Lords Sitting of 8 March 1956

Preamble
The House met at three of the clock, The LORD CHANCELLOR on the Woolsack.
Prayers

  HOME OFFICE INSTRUCTION ON EXECUTIONS
  3.5 p.m.
  VISCOUNT WAVERLEY: My Lords, I beg to ask the Question which stands in my name on the Order Paper.
  [The Question was as follows:
  To ask Her Majesty's Government whether their attention has been drawn to an article by Arthur Koestler in the Observer of 4th March entitled "Behind the Bulletins" which purports to quote a confidential Home Office instruction to prison governors and refers to incidents alleged to have occurred at the execution of Edith Thompson; and whether they have any statement to make.]
  THE JOINT PARLIAMENTARY UNDER-SECRETARY OF STATE FOR THE HOME DEPARTMENT (LORD MANCROFT): My Lords, Mr. Arthur Koestler's article in last Sunday's Observer purports to quote a confidential instruction to prison governors about executions which, as quoted, suggests that governors are instructed that they should invariably say, in reference to the manner in which an execution is carried out, that
  "it was carried out expeditiously and without a hitch."
  Mr. Koestler's quotation omits important parts of the original Home Office instruction and gives an entirely misleading impression of its sense and intention. The passage as a whole reads as follows:
  "No details as to any execution should be given to anyone but the coroner. The reply to any inquiry at the inquest as to the manner in which an execution has been carried out should be confined to as few words as possible, e.g., 'it was carried out expeditiously and there was no hitch'."
  The words in the instruction, which I will now read, were omitted from Mr. Koestler's quotation; the passage should read:
  " e.g., 'it was carried out expeditiously and there was no hitch' or as the case may be.
  220
  If there has been any hitch or unusual event the fact must, of course, be stated, and a full explanation given."
  Mr. Koestler's quotation then continued, correctly:
  "No record should be taken as to the number of seconds, et cetera, and if pressed for details of this kind the governor should say he is not able to give them as he did not time the proceedings, but 'a very short interval elapsed,' or some general expression to the like effect may be used."
  The quotation then omitted the final sentence of the instruction, which is as follows:
  "If there has been any undue delay it must be so stated and an explanation given."
  Mr. Koestler also mentions the case of a woman, and I am afraid I must quote,
  "whose insides fell out before she vanished through the trap."
  This appears from the context to be a reference to the case of Edith Thompson. It is untrue that anything of the kind alleged occurred at the execution of Mrs. Thompson, or of any other woman. Mr. Koestler quotes a speech made by Mr. (now Sir) Beverley Baxter, in 1948, in which Sir Beverley referred to a visit to his office at the Daily Express by two prison warders who had been present at Mrs. Thompson's execution and had told Sir Beverley that she had
  "disintegrated as a human creature on her way to the gallows."
  My noble friend Lord Waverley may remember that when Sir Beverley Baxter's speech was reported in the Press, one of the only two prison officers who had been present at Mrs. Thompson's execution wrote to the noble Lord to say that the statement that he had called on Sir Beverley was untrue. The prison officer subsequently made a formal statement in which he said,
  "There is no truth in the suggestion that I and the other officer were extremely upset after the execution. We were the only two officers taking part and it is quite untrue that we went to Mr. Beverley Baxter's office after the execution had taken place. Nor is it true that Mrs. Thompson was in a state of collapse at the time."
  He added that the execution was carried out without a hitch.
  I apologise for the length of this answer but the matter seems to my right honourable friend the Home Secretary and myself to be of some importance.
  VISCOUNT WAVERLEY: My Lords, I am glad that my noble friend Lord Mancroft has been able to clear these matters up, and I hope that noble Lords will agree with me that it is most deplorable that a controversial case, whatever its intrinsic merits or demerits, should be bolstered up by misrepresentations so gross as those now exposed.
  VISCOUNT TEMPLEWOOD: My Lords, while I fully agree with the observations of the noble Viscount, Lord Waverley, as to the objections to using sensational stories for prejudicing a case, am I not right in thinking that charges of this kind were made in 1948? If my information is correct, it was expected then that the Home Office would make an official disclaimer; but they made no such disclaimer. That being so, I should like to ask the noble Lord, Lord Man-croft, what has happened since then to make the statement now necessary.
  LORD MANCROFT: My Lords, why an official disclaimer was not made at the time in 1948 I am afraid I cannot tell the noble Viscount without notice. The reason that it has now become necessary is because this legend has recurred, coupled with the statements by Mr. Koestler in his article, which go far further and are of a slightly different nature, though equally serious; and my right honourable friend thought that for the sake of accuracy, the facts ought to be put in their proper perspective and the truth known.
  VISCOUNT HAILSHAM: My Lords, is it not the fact that these untruths were repeated in the Observer as recently as last week? Having regard to the fact that, as appears from my noble friend's answer, the author of the article there referred to fell far short of the standards of integrity expected of a responsible author, and that the newspaper appears to have fallen far short of the degree of care which is required in the publication of a responsible newspaper, is it not clearly in the public interest that this should be made known? Might it not possibly be a suitable case for the Press Council?
  LORD MANCROFT: My Lords, I think there is much strength in what my noble and learned friend Lord Hailsham says. I perhaps ought to say, for the benefit of your Lordships' information,
  222
  that this article which appeared in the Observer is part of what will eventually be a book by Mr. Koestler, and since it was clearly going to have greater permanence than some of the articles which had appeared previously on this subject, it appeared all the more necessary to get the facts in their right perspective.

