understand, because people do not buy kettles as luxuries; they buy kettles only as they need them. But the Chancellor wants to discourage people from buying kettles and to induce manufacturers to make more motor cars for export. Well, it is an extraordinary piece of reasoning, and it is to the credit of this House that not a single speaker, apart from the noble Earl, has sought to justify it.

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The noble Lord, Lord Brand, and one or two other speakers, asked what the Labour Party's alternative was in this connection, particularly on monetary control. I am very glad to be able to say that nobody in this House has dealt with this matter in any recriminatory spirit. The question was put quite fairly and we were asked what we would do. I myself take the view that we ought to use our powers of control not to control the child's bar of chocolate but to control imports. A large part of our difficulty at the moment arises because we are importing luxuries from hard currency countries—tobacco, films, silks, wines and a variety of things of that kind. Surely, if that is the difficulty, it is possible to exercise an additional measure of control over imports. We are already controlling the import of motor cars, of certain types of medical appliances, and so on. It only needs an extension to ensure that we are controlling the import of things which at the moment are not desirable, so that at this critical time we import only things that we really need as raw materials for exports or as the necessities of life. That would seem to me to be the sensible thing to do. If, in our own economy, we are finding that it is difficult to exist on our income, if we are wise we first discriminate by reducing on luxuries, and we do not make it more difficult to get the necessities of life. We cut out the luxuries—we smoke fewer cigarettes a day, we drink a little less alcohol, and so on. Surely the national economy is not so very different in principle from that.
Fundamentally, of course, all these things are, as a number of noble Lords said, solutions of symptoms; we are dealing not with the radical disease but with the symptoms. Here I find myself in complete agreement with the noble Earl, Lord De La Warr, and others who have taken the same line, that the only solution of our problem is increased production. If we have increased production we can afford to consume what we are consuming and possibly more. The question is, what can we do to secure increased production? The noble Earl said that we must get a new outlook and, of course, I agree with him. But how do you bring about a new outlook? I think it is necessary for both sides of industry to get this new outlook. I think that mere exhortations to workers to work harder are not
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going to get us anywhere. I think an example has to be ser; and workers are not encouraged to work harder when they find that employers or executives take two-and-a-half hours for lunch, knock off at half-past four and generally set a had example to them. This must apply all round, and whether we can find a solution by setting an example of that kind, or whether we shall proceed by way of incentive to the workers—a greater incentive, of course, based upon increased production—I do not know. What is necessary I am not able to say at this moment. I agree, however, that that is the fundamental long-term problem: how can we get increased production and how can we get it at a cost which will enable us to compete with other countries? That is the fundamental question we must deal with in the future.
I have little confidence that the measures which have been proposed by the Chancellor of the Exchequer will be really effective. I do not for a moment suggest that he is not doing his best, but one must remember what he thought last April. He thought that by reducing taxation he was going to create an incentive, an inducement to people to work better and produce more. It did not have that result. Now he seems to be going to the opposite extreme: having found that reducing taxation is not effective, he is increasing taxation. I do not think either of these solutions is the real answer. The situation requires much more of that clear, courageous, and non-ideological thinking that the noble Viscount, Lord Woolton, referred to some months ago in the impressive speech he made in this House. We must forget all the ideologies of the past and see what we can do by getting together, by discussing things, possibly by novel methods to secure that increased production without which our economic situation will deteriorate. I welcome, therefore, as a first move, the meeting which is taking place with the trade union leaders, and I hope that there will be similar meetings with employers, because the suggestion fiat it is the trade union leaders who hold the key to the situation is, I think, not altogether accurate. I hope, at a ay rate, that the Government will he as energetic in finding the long-term solution as they have been in dealing with the short-term solution.
7.39 p.m.
