THE ECONOMIC SITUATION

HL Deb 01 November 1955 vol 194 cc158-208

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 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 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 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 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 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 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 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, 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 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 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.

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 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. 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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.

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 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 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 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 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 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 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 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 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 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- 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 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, 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, 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 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 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 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.