  THE ECONOMIC SITUATION
  3.8 p.m.
  Debate resumed (according to Order) on the Motion moved yesterday by Lord Pethick-Lawrence, That there be laid before this House Papers in regard to the economic situation.
  LORD WILMOT OF SELMESTON: My Lords, I am sure that your Lordships will agree with me if I say that the debate which we had yesterday and adjourned last evening was one of the most interesting and important that has occurred for some time. I know that in reflecting upon it later I felt privileged to have been here yesterday to listen to the debate, and I shall feel even more privileged if your Lordships indulge me enough to allow me to make some contribution to-day. I know there are a number of noble Lords who still wish to speak in the debate and therefore I will try to be brief. The contributions which noble Lords made yesterday included several which fell from those of long experience in this field and who speak with unquestioned authority. I make no such claims; I am no expert in this matter but an ordinary business man who, by conscience and conviction, has for many years been a member of the Labour Party. However, I ask your Lordships to believe me when I say that in the remarks I make to-day I shall try not to be actuated in any sense by Panty politics. I believe the subject which we are discussing to-day is of such importance, is fraught with such grave consequences to the livelihood and welfare of our people, that we ought to try to find a way in which everybody can make some contribution to its solution. It is with that in mind that I shall say what I have to say to-day.
  Yesterday, I felt that we displayed much agreement over a wide area. From all sides of the House there seemed to be agreement as to the nature of the problem. My noble friend Lord Pethick-Lawrence gave us a definition of inflation

  223
  which I think can hardly be equalled. He said it was the exercise of the power to spend more money than, at existing prices, there were goods and services to satisfy. That seems to me to be a perfect definition of that half of the problem. The other half is that we are increasingly buying from abroad more than we can pay for from the proceeds of what we are able to sell abroad, and that is the only source of our ability to pay if we include the sale of invisible as well as visible exports.
  I think we also agree as to the peril of this situation. Unless it is abated, and abated swiftly, I see inevitable and disastrous consequences. We were also agreed as to the duty of everybody—and all of us in public affairs have a special duty laid upon us—to do whatever he can, whatever his ability, whatever his occupation or position, to bring home to people the nature of the problem and the seriousness of its consequences. Mr. Macmillan in another place, in concluding his recent speech, made an appeal of this character. He said [OFFICIAL REPORT, Commons, Vol. 549 (No. 100), col. 59]:
  "In the past our common national effort saved our freedom and redeemed our greatness. I only beg that faction may not now destroy what unity then achieved."
  I accept that duty, and I should like to be able to make some contribution. But I am bound to say there are certain prerequisite actions which must be taken before it becomes possible to do much. I agree with what the noble Viscount, Lord Bruce of Melbourne, said yesterday: this problem is as much psychological as technical. In fact, I think it is more psychological. If we could solve the psychological problems involved in it, the technical problems could be easily adjusted.
  I am bound to say that I see no hope of bringing the public at large to a realisation of this serious situation unless the Government themselves are prepared to do a lot more and differently from what they have already done or have indicated they are prepared to do. Mr. Macmillan said that the Government must lead, and that is true. He said the Government are prepared to lead, but that is not true, apparently, for no lead whatever has been given. What is required, first of all, is an
  224
  admission by the Government that their past policies have been wrong and ineffective, and unless they are prepared to do that I do not see how it is possible to get people to do the unpleasant things for them which are necessary to help solve the problem.
  I think it is also necessary that the Government should bring forward an entirely new set of proposals embracing a number of actions which they have, for Party reasons, ruled out, and to admit what most honest people are prepared to admit some time or other: that things were not as they thought they were, and the things that they did proved to be ineffective and wrong. Now is that too much to ask of the Government in this situation? It is a good deal to ask. Politicians are loth to admit past errors, and Parties are even more loth than individuals. But I wonder if we appreciate what it means to working people, first of all to listen and then to act in the direction which they must act if they are to make their contribution to the solution of this problem. I think we should agree that unless we can get the working people to do things which, although in the common interest, are not in their personal immediate interest, then we shall fail altogether.
  Consider the position of a working class family. It is easy for people to say that the trade unions are unpatriotic to press wage demands, or that the workers are demanding more and more. But these are individual people with individual families. They find themselves in an era of rapidly rising prices. They find that all around them those who have goods to sell pass on their increased costs to their customers. The workman has only one thing to sell—his labour. His costs are increasing, and it is not surprising that in a sellers' market he passes on the increased cost to his consumer, the employer. Few workmen more than pass on their increased costs, and whole sections of working people have not been able to pass that much on. Many of them find the cost of living rising much faster than any adjustment of wages. So we are asking working men and women to behave in a non-commercial way. We are asking them to charge lower prices than the market is prepared to pay for the only thing they can sell, and out of very slender margins indeed to bear themselves the rising costs which they must