THE MARQUESS OF SALISBURY: My Lords, in rising to reply to this debate on behalf of the Government, I must confess that I feel that trepidation which always afflicts me when I have the hardihood to intervene in an economic debate in this House, for I know very well that there are a great many of your Lordships who speak with far more authority on these questions than I can hope to do. Moreover, in the present case I am uneasily conscious that little remains to be said, after the speech of my right honourable friend the Chancellor of the Exchequer in another place yesterday. That is clearly also the view of noble Lords who sit on the other side of the House, judging by the extremely mild and subdued attitude they have adopted this afternoon. The noble Lord, Lord Silkin, said we were subdued, but that is nothing compared with what we saw on the other side of the House. But, in any case, my right honourable friend's speech was made in another place, and I think it is right that I should try to give some reply here, not only to comments of noble Lords in this House but also, like the noble Lord, Lord Silkin, with a view to reviewing the debate, as we see it from these Benches.
We shall all agree that we have had a valuable debate and, what is more, a moderate one, a debate which, of course, has revolved entirely around the proposals which were announced by the Chancellor of the Exchequer last week for dealing with the financial situation. As might be expected, there have been fairly wide differences of opinion on both sides of the House about what ought to be done, but there have been no bitter attacks, and I entirely agree with the noble Lord, Lord Silkin, that the atmosphere in the House has been admirable. The noble Lord, Lord Pethick-Lawrence, hardly criticised Her Majesty's Government at all. He gave us an admirable exposition of what may be called orthodox economics. The only thing he appeared strongly to criticise was the purchase tax, and about that I propose to say a word or two later. Other measures have been criticised by noble Lords on both sides of the House. The noble Lord, Lord Wilmot of Selmeston, painted a bleak picture of the catastrophic effects of these proposals on the standard of living of the ordinary man. The noble Lord, Lord Conesford, who
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made a most admirable maiden speech, criticised fairly severely both the purchase tax and the profits tax. The noble Lords, Lord Cromer and Lord Coleraine, were critical about public expenditure and failure to reduce it further. But otherwise there has been no really serious criticism, and the debate, as I am sure all noble Lords will agree, has been adorned and greatly improved by a number of thoughtful and constructive speeches by some of the younger Peers. This I am sure everyone most warmly welcomes.
I am also happy that, in this House at any rate, there have been no personal recriminations. In a situation of this kind, as indeed in practically any situation, mud-slinging does not tend to elevate Parliament in the eyes of the thinking public. I certainly do not want to import heat into our discussions, and after that one extremely mild comment I should like to turn to less controversial ground and say that merely to indulge in mutual recrimination or to try to cast the whole blame for this situation on one Party or another seems to me totally to misread the very real problem with which we are all faced. In the past all Parties —the Party of noble Lords opposite and the Party to which I have the honour to belong—have put in the forefront of their aims the attainment of full employment. Now at last we have full employment. We have, indeed, "overflowing employment," for there are to-day more jobs than there are men to fill those jobs. We should all agree that in many ways that is an extremely happy situation. It means that everybody who wants it is in good work. It means, too, that the great mass of our working people are free from those anxieties which so heavily oppressed them in the past.
But in practice full employment has undoubtedly brought its own particular problems. The workers—the sellers of labour—like others engaged in selling their commodities, are at pains to get the best price they can, and that price is being paid. I am not, of course, complaining of that, but merely stating it as a fact. As a result, there is more money going into their pockets than ever before; and they are spending that money. The standard of living throughout the country is rising. They want things they were never able to afford before. And as what

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are known nowadays as "the lower income brackets"—although as individuals they may be still less well-off than other sections of the community—in hulk represent a vast and growing proportion of the national income, the new influx of purchasing power they represent turns out to be something which our economy finds extreme difficulty in digesting. It could be, and has been, argued (the noble Lord, Lord Pethick-Lawrence, said it this afternoon) that it is not personal consumption which is immediately responsible for the position which has made this autumn Budget necessary. As the Chancellor of the Exchequer explained in his speech, the increase in personal consumption, though it is still increasing, has slowed up this year as compared with last. This particular situation is immediately due to an increase in investment by industry, both in fixed equipment and in rebuilding its depleted stocks. I shall be corrected if I am wrong, but surely I am right in saying that the ultimate cause is the same in both these cases. The necessity for speeding up new equipment and replenishing stocks is due, to a considerable extent, to the increase in internal demand for consumption of goods, and this arises directly from those causes which I have just tried to describe.
