HL Deb 01 November 1955 vol 194 cc143-58

Debate resumed.


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.


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?


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 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.


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?


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.


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.


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 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 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 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 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 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.


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 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.

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 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 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 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.


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 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 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.

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 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.