  225
  pay, not in deprivation of luxuries, but in many millions of cases the voluntary going without of the essentials of life.
  We are asking them also—and let us remember this—to take part under a Conservative Government in a mass attack on inflation and a move towards deflation. I venture to suggest that there is not a working class home in this country which either consciously or subconsciously has not got bitter and hateful memories of the last time a Conservative Government embarked upon a policy of deflation. It put millions of people on the streets for many years. When you see men not working their best and slacking, and demanding that modern machinery, which is intended to save labour, shall be overmanned, the core of all that feeling is back in the 'twenties and the 'thirties, when deflation caused Jarrow, Maryport, West Cumberland and South Wales to be areas of death and decay. These things are in the very heart of the nation. They are just as deep in the soul of the English working men and their families as are the national hatreds to which we became accustomed in various parts of Europe. If noble Lords feel that, in asking the Government completely to revise their policies and approach, I am asking something which is impossible, then I say that it is impossible to get working people to co-operate in this matter.
  There cannot be any doubt that since 1951 the Government have been wholly in error in their policies adopted in this matter. They still seem unconscious of its gravity and magnitude. One has only to read the speeches which have been made by the last Chancellor of the Exchequer, by the President of the Board of Trade, and even by the Prime Minister himself during the past year, to realise how completely they have failed to grasp the seriousness of the situation and how they have misread the indications, which were clear enough to some other people. In his speech last April Mr. Butler said [OFFICIAL REPORT, Commons, Vol. 540, col. 39]:
  "…it became clear by February that we needed to take action to moderate the growth of imports and to encourage exports. And from the result, all I can say is thank goodness that we took action in time."
  Later on he said, in the same speech:
  "But the situation has been brought under control, as, for example, is shown by the movement of the reserves since then and the latest rates for sterling."
  226
  Then we had the Election broadcast, when he addressed millions of people and had to persuade them to take an entirely different view. He told them then:
  "We have restored the national solvency. We are begining to see the first effects. Our trade figures are better and we are once again holding the position of our reserves."
  That is what Mr. Butler thought of the Situation. But other people have thought differently. I have here the report and accounts of Lloyds Bank for 1955, one of our greatest joint stock banks. I see the names of numerous noble Lords who were present yesterday, and who are also, I am happy to say, here to-day, upon the list of directors. The chairman of this bank, Sir Oliver Franks, a man who has served the Governments of both Parties for many years with devotion and distinction, can see clearly enough. He says:
  "…all the major decisions of policy in the economic sphere during 1954 were of a nature to stimulate activity rind release additional demands upon, the economy, and not exercise a restraining influence."
  He goes on to say something which ought to be read and understood by the Chancellor of the Exchequer and those around him—I apologise for a somewhat lengthy quotation but it has not been mentioned in this House. The chairman went on to say—and here he was dealing with the other side of this problem, the even more serious side, the question of the exchange reserves:
  "Conditions in recent years could scarcely have been more favourable to the building up of a strong reserve hid our policies been directed primarily towards that end. The volume of world trade has been expanding; the terms of trade have not been too un-favourable; the rest of the world has beet gaining gold from the United States. It is a sobering thought that the purely regional currencies of Western Europe are collectively backed by exchange reserves four times as large as those supporting sterling, the currency in which nearly half the trade of the world is conducted. Since the end of 1951, the Continental countries have accumulated some 5,000 million dollars of gold and dollars; our own reserves have actually fallen on balance and are indeed lower than in 1945, when prices were half their present level. This is a state of affairs that we must surely all find deeply disquieting."
  Those are very serious words from the chairman of a great bank. I suggest to noble Lords that they indicate quite clearly that during that period the Government were pursuing the wrong policy.
  The other test of the Government's actions, other than the measure of the

  227
  exchange reserves, is the level of internal prices, because that is the index of domestic inflation. That was realised by the present Government before they became the Government, for they put in their Election proposals a statement that the Government would be judged by the effect of their policies on costs and prices. That is a very fair method of judgment. For comparison, in the two years ending in the autumn of 1951, while import prices rose by 66 per cent. the cost of living rose by 14 per cent. Consider the contrast with the period after the Conservative Government took office. In the four years to December, 1955, while import prices, instead of rising by 66 per cent., fell by 7 per cent., during that period the cost of living rose not by the 14 per cent. which I have just quoted but by 23 per cent. So that the record of the effect of their policies on the domestic price level is completely disastrous.
  Therefore it seems to me that, on both these tests, it must be admitted, to whichever Party one belongs, that the Government have failed. This spectacular rise in the cost of living, despite the fall in the cost of imports, is unique to Great Britain. Our rise in domestic prices during the period of this Government and their predecessors, the previous Conservative Government, has been steeper than the rise in the United States, Canada, Switzerland, Norway, Sweden, Holland, Belgium, France, Germany, Japan and Italy. The cost of living has risen faster since 1951 in this country than in any other country in the world.
  That seems to me a complete condemnation of the Government's internal policy. Therefore, I do not think it is an exaggeration to say that among ordinary people, whose lives are outside Parliaments, politics and Parties, there is no confidence in this Government in this matter. As I go about—and noble Lords must have the same experience—talking to working people and business people, I find that nobody believes that the Government know what is wrong or what to do about it. I find that in banks, commercial circles and everywhere else. Sir Anthony Eden seems to me to share this same delusion. In June last year, when things were really getting bad, he said:
  "The gold and dollar reserves have remained without any significant change since February, and in all the circumstances I think that is a pretty satisfactory solution."
  228
  This self-satisfaction spreads alarm and despondency among people who really understand the nature of the problem and the perils which confront us. There is this boasting of the prosperity which has resulted from the advent of the Conservative Government, these posters talking about Conservative freedom to enjoy the things so long denied us, and above all, it seems to me, the unbelievable folly of forcing through Parliament the commercial television project, which is costing millions of pounds and is making great demands upon one of our most important export industries, the electronics industry, which is a direct competitor with every form of scientific research and development. This whole apparatus of low-level entertainment is financed almost exclusively, apart from some Government money, by revenue coming from advertisements.
  What is happening? We read these economic homilies. We read these feeble speeches. Then the people go home to sit in front of a screen from which with all the devices of modern advertising, they are urged to spend more money on consumer goods. That situation has been brought about by this Government, in the face of opposition from my right honourable friends and against the advice of a great many people who could see what it was going to mean. The cumulative effect of what in our present situation is nightly poison in the homes of working people is something that we must work hard to offset. I say to the Government that we regard this as a test: that if they really mean what they say, if they have any hope of regaining public confidence, they have got to stop this. We cannot afford to have people listening every night to exhortations to spend more money upon consumer goods and then expect them to listen to anybody who tries to tell them exactly the opposite. It seems to me that if the Government are prepared to be frank with the people, if they are prepared to say, "We have been wrong," if they are prepared to stop this nightly advertising—in other words, if they are prepared to make some original, fearless demonstration of their determination—
  THE LORD PRESIDENT OF THE COUNCIL (THE MARQUESS OF SALIS-BURY): Might I ask the noble Lord a