No doubt this is, in one sense, what has been called a "crisis of prosperity"; but over-consumption can do almost as much harm as under-consumption. I remember I was told at school that King Henry I died from over-consumption of lampreys, and that King John died from over-consumption of peaches and new beer; and what is true of individuals is equally true of a country. Over-consumption leads (this is very elementary, I am afraid) to steadily increasing demands for higher wages to pay for the things which a higher standard of living entails; and those higher wages, unless accompanied by higher productivity, put up prices yet further, which, as the noble Lord, Lord Silkin, said, must stimulate a further demand for higher wages: and all this process is what we have come to call the vicious spiral. Eventually costs of production reach the height when they impair our power to compete in the markets of the world, on which our whole existence depends.
That is, in brief, the problem with which we are now faced. It is not mainly a problem of how much money a man
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should receive for his work; it is the problem of what he should do with that money when he has gat it. It is a problem not so much of earning as of spending. If the dangerous pressure on labour and prices is to be avoided or brought to an end, he simply must not spend it all at once. That is, the cold hard fact. If he is tempted to do so, either he or someone else, sooner Dr later, must apply the brake, or encourage him to put on the brake himself. How that is to be done has been widely discussed in speeches this afternoon. In my view, which has not been altered by anything I have heard, there ale only two main ways. The first is to sop up spending power by taking away, by taxation, the surplus money a man has earned as soon as he gets it. The result there is that if it is spent by those who take it away (I mean the State) it is at any rate then spent on objects approved by people who are in a position to know. That is the policy which I have always understood noble Lords opposite to pursue. It is the policy which used to be epitomised by that graphic phrase, "The gentleman in Whitehall knows best." It is practically applied by such methods as budgeting for great surpluses, and imposing fairly rigid controls over what can be bought—how it can be bought, how much it is to cost and so on.
I am not going to say that there is nothing to be said for that policy; there are, no doubt, extremely strong arguments that can be adduced in favour of it. I think that the noble Lord, Lord Silkin, has adduced some to-night, and we have often heard them from the Labour Benches in the years I have been in this House. But the British people have never liked that policy. They have strongly and increasingly disapproved of a system under which they could not spend their money as they liked. That, as I understand it, is one of the main reasons why they have always disliked controls. That is a main reason why they returned the Conservative Party to power in 1951, and why they continued to return it at the last Election, for our Party, rightly or wrongly—I am trying to be as objective as I can—has always favoured the alternative policy of leaving to a much greater degree the final decisions D n such matters to the people themselves. We are by no means certain that "the gentleman in Whitehall knows best," even though for

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the moment we may happen to be "the gentleman in Whitehall."
Moreover, we have always held strongly to the view that, unless democracy learns by practical experience what it wisely can do and what it cannot do, it will never be a really stable state of society. Our policy, therefore, has always aimed at a greater degree of individual liberty in this as in other matters. Personally, I have no regrets that this policy should have been put into operation by my Party during the last few years. No doubt all freedom, whatever kind of freedom it may be, involves certain risks, but if we are not prepared to take those risks it is better to have no freedom at all. I believe that we have been right to release the country from the straitjacket in which it has been for so long confined, first by the war and later, if I may say so, by the policy of the Government of noble Lords opposite. But perhaps it is not very surprising that, after such a long confinement, and under the additional impulse of full employment, the air of freedom has proved almost unduly exhilarating, so that wide sections of the working population have not exercised that measure of self-restraint which ordered freedom requires if it is to succeed.
It was for that reason that this spring—as has already been said this afternoon—my right honourable friend the Chancellor of the Exchequer took two main steps designed to curtail excessive ebullience and optimism on the part both of the producers and of the consumers. First of all, as we know, he put up the bank rate—a step which, as I understand from Lord Brand this afternoon, has already had an appreciable effect—and stiffened the terms governing hire purchase transactions. These were, as we know, responsible for a considerable proportion of the over-consumption. It is easy to say now that he ought to have done more then, but I have always understood that it is desirable to proceed with special caution in matters where the national credit is involved. It certainly appeared at that time that there was good reason to hope that these measures would be adequate to slow down the pace of capital investment and consumption. That was the view at that time. Noble Lords may criticise it now, but there is no doubt that it has become clear since
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that the steps then taken were not enough to stem the strong current of spending.