  229
  question? Is he proposing that the I.T.A. advertising should be closed down, or advertising by all mediums?
  LORD WILMOT OF SELMESTON: I am referring particularly to commercial television.
  THE MARQUESS OF SALISBURY: Would the noble Lord apply it to other mediums as well?
  LORD WILMOT OF SELMESTON: I should see what happened first. The noble Marquess is so good at this kind of interruption that I am not really able to compete with him. He knows very well what. I mean; so does the noble Viscount, Lord Waverley, who took a courageous stand on this matter; so do many other noble Lords, who know that this boosting of consumer goods in working class homes is against the national interest in these circumstances. I would say this to the noble Marquess: if it is found to be ruining our economic position we should deal with it; and if he really means what he says, so would he. If he is not prepared to deal with it, then I do not believe what he says about the rest of it—I mean that this would be just another Party political stunt.
  If we really believe in the seriousness of this matter, if we believe in it in the same way that I know that the noble Lord, Lord Balfour of Burleigh, believes in it, then we shall do something and we shall do it whatever it costs, because not to do it will cost even more. If we could get some statement of that kind, some proof which will offset the bitterness in the hearts of many people about the reduction in income tax, while the price of bread and milk is increased, and if we could make the sort of statement that Sir Winston Churchill used to make to the nation when he was calling on us during the war to make sacrifices and to endure unpleasant things, then, upon that basis, if the declaration were sincere and the policy right and bold, I think there would be some hope of a broad flowing of national response that would carry us out of this danger. If not, I see little hope—and I am bound to reflect that time is running heavily against us.
  3.35 p.m.
  LORD GRANTCHESTER: My Lords, the continuous slipping away of the value of our currency under successive Govern
  230
  ments since the war is so serious a matter that I think a little plain speaking is desirable. It is common ground that continued inflation is deplorable in theory, but in practice there appears to be general addiction to this value-destroying drug. What I should like to say on this subject of inflation is, I think, complementary to what my noble friend Lord Beveridge said yesterday, and also to what was added by the noble Lord, Lord Winster. It has been made clear in this debate that there is more than one contributory cause to inflation although, as I shall seek to show, I believe that it is within the power of Her Majesty's Government so to adjust their policies as to bring this inflation to an end without worrying too much about some of the factors which are at present adding to the inflationary pressure—among these I would number those mentioned by the noble Lord, Lord Wilmot of Selmeston, in his concluding remarks. If I do not follow him in his historical analogies from the 1920's it is because I think those analogies are false.
  I was brought up in a Liberal school, which looked critically upon any intervention in our economy by the Government, believing that Governmental interference rarely does good and often does a great deal of harm. Certainly no better example of the disastrous effects of Government intervention could be found than the action first of the Labour Government, and then of the present Government, in their relations with the banks. I said that straight speaking was necessary, and I am not putting it, too strongly, I think, if I say that the banks have been unduly influenced by pressure, which would have been thought unbelievable not long ago, to adopt certain policies. Under the Labour Government there was overhanging the banks the threat of nationalisation unless there was conformity with that Government's views on an expansionist credit policy. As a result, many businesses have been over-trading on bank overdrafts, largely in a tariff-protected market where there is no real competition to check over-pricing. Now along come the present Government, asking the banks to restrict credit. Undoubtedly, under pressure from the Labour Government many credits were granted or allowed to run too long, and under the present pressure some credits are being refused which normally would be granted.

  231
  This is a sorry story of disastrous intervention by successive Governments. By their spending and monetary policy the Government can, of course, influence the volume of bank deposits, and so the volume of credit; but within their resources the banks should be left free to conduct their normal business of making advances on a business assessment of the risk, and it should be recognised that the Government cannot influence their decisions in this field without causing grave dislocation and courting disaster. I am unhappy even on the subject of changes in the bank rate. I should like to know where the initiative in this important matter now rests. Is it with the Court of the Bank of England or is it with the Chancellor of the Exchequer? Has advice been tendered by the Governor of the Bank of England, and, if so, on what occasions during the past seven years? Has this advice been taken at the time it has been tendered or has the Governor waited upon the Chancellor of the Exchequer's instructions? I should feel much happier if we could be assured, at any rate under a Government who profess to uphold a market economy, that decisions upon changes in the bank rate will be made on the advice of the Bank. While I am referring to the Court of the Bank of England, I wonder whether it might be better informed of the practical difficulties of industrial banking if a representative of the joint stock banks were appointed to the Court.
  What is the measure of this problem of inflation? It is quite simply the overweight of some £400 or £500 million of spending each year. Who are the real sinners in this matter? The note circulation, which in 1947 was some £1,400 million, stood last week at some £1,800 million. Bank deposits increased during the same period by £1,000 million, although a fall seems to have set in during the last month. For this increase Government spending is largely responsible. It would appear that in the last four years outstanding Treasury Bills have gone up from £4,000 million (which I believe was the figure on February 23, 1952), to some £5,000 million in the corresponding week of this year. I believe that those figures are correct because the noble Lord, Lord Clitheroe, took the figures as at October
  232
  this year, compared with October four years ago, and made it £900 million. The figure in February comes out at £1,000 million. This increase in note circulation and increase in Treasury Bills is the easy way to meet Government over-expenditure. It also makes more likely an increase in the credits which can be extended by the banks. By these means the currency has been debased by one-third of its value—that is the real meaning of the increase in retail prices since 1947 which, as the noble Lord, Lord Clitheroe, mentioned yesterday, are up by some 53 per cent.
  It has been argued by respected economists (and a year or two ago the Economist printed an article agreeing with these views) that no Government in a free society can, with impunity, take from its citizens more than about 25 per cent. of the national income. Under post-war Labour Governments almost 40 per cent. of the national income was taken in central taxation, local rates and National Insurance contributions. In spite of its promises and professions, the present Conservative Government have not reduced to any appreciable extent, this monstrous proportion. Out of a national income of something like £15,000 million, £5,500 million is still taken from private citizens. Let us be clear what this means. It means that the Government are forcing the spending of two-fifths of the people's income before they have any chance of making any expenditure themselves. Surely that is why over-taxation is inflationary and why any arguments for increasing taxation to mop up the individual's spending power are so wrong. The proceeds of taxation are spending power in the hands of Government. Here, I contend, is the root cause of inflation, the root cause of the inflationary pressure, because spending is maintained constantly at too high a level. Her Majesty's Government should practise what they preach to the banks and cut their own expenditure by something in the region of 10 per cent.
  On what can Government expenditure be reduced? Administrative economies, although necessary, are not sufficient, as the noble Lord, Lord Clitheroe, said yesterday; major changes of policy are called for. First the Government are forcing the expenditure of the people's money on defence. That is the largest single item, and one to which the noble

  233
  Viscount, Lord Ridley, referred yesterday afternoon. They are forcing expenditure on all kinds of development projects; they are forcing expenditure to give subsidies to the needy and the not-needy alike. Under the heading of "Defence" the Government order tanks, bombers, fighters and guided missiles—all and everything that either America or the Soviet Union may attempt, with a population four times as large as that of this country. We are told that this is supposed to enhance our national prestige. An overspending and bankrupt nation has no prestige at all in the world. If it is prestige that Her Majesty's Government are worried about, this would be enhanced far more if the citizens of this country were rich and prosperous than by the number of weapons they may he thought to possess.
  As we all know, these weapons which we manufacture are constantly becoming out of date even before they are in commission; and some are often produced just for the scrap heap. After all this expenditure, do Her Majesty's Government even pretend that they are providing us with security? This cannot be their contention because, rather casually, they talk of evacuating one-third of the population should disaster overtake us. So what is the virtue in this expenditure of £1,500 million every year? Someone seems to think that there is magic in this figure, for although in the search for economics it was found possible to save something like £67 million in the Estimate for the coming year, a sum was then added to the research Estimates, so that the figure of £1,500 million was restored—as if this figure were sacrosanct.
  I should like to ask, frankly, how much less secure should we be if this £400 or £500 million of over-expenditure which is causing the inflationary pressure were knocked off the Defence Estimates? Nothing could so greatly help our export industries, which need the material now being used on tanks that are obsolescent, if not already obsolete. I am glad that in another place a few days ago the Minister of Defence appeared to have come to the view that defence expenditure must have a limit, having regard to the financial safety of this country. I hope that by the time the Defence Estimates are discussed in your Lod-ships' House we shall hear something more definite on cutting defence expendi
  234
  ture. I hope that the Estimates will not be allowed to go unchallenged, and that they will be revised for the current year.
  I do not want to be accused of being unrealistic in this matter. Some months ago we on these Benches were accused of being unrealistic for suggesting the abolition of National Service. Now this is declared Government policy. Nor do I believe that a cut such as I have suggested in the defence expenditure need weaken the defensive strategy of the West. If the Atlantic Alliance means anything, it should eliminate duplication of expenditure upon experimental weapons. So far as Europe is concerned, it might be the start of getting nearer a united European effort, with all that that could mean in economy. In fact, a decision to cut our expenditure, and keep it within what we can afford, I contend, might prove, to be the dawn of reason in introducing a more realistic and co-operative spirit into the Western Alliance. It is a question of making up our minds with our Allies that we are part of a larger organisation in which there must be mutual confidence. If that is not the purpose of the Atlantic Alliance what is it?
  The cutting of expenditure in the way I have suggested must be reflected in a reduction of taxation, so that costs fall instead of rise. I will give but two examples, to illustrate what I have in mind. It is proposed, I believe, to raise the salaries of senior civil servants because they are so much worse off than they were before the war—chiefly because of the steep grading of taxation. But instead of increasing their salaries from £4,500 to £7,500 a year, as is proposed, how much more sensible it would be to reduce the amount they pay in tax by raising the surtax level—as one noble Lord suggested yesterday—to the equivalent of its pre-war value, which would effect the same result so far as the impoverished civil servants are concerned and keep costs down. This matter of not raising costs in any sector by Governmental action is important, and the Government should surely never be a party to hindering the process of lowering costs as it was last week in fighting for the imposition of a 10 per cent. tariff on imported Danish bacon. My second example relates to what is happening in countries where taxation is lower. Liberia is now

  235
  the fourth largest ship-owning country. Why is this? Because taxation here puts British shipping at an impossible disadvantage in competition. The Government try to tinker with the problem by special investment allowances, and make the position of the country generally worse. No one is wise enough to discriminate between one and another in granting special privileges to particular industries. Taxation should be equal, and if too heavy must be reduced for all. Let us get back to this sound democratic principle.
  The other matter that I should like to suggest to your Lordships is that the time has come for a major change of policy in social outlook. It is ridiculously expensive to give to all and sundry, irrespective of need, whether it be subsidies on such items as bread or milk, or even maternity benefits. By all means let us be civilised, and help those in need, but we can the better do this if we conserve our resources and do not overburden the Administration. I am aware that this means some kind of test, and here I should like to make a suggestion. Concessions in the form of subsidies are surely more appropriately confined to those who do not pay income tax. The proper manner to help those who pay income tax is not by making subsidies to them, but by increased allowances in reduction of that tax. I believe that a reorganisation could be carried out if some such guiding principle were accepted as the basis of a reorientation of social policy.
  There are one or two other matters upon which I should like briefly to touch, if your Lordships will forgive me. There is the necessity for increased productivity to help our balance of payments. This has been stressed again and again by everyone. But I must say that the acquiescence of the Government, and of the trade unions, in preventing the stepping up of coal production is nothing but a scandal over which both Her Majesty's Government and the trade unions should hang their heads in shame. For there is no other item of national wealth which could be so easily developed to help our balance of payments. To be importing coal and paying for it expensively in dollars is nothing but a national disgrace. I am very glad that this matter is being raised by the noble Lord, Lord Teviot, in your Lordships' House in the
  236
  near future. Increased productivity will best be secured by increased incentives, and the best incentive Her Majesty's Government can give is to lower taxation, both personal and corporate. And the best contribution to increased efficiency that Her Majesty's Government can make is by the elimination of restrictive devices. We shall be interested in the discussion of the Bill on this subject which will soon be coming to your Lordships' House.
  The final matter I should like to mention is the question of savings. I think it is useless to go to the public and suggest that they should exercise restraint in spending when they are promised a rising standard of living. If I might refer for a moment to what Lord Wilmot of Selmeston said in regard to television, what individuals do is simply to make a choice. After all, every individual is limited in what he can spend. If he spends his money on one thing he cannot spend it on another. That is not true of Her Majesty's Government, who are not so restricted, because they can always find in Treasury Bills the wherewithal to meet expenditure which they have not checked. Instead of this approach to the public with a request for the exercise of restraint, I suggest that there should be a positive appeal to save to build up security by instalments. It should be brought home to every wage-earner that security cannot be provided in all contingencies and circumstances, but that a nest-egg of savings tucked away can go far to relieve anxiety for an uncertain future.
  The policy of recent Governments has been to whittle away the inducements to save—by reducing, for instance, the tax allowances on insurance premiums. Here perhaps I should declare an interest, but I should like to point out that if a policyholder wishes to increase his savings under a policy from a premium of £10 per year to one of £25, a material increase which would be desirable at the present time, he gets no more inducement to put by £25 a year than he does to save only £10 a year. I should also like to suggest again that the Government should arrange that their tax inspectors do not chase small savings accounts in the Post Office. There should be a limit free from such prying eyes. As we know that the amount involved is small and it is a disincentive to put money in the Post Office