A great deal has happened since then. Some of it could have been forecast, and some of it could not. There have been those great strikes, which have been referred to to-day and which cost millions of money, on issues often entirely unconnected with the economic conditions of the workers. Those strikes, as we know, did an appreciable amount of damage to our export trade. There have been increasing demands for higher wages designed further to raise the standard of life, but unaccompanied sometimes, I am afraid, by any necessary steps to raise production. With the rise in wages, what may be called the "spending spree" continued. The situation, as compared with what it had been in April, deteriorated again. The trade gap widened, and Her Majesty's Government—unlike, if I may say so, the Government of the noble Lords opposite—decided to act early to prevent a serious crisis arising.
That, simply, is, as we all know, the purpose of this Autumn Budget. It is not a case of our old friend "the gentleman in Whitehall" knowing best. It is not a case of taking away people's money and spending it for them. The purpose of this Budget, whether noble Lords approve it or not, is to make people think twice before spending their own money, while the situation readjusts itself. It is designed to relieve pressure; it is designed to promote restraint without undue pain. It is in that light, I suggest, that we have to examine the detailed provisions of the Budget. I am not going—if noble Lords will forgive me—at any great length into these things, because they have already been explained—or at any rate a good many of them have—by my noble friend, Lord Selkirk. Some increases have hardly been mentioned at all in the debate.
Housing, of course, is not strictly relevant to our main discussion to-day, but it was mentioned by Lord Balfour of Inchrye and also by the noble Earl, Lord Perth, who pointed out—I thought very pertinently—that the Government's proposals represented a real reduction of Government spending. All I would wish to say about that matter this evening is that there seems to me to be an impression about that the result of these measures which the Government are taking will be to

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close down altogether all building of houses by local authorities. That, certainly, is the impression which a certain number of the general public have got. But it is, of course, a complete illusion. As the Chancellor of the Exchequer has explained, over 300,000 houses will be built this year, and upwards of that number next year. I should like to take this opportunity of relieving any anxieties which may exist on that score. I think that even noble Lords opposite would be quite happy with the figures which are going to be produced in the forthcoming year. I do not think I need say anything at this time about the proposals regarding borrowing by local authorities. That matter has already been dealt with in several speeches, and I think the House is quite clear about the position.
I should like now to say something about purchase tax. Purchase tax has occupied, I think, the major part of most of the speeches that have been made on both sides of the House. It has been criticised by a number of noble Lords in different parts of the House on very different grounds. There was the noble Lord, Lord Conesford, who by his brilliant and extremely independent-minded maiden speech has shown us what a very valuable member of the House he is going to be. As I understood him, he did not think there ought to be any purchase tax at all. He was a "whole-hogger" in that respect.
LORD CONESFORD: I suggested that there should not have been an increase in taxation, and that eventually, as a substitute for the whole present scheme of purchase tax, there should be a general sales tax.
THE MARQUESS OF SALISBURY: The noble Lord is against this particular purchase tax as now proposed. I understand that he would have liked it removed in its present form.
LORD CONESFORD: I did not mean that that particular alteration would have been possible in this Budget. It was a suggestion rather for the future.
THE MARQUESS OF SALISBURY: So far as this Budget is concerned the noble Lord is happy about the purchase tax as it is?
LORD CONESFORD: Not this increase.
THE MARQUESS OF SALISBURY: We are getting very much nearer together than I thought we were when I got up. The impression I had was that if it were not for this tax, of which the noble Lord disapproves, the consumer would not spend the surplus money he had but would rather put it by; that he would buy now what he wanted to buy before, whether there was purchase tax or not. I do not know whether that was what the noble Lord meant, but that was the impression I gained from him.
LORD CONESFORD: My Lords, I realise that I was brief, but the impression I meant to give—whether I gave it or not, I do not know—was that the other Government measures of which I wholly approve, namely, in regard to housing and local government finance, could have done the whole trick.
THE MARQUESS OF SALISBURY: That is a perfectly defensible point of view hut, rightly or wrongly, I am afraid that it was not the point of view taken after very careful consideration by my right honourable friend, the Chancellor of the Exchequer: he felt that some additional step must be taken. Though I do not know that my noble friend Lord Brand would entirely agree with that, he did say that he did not rule out the necessity for some such measure.