  237
  if it is going to be dug out and disclosed possibly to another member of the family—
  VISCOUNT ALEXANDER OF HILLS-BOROUGH: My Lords, I should like to be quite clear about the noble Lord's suggestion on insurance premiums. Does he actually propose an increasing rate of help per £ on every rising £ of premium paid?
  LORD GRANTCHESTER: I think the old arrangement was to give a rebate in tax to the extent of half the rate on premiums paid with a limit of one-sixth of income, but that has been altered by a rather complicated arrangement which amounts to a two-fifths tax allowance on a £10 premium, but it goes up to £25 without any corresponding tax allowance on the increase. There is no tax inducement for the individual to save £25 instead of £10 a year. I should like a more imaginative campaign, with inducements to popularise every form of saving. But before this can be expected to be really effective, the Government must show that inflation will not destroy the value of the labour and savings of the thrifty people of this generation as it has destroyed the labour and much of the savings of the older generation, to which some of us belong.
  4.4 p.m.
  LORD BALFOUR OF INCHRYE: My Lords, like other noble Lords who have taken part in this debate, I feel privileged to be able to do so on an occasion which has been enriched by the effective and authoritative maiden speech of the noble Lord, Lord Clithcroe, who is an old friend to many of us and whose maiden speech in another place I remember some twenty-two years ago. His maiden speech in another place was just as effective in that Chamber as his maiden speech was in your Lordships' House yesterday.
  Last November, Her Majesty's Government hoped and believed that the Autumn Budget steps would halt the economic decline and check the imminent inflationary clangors. The description was given us then that the Government were grasping the nettle while there was yet time. Yesterday, my noble friend Lord Balfour of Burleigh gave another description when he said that the steps which were taken last autumn were both "too little and too late." It is no good jobbing
  238
  backwards. The Government were sincere in their belief that they were doing what was necessary at the time. However, the situation has not worked out as they expected and here we are with another set of proposals, another economic debate and another hope that the steps that are proposed will be adequate to meet the situation.
  Again we must ask ourselves the question that many noble Lords, including myself, asked last autumn: whether the proposals which we are now considering, coupled with those of the Budget yet to come, will bring about the early, drastic and essential transformation in our international balance of payments position which the circumstances of the time render necessary. The Chancellor of the Exchequer's proposals are undoubtedly courageous and deserve, I believe, the support of all noble Lords in every quarter of this House. Particularly do I believe that his steps in dealing with the artificial prices of essential foodstuffs are courageous, though unpopular. I think it is right that we should come down to reality, as the Chancellor of the Exchequer is gradually making us do. I do not believe the strictures of the noble Lord, Lord Wilmot of Selmeston, that these proposals are going to bear harshly on millions of people in our land. The extra cost is about 2d. per week per head, and we have to remember that the Government have raised considerably the allowances of dependants and pensioners since they have been in office. I do not believe that the steps which have been taken are going to hear very harshly on the people, and I believe that they will be accepted as part of the sacrifices which the difficulties of the position render necessary.
  Having said that, I would remark that some of us here and some others outside are fearful whether the monetary weapon is able swiftly and positively to do what is expected of it by the Government. They expect the monetary weapon to decrease consumer demand and divert the flow of production into export Channels. They hope it will halt the rising costs of production and discourage excessive imports. In fact, it is the hope of the Government, which all those who support them share, that the monetary weapon will bring about the circum-

  239
  stances required to remedy the worsening balance of trade position. But I find some difficulty in seeing anything in the Chancellor of the Exchequer's proposals which is likely to reduce what I consider is the intolerable position of steadily increasing dollar imports of supplies which we could, and should, produce from sterling sources within the sterling area and within the British Commonwealth. Last year we imported £55 million worth of animal feeding-stuffs, mostly paid for in dollars. Imports of barley from Canada rose from £13·6 million to £21·3 million. Imports of maize from the United States rose from £18·4 million to £28·7 million.
  Last year we spent £74 million, mostly in dollars, in importing some 12 million tons of coal. And because this country has never been a coal-importing country and we have not suitable docks for importing and unloading coal, this coal had to go to Rotterdam, be unloaded in Rotterdam into barges and brought in barges from Rotterdam to this country. No one can deny that from our soil and from the soil within the British Commonwealth we could have produced the feeding-stuffs, the import figures of which I have just given to your Lordships, and to that extent have eased our dollar situation about which my noble friend Lord Bruce of Melbourne spoke so forcibly yesterday. No one in your Lordships' House or outside, could deny that we should be a coal-exporting nation rather than a coal-importing nation, and that beneath our soil and the soil in parts of the British Commonwealth exist rich undeveloped coal deposits—undeveloped in the sense of being mines linked to an efficient mine-to-port railway system. In Rhodesia there are rich collieries and rich coal deposits. Had we ten or fifteen years ago concentrated upon building the necessary transport outlets to the sea from where those deposits lie, we might have had to import coal but it would not have been for dollars; it would have been for sterling.
  My noble friend Lord Balfour of Burleigh yesterday declared that there were two ways to check excessive imports: first, direct physical controls; and secondly, the reduction of internal spending. He hoped that the measures which the Government are proposing would achieve, through the second
  240
  method, the reduction of internal spending, and thus check the excessive imports. I should like to submit that there is a third course which might give immediate relief to our critical dollar position. It is what I would term a switch of imports from dollar to sterling sources. This does not mean Government control and limitation of imports; nor does it mean relying solely upon the working of the monetary weapon. It is a sort of half-way house. It would not need legislation; but it would need Government leadership, Government directive to trade associations, Government direction and Government pressure on the interests concerned, to switch their requirements, even at some sacrifice to their own interests, to a far greater degree than at present, away from dollars to the sterling area. We cannot go on indefinitely with our dollar deficiency. We cannot go on indefinitely spending two dollars in imports for every one dollar we earn by exports, which is roughly what we are doing at the present time.
  VISCOUNT ALEXANDER or HILLS-BOROUGH: I should like to hear the noble Lord's views on the other side of the picture. If it is two dollars to one dollar between imports and exports, what will then be the amount of your exports in dollars to the dollar area if you make this switch? How does the noble Lord propose to arrange for that?
  LORD BALFOUR OF INCHRYE: I am afraid I cannot argue on the actual figures. The noble Viscount will have his opportunity in the debate, and no doubt he will be able to deal with this point. I am only putting forward a general point, that we are facing to-day an avoidable and, to a large extent, intolerable importation of dollar requirements which could be obtained from sterling sources. I think we might have a slogan, "Reduce and replace" as a guiding slogan for examination of dollar imports by Her Majesty's Government to see in regard to which commodities greater encouragement could be given than at present to their importation from sterling sources.
  I believe that more than ever now we need in this country a new policy of closer British Commonwealth and Colonial Empire economic integration. As a first objective, we should lead in developing alternative sources of supply

  241
  from an economically interwoven Commonwealth and Colonial Empire. It was brought out in yesterday's debate how much more necessary than ever before is such a policy, because the political and constitutional changes that we see going on all the time in our Colonial Empire must be accepted. Some may think that they go too fast, others that they go too slowly; but they are like the weather; it is with us, and we cannot change it. But these very territories which are now gaining their political and constitutional independence are our main dollar earners. The noble Earl, Lord Selkirk, yesterday reassured my noble friend Lord Clitheroe upon the future position of Malaya. Malaya, with its tin and rubber, is one of our biggest dollar earners. The Gold Coast, with its cocoa, is also a great contributor, and I would ask the noble Marquess the Leader of the House, who is to reply, if we could have the same comforting assurance, to the extent that was given to us yesterday concerning Malaya, in regard to the Gold Coast, and whether, in the political evolution that is now taking place in the Gold Coast towards granting them full independence, there will be the same safeguard for the dollars earned to come to the sterling area pool.
  The noble Earl, Lord Selkirk, said that one cannot bind the future. I hope he does not see a day when he regrets the description he gave yesterday of the arrangements as being "fairly satisfactory," because territories fresh with political independence are liable to have nationalistic outlooks—for example, we see it in the Sudan. If they choose to withhold all or part of their dollar earnings from our contribution of dollars to the sterling pool, our economy could be dealt, almost overnight, a devastating blow. It is well to remember that in 1954—these are the last figures that I have, but the tendency has been the same since—the United Kingdom spent 263 million dollars more than she earned; but the Colonies earned 283 million more dollars than they spent. So one can see at once the value of our Colonial Empire as regards dollar-earning for the United Kingdom. I doubt whether the citizens of the country realise fully, or realise enough, the grave economic risks we are accepting while we are advancing these countries along the road of political independence. The very risks which we
  242
  are taking—and I think we have to take them, and one can only rely on whatever Government may be in office at the time to obtain such safeguards for our economic position as are possible—through this political advancement, stress the urgency of developing the policy upon which I spoke a moment ago, of economic integration of the Commonwealth and Empire to a far greater degree in the future than has been the case in the past.
  Such a policy would at once need a review of the present levels of colonial development capital allocations. Two Sundays ago, the Observer had a powerful and clear article on this particular subject, and the noble Lord, Lord Beveridge, spoke about it yesterday. In a normal year the London money market provides a sum of £22 million of new capital for colonial projects; last year we supplied £9 million only, and as a result of the remedies we have to take for our own domestic difficulties which we are debating to-day, remedies which we have to accept for ourselves, we must be loading the under-developed Colonies which require capital with heavier burdens for the money they obtain. I suggest that Her Majesty's Government should take into account, and try to give some special preference in some form or another to, colonial requirements, so that the Colonies can contract out of the penalties put upon them through our own domestic needs. Such a policy of economic integration would require boldness and need acceptance of implications on the present adherence of Her Majesty's Government to the international trade policy of non-discrimination in international trade.
  My noble friend Lord Balfour of Burleigh, who told me he could not be here this afternoon, sees a favourable world situation for us provided our goods are competitive. The noble Lord believes that any general growth of world trade must automatically be to the advantage of this country. I cannot see that. If world trade grows in textiles from Asia or in motor cars from Germany, it is not automatically to the advantage of this country, though the figures of world trade may be enlarged. Let us remember that we have deliberately limited our competitive ability in relation to the products of other countries in the world. Many noble Lords who have knowledge of in-