LORD BRAND: My Lords, I was not prepared to say straight out that it was unnecessary, because I did not know the circumstances sufficiently and I felt that the Chancellor might have good reason for putting on this tax.
THE MARQUESS OF SALISBURY: Of course, all these are matters of opinion—and very difficult matters indeed. But the Government thought it was necessary. The noble Lord, Lord Wilmot of Selmeston, said he would prefer to cut down capital investment. That sounds very simple and attractive, as if it were a mere question of moving a lever to switch investment from one side to the other; but anybody who has been connected with industry will know that to try to cut down capital investment suddenly is not easy. Cutting capital investment is a slow job. It is very expensive, and can often be horribly cruel to the worl.e3rs involved. I

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commend that thought to noble Lords. The Government view about purchase tax is that they must stop current consumption so far as they can, and to them purchase tax is the most convenient and simple way of doing that. My noble friend Lord Conesford does not accept that, and I am the last person who would wish to pontificate on the subject. The noble Lord speaks with great authority, but it is a view which has been accepted by Governments of various kinds over a number of years; and in the position in which we are now, where it is necessary to take immediate measures, even if they are only temporary measures, it seems to be the proper thing to do.
One criticism which the noble Lord, Lord Silkin, made was that the tax on household equipment was an unfair tax, an inequitable tax that weighed heavily on the working class budget. That was the argument he put forward. I can only remind him of what was said yesterday by my right honourable friend the Chancellor of the Exchequer. He said that the cost would work out at between 4d. and 5d. per household per week. He went on to add that the House should be aware that the weekly wages earned by adult male workers in industry have been increasing at the rate of 14s. every year since 1951; and that between April, 1954, and April, 1955, the increase was about £1 a week. I sympathise with the motives which led the noble Lords, Lord Pethick-Lawrence and Lord Silkin, to make this particular point. I realise what is in their minds, but if they will study these figures, I think they will realise that 4d. or 5d. a week is a very small sum compared to the large wage increases which have taken place. Fourteen shillings a year between 1951 and 1955 means an average increase of 56s. It will be seen that to the average family, even taking into account the increases which might have taken place in the cost of living, the 4d. or 5d. is not an excessive sum to ask them to pay.
LORD GREENHILL: My Lords, the weakness lies in concentrating on the average. The spending of 4d. or 5d. a week on the average is admittedly very little, but to a person who has to furnish a house, for example, it does not mean 4d. or 5d. more, it means pounds more. That is the hardship.
THE MARQUESS OF SALISBURY: On the other hand, it is difficult to differentiate in matters of this kind. Once you say that we must make exceptions for this, that and the other, it becomes almost impossible to do anything. What we must try to do, in trying to mop up this purchasing power, is to do it by overall increases and not by considering every individual case so that it will fall less heavily at any particular point. At any rate, that is the object with which it has been done.
LORD SILKIN: My Lords, I think the noble Marquess should understand the case that is being made from this side of the House. It is our case that this is a bad tax and a bad method of achieving the purpose which the Chancellor of the Exchequer, very properly, had in mind. My own point of view is that if there had to be a tax, a tax on luxuries would have been the proper thing, instead of a tax on necessities, which bears very hardly on people who must have them at particular moments in their lives.
THE MARQUESS OF SALISBURY: I do not know exactly what the noble Lord has in view when he says he wants a tax on luxuries. A great deal of the surplus spending at the present time is being done by people who cannot, by the nature of things, afford very great luxuries. I do not think that by his method the noble Lord would do any better than the Government—indeed, he would do very much worse than we are doing, though I realise the purpose for which he puts forward his proposal.
I should like now to say something about profits tax. It will only be a word, because this matter has already been covered by my noble friend Lord Selkirk. I am not going to pretend to your Lordships that I regard dividends as a main cause of inflation: I do not think they are. Indeed, my right honourable friend the President of the Board of Trade gave figures in another place which I think are conclusive in that respect. He said that since 1946 dividends have risen by only £280 million, while wages and salaries have risen by £2,900 million. Even so, dividends do make some contribution to the spending which has caused the present inflation, and Her Majesty's Government thought it unfair to exempt this source of income alone from measures taken in the Budget to curb that inflation. That was

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the main reason for which the profits tax was included. On the general grounds that it is desirable to do not only what is fair but also that which appears to be fair, I believe that it was right to include an increase in profits tax in this particular Budget.
My noble friend Lord Conesford, who has had a wealth of experience in this matter which he gained at the Board of Trade, came out strongly against a tax on distributed profits. He said that it was unsound. He gave a number of reasons in support of his view, and he quoted in his aid a distinguished Royal Commission. I am certainly not going TO put my opinion against that of the noble Lord and the Royal Commission to-night. Indeed, the arguments that he put forward are most powerful and would probably command the general support of all of us at the right time. But I would ask him: Is this the right time? The most urgent need at the present moment is, as we all know, to check excessive dividends which contribute to inflation. If we were now to put a flat tax on distributed and undistributed profits, would that not be giving a comparative advantage to those businesses which have already been declaring large dividends, as against those businesses which have hitherto shown restraint? I think it would have that effect. and that is exactly the one thing that we are anxious to avoid. Therefore, though I would not, in principle, try to refute the arguments which noble Lords have put forward, I suggest to them that at the moment when this Budget is being introduced, this is probably the right way to do it.
The noble Earl, Lord Cromer, who made, I thought, a most interesting and constructive speech, said he had noticed that the proportion of Government expenditure to the gross national product had been reduced from 29 per cent. to 26 per cent., and he asked whether this arose from the fact (I do not want to misrepresent him) that Government expenditure was clown, or that the gross national product was up. I think that is the point he put.
THE EARL OF CROMER: My point was that it was not: right for the Government to claim credit for the decrease in the figure if it mainly arose out of the increase in the gross national product.
THE MARQUESS OF SALISBURY: So far as I can understand it, the Govern-
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ment expenditure is certainly not up—that is to say, real Government expenditure—but whether it is actually down I should not like to sty. I was interested to note that, having advanced to the attack on the question of Government expenditure, both the noble Earl and the noble Lord, Lord Coleraine, who followed him, shied off when it came to making any suggestions of their own of how it should be done. The noble Earl, Lord Cromer, was quite frank about it and said it was a matter for the Government and not for him, and there may be some truth in that. But, at the same time, I suggest that it is not a matter on which critics of the Government can take a purely negative position. As I understand it, there are three main spheres, or sectors if you like, of Government expenditure: there is the service of debt—which I dc not imagine the noble Earl, Lord Cromer, would like to see touched—there is defence, and there are the social services. Those absorb by far the greater part of our Budgets nowadays. Unless he is willing to make drastic cuts in one or all of these, in my view there is no possibility of arty vast reduction in Government expenditure such as he seemed to have in mind. He did not say what he had in mind, and I am not going to ask him. What I have said does not, of course, mean that there should not be unremitting efforts on the part of the Government to keep down Government expenditure and wherever possible reduce it, and I hope the House will agree that the steps which are being taken in this Budget, both about housing subsidies and also the expenditure of local authorities, are steps in the right direction.
The noble Lord, Lord Silkin, said that, in his view, one of the difficulties of these proposals was that the financial controls which were envisaged by the Budget would act more harshly on nationalised industries than on private industry. All I can say is that I hardly think that past experience has shown that nationalised industries are severely penalised in comparison with private industry, and I do not believe that will be the case now.
There is one other point on which I should like to say a word or two—namely agriculture, which was mentioned by the noble Earl, Lord De, La Warr, and by the noble Lord, Lord Archibald. They both made a powerful plea for

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consideration by the Government of the needs of the agricultural industry. The noble Lord, Lord Archibald, asked what exactly the Chancellor of the Exchequer had meant by some remarks he had made on this subject in his Budget speech. I am afraid I cannot amplify the words of my right honourable friend this evening, but I realise fully the force of what the noble Lord, and the noble Earl, Lord De La Warr, said as to the desirability of clarification of the position. I will see that what they have said this afternoon is conveyed to my right honourable friend the Chancellor of the Exchequer. In the meantime, they and the House well know that prices have already been fixed which will cover the whole of next year, and there is no question of any re-examination even for the following year until next February. In conclusion on this subject, I would say that, so far as I know, there is no question, in any case, of altering the policy which the Government have consistently followed of encouraging production and reducing imports. I hope that will give some comfort to the noble Lord. Lord Archibald. But, in any case, I will pass on what he has said.