  243
  dustrial matters know of costed-out industrial jobs. You take your material, you take your direct labour, you take your on-cost and you express it in terms of percentage on direct labour when you prepare your estimate. We have put upon ourselves deliberately—I do not say wrongly—the national on-cost of the Welfare State, the on-cost of a high standard of life, which we must see represented in our costs of production and which must affect our competitive ability in relation to other people who do not so load themselves with the social standards we rightly consider necessary.
  I believe that, sooner or later, we shall be forced to abandon strict adherence to non-discrimination, particularly when so many members of, what I would term the non-discrimination club do not obey the rules. So often Britain joins an international club and plays the game and obeys the rules while many others do not but indulge in such things as hidden export subsidies and many other devices which I could mention. My noble friend Lord Balfour of Burleigh dragged in the "fear of retaliation" bogy if we extend our preferential area of trade. In fact, there are only three foreign countries in the world with whom we have a favourable trade balance of more than £10 million a year—that is to say, who buy more from us than we buy from them. One is Norway, the second is Liberia, which is not in the General Agreement on Tariffs and Trade, and the third is Burma, with whom we have a preferential system. Therefore, I do not think the fear of retaliation is a formidable one.
  My noble friend Lord Bruce of Melbourne spoke of carrying the people with us in the difficulties which we face. I believe we all, to whatever Party we belong, seek some rallying point, some inspiration, some cause which will rouse the people as they have been roused in times of stress, emergency and war. I believe that here is the call: a British Commonwealth economic integration of policy which would give this country the economic independence which I do not see we shall otherwise obtain. In such a policy we could afford differences of method towards a common objective, and we could afford differences of emphasis and direction in a common policy. But in the British Commonwealth and
  244
  Colonial Empire lies the means of that rallying call for British economic independence. Broadly, I believe that we are a fairly well administered country. But administration is not enough. We must have leadership and inspiration; and it is that leadership and inspiration that we hope to find from Her Majesty's Government in the weeks to come.
  4.25 p.m.
  LORD SALTER: My Lords, at this late stage in our debate I think I can best serve your Lordships by commenting upon some of the suggestions that have already been made, rather than attempting to add new ones. I agree with a good deal of what the noble Lord who has just spoken has said, but I could not accept it all without some qualifications with which there is not time for me to deal this afternoon. I hope we shall have a later opportunity to discuss a subject which certainly merits a day's debate to itself.
  The first proposal on which I wish to comment is that impressive appeal made by the noble Viscount, Lord Bruce of Melbourne, yesterday. He said—and I believe that everyone in this House, not least those who sit on the opposite Benches will agree—that it is of the utmost importance to attempt a combined effort to make the country realise the kind of danger with which it is confronted. I was greatly encouraged for the moment by the opening words of the noble Lord, Lord Wilmot of Selmeston. I was equally discouraged a little later, because I do not think it is a practical thing to say: "We quite agree with you about the nature of the peril confronting the country. We quite agree that many of the people who ought to understand what this peril is, if we are to be successful, do not understand it. We will do our best to help you in making it clear to them what it is, on condition, first of all, that you say that you are wrong and we are right." Really that is not reasonable.
  I am not going to say that the present Government are right in all respects, and still less that Conservative Governments in the past have been right: there are many respects in which I think they have not been right. But I cannot accept the implication that Labour Governments, when they have been in power, have been right or more nearly right. I came into office in October, 1951, and I well

  245
  remember the situation with which we were confronted then in the Treasury. I do not want to go over that matter now: I do not want to recriminate. But I must not he asked, before I go any further, to admit that the Labour Government were innocent in regard to the situation which then occurred, and that we have been wrong since.
  LORD WILMOT OF SELMESTON: I know the noble Lord too well to think that he would wish to misrepresent me. I did not say that we were right. I merely said that the facts proved that the present Government were wrong.
  LORD SALTER: To be quite honest, I think that both Governments have, in certain respects, misjudged the situation in the light of what, by later events, it proved to be. So much I would admit. But I think it is even more unreasonable to expect the Conservative Government now to go into a white sheet because of what the noble Lord called the deflationary policy of a Conservative Government between the wars. Undoubtedly mistakes were made then. If the noble Lord will look at the terrible unemployment figures at that time, he will find that they were not so very different in the periods of office of the Labour Governments of those times and of the Conservative Governments. Again, I do not wish to recriminate, but I am able to say this, I think, a little more freely, because during that time I was working very hard with Maynard Keynes and others of the Economic Advisory Council to press certain measures, measures that were then regarded as unorthodox and heretical in Whitehall but which have since been accepted by both Parties, and by this country, America and a large part of the Continent, as useful and orthodox.
  It is surely not reasonable to say that the Government must say, "We are wrong" before we make the kind of reasonable appeal that the noble Viscount, Lord Bruce of Melbourne, made yesterday. That is not to say that the Party of noble Lords opposite should in any way sacrifice their views or give up the advocacy of what they want, but only that where they agree on a matter the public should be enabled to understand the position; that they should say so, and say so in a way which will help us in spreading an understanding which is essential, whatever remedial
  246
  policies are adopted by whatever Government are in power. Cannot we respond to the appeal of the noble Viscount, Lord Bruce of Melbourne, by disentangling what is non-controversial from what is controversial and, up to the point of diagnosis, speak more or less the same language and attempt to educate the public? Of course, it is not only the right but the duty of the Labour Opposition to criticise the Conservative proposals where they think they are wrong, and to advocate their own proposals when they think they are better; but that position would not be prejudiced. I believe that the diagnosis of the position is very alike on the part of the responsible leaders of both Parties. I think, however, that the position is not really understood by the public. The public generally understand what is the effect of inflation so far as their home experience is concerned, but they do not understand what is the significance of the drain on the reserves. There is no difference of opinion between the responsible leaders of the two sides as to what is the significance of this drain, and I trust that it will be possible to get some kind of co-operation in explaining it.
  Several noble Lords have called attention to the critical, and indeed, in its extent, the unique, danger of this country through its dependence upon imported food and raw materials at a time when its ability to sell abroad is impaired by great and increasing inflation. But the consequences of a continuance of that position are not, I think, fully realised. Let me suggest what I think would be the sequence of events if the measures that have been proposed or that may be undertaken in future should be ineffective in preventing a continuous loss of our export trade and a continuing drain upon our reserves. In the first place, of course, there would be unemployment in the particular branch of our exporting industry which was failing to compete successfully. That we have already seen in the motor industry which has been able to sell competitively abroad much less this year than at the same time last year. The Government, whatever Government it was, would have to prevent that outside loss of sales from being compensated by an expansion of home demand, because they would realise that the underlying cause and difficulty was largely an inflation which increased home demand would only

  247
  increase. Very soon there would be the same phenomenon in other export industries, again with unemployment. As that happened, the reserves would run down further and further. Very soon, anybody who could change his dealings in sterling would begin to speculate upon a devaluation. When that happened, through methods of action upon which I need not now dilate, the process of the drain of the