Now I have done. In conclusion I would say only this. There have been, I think, some fairly wild things said about this Budget. Mr. Bevan, in a speech which he made, warned his audience that it heralded a deliberate attack on the Welfare State, though in fact, the great social services are not touched at all by these measures. Then the noble Lord, Lord Wilmot of Selmeston, always hitherto moderate, to-day used words from which anyone who listened to him would get the impression that the whole working class was to be seriously penalised by what was being done, whereas, in fact, even after all these measures, the standard which they will enjoy, judged in terms of their incomes and what their incomes will buy, will compare favourably—and I say this in no controversial spirit—with what it was when the noble Lord and his colleagues were sitting on these Benches.
Here are some figures of consumers' expenditure during the last three years which come from the Statistical Abstract —I might say that they are all revalued at 1948 prices, so that they are all comparable with each other. The noble Lord,
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Lord Grantchester, in his speech said that consumption was only up by 10 per cent. By 10 per cent. of what? That is an important point. I will just give the figures. In 1951 consumers' expenditure was £8,827 million; in 1952, when we were still suffering, if I may say so, from a hangover from the late Government, it went down to £8,738 million. In 1954 it had gone up to £9,467 million—that is, an increase of £640 million—and there is no reason to suppose that that will not continue. In the last twelve months wages have gone up 6 per cent. and the cost of living has risen by only 3 per cent.; and the total result of these Budget proposals, as has been mentioned, will be to raise the cost of living by only close on one point. I appreciate what was said about bewaring of averages: but there are always some people above the average and some people below the average, and that is a factor that every Government has to take into account. But that is not the picture which has been given of the situation which will exist after this Budget is brought into operation, and it really does not justify, I suggest, the fearful prophecies which were made by the noble Lord, Lord Wilmot of Selmeston.
Take another example. I read in Reynolds Newspaper—a paper with which noble Lords are no doubt familiar —an account of how a doctor who belongs to the Party of noble Lords opposite, and has the very appropriate name of Leff, said at a meeting of the Socialist Medical Association that the Budget would fill the hospitals; that the raising of rents would mean people could spend less on food. Well, my Lords, what is the use—I ask with all deference—or benefit to the country, of such exaggerated statements as that? The very responsible leaders of the Labour Party, of course, do not go nearly so far as that, and one would not expect them to. Their main charge seems to be that the April Budget, if it had been honest, should have done the things which the present Budget does, and that the April Budget was designed for one purpose and one purpose alone—to win the General Election. With all deference, the Chancellor of the Exchequer is, I think, in any case quite incapable of the motives attributed to him, and it was not his Budget which won the Election. The reason we won, if noble Lords opposite will forgive my saying so,

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was that the Labour Party, largely owing to their own internal squabbles, had made themselves so mistrusted that the country would not have them at any price.
LORD GREENHILL: That is inappropriate here.
THE MARQUESS OF SALISBURY: I do not think it is, because these things have been said.
LORD GREENHILL: Not here.
THE MARQUESS CF SALISBURY: In any case if we are now blamed—I think the noble Lord will agree with this—for not doing in April what we are doing now, the clear implication is that what we are doing now is right. I believe that, what. ever criticism anybody may have as to the details of the Budget, that is fundamentally true. I believe, too, that the country will come increasingly to think so and, what is more, will prefer a Government that is prepared to grasp the nettle, however painful it is, while there is yet time.
This is my last word, and here I would commend to your Lordships some wise words, I thought, which were spoken by my noble friend Lord De La Warr this evening. In a situation of this kind nothing that any Government can do will be effective without the co-operation of their fellow citizens. It is on their willingness to show their capacity for self-restraint—which is, as I have said, the very essence of ordered liberty—and on their capacity to increase our production that our ability to turn this awkward corner will depend. Here I should like to agree most strongly both with what was said by my noble friend Lord De La Warr and, in his closing passages, by the noble Lord, Lord Slain. It is therefore, I submit, the responsibility of every one of us in this House, to whatever Party he may belong, to continue to drum into the electorate the harsh economic facts with which we are all faced; and though we may differ as to the remedies—and that is natural in any free country—I hope that at any rate we shall all do that in the crucial years that lie ahead
8.24 p.m.
LORD PETHICK-LAWRENCE: My Lords, the noble Marquess who has just sat down made some very deprecating remarks at the outset of his speech about his own capacity for taking part in this debate. I am quite sure that only a novice in this House could have been
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misled by that modesty on the part of the noble Marquess, because those who have listened to him before, and those who have listened to him to-night, will bear me out in saying that he is in fact the most skilled debater we have in this House; and his knowledge of economics and finance is on a bigger scale than for one moment he ventures to suggest.
The noble Marquess has made a most attractive speech, and if the time, instead of being twenty-five minutes past eight o'clock, were twenty-five minutes past six o'clock, I should be tempted to enter into some answers to the Party points that he was pleased to make; but I have no intention of inflicting another speech in answer to him at this late hour. There is just one thing, however, that I should like to explain. When he said that I made only one small criticism of the Government, I think he went a little beyond the mark, because the whole purport of my speech 'has to show two things: first, that the remedies which the Chancellor of the Exchequer was taking to stop inflation were utterly failing in their purpose; and, secondly, that the financial proposals of the two Budgets of the Chancellor were utterly unfair, and that because they would be regarded as unfair by the people they would have no effect in curing the inflation. If the noble Marquess is satisfied that that is not a very strong attack on the Government I am prepared to leave it at that.
THE MARQUESS OF SALISBURY: The last thing I wish to do is to misrepresent the noble Lord, and I can only say that I am sorry. It was the charm and endearingness of his manner which misled me.
LORD PETHICK-LAWRENCE: There is one other thing I want to say, and that is in answer to the noble Lord, Lord Coleraine, who has just gone. He said that he could not understand, whether it was a Labour or Conservative Government which was in power, why we were having these great difficulties in making our finances balance. He said that, in his opinion, the real fact was that the national industries were overspending, being reckless and wasteful, and that they ought to suffer the greatest curtailment. I want to deal briefly with those two points. Let me take the second point first. What are the national industries? They are the cull industry, the

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gas industry, the transport industry and the electricity industry. The reason why they are being given a free rein to expand is because they are the basic industries of the country. We cannot get on unless we produce more and more of the services which those industries run. Any attempt to check the growth of those basic industries, to cut them down—I am not talking of the small point the Chancellor of the Exchequer made about the raw materials of the gas industry—would hamstring the whole structure of production in this country. So far as Lord Coleraine's proposal is concerned it seems to be entirely unwise, and any Government that adopted it would land the country in ruin.
The real reason—and we have to face up to it—is this. The situation which existed in this country before the two world wars has been totally altered by those two wars. The main fact is that we have spent our substance in defending the peace of the world. We had £4,000 million of securities in foreign countries, and that has practically all vanished. That is equivalent to an income of £200 million a year. Another major factor is that we had, once upon a time, raw materials which we sold abroad, and when you sell a raw material abroad the whole of the proceeds are profits and come to your advantage. The days are long gone since we had the wool industry; and in the coal industry in the old days we were selling 40 million or
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50 million tons of coal. The whole of hat has gone, and last year and this year we are even having to import a net quantity of coal. That is a tremendous handicap to this country. The third factor is that, whereas in the early days of the Industrial Revolution we had almost a monopoly of making good machinery and machine-made goods, and our cotton trade was of immense importance, all those have gone and we have to depend upon the margin that we can make between the imported raw materials and the finished products to earn the whole balance of our living, to feed ourselves and to feed the mills of our industry. It is because those things have changed that we are confronted with this tremendous problem which so far—I agree, to this extent, with the noble Lord, Lord Coleraine—neither the Government of which I was a member nor the Government of which the noble Marquess is so leading and luminant a figure has yet solved. There is the reason why we live so near the margin, and our reserves of gold and dollars are constantly giving us trouble. I do not want to deal with any other arguments that have been put forward. I beg leave to withdraw my Motion.
Motion for Papers, by leave, withdrawn.
House adjourned at half-past eight o'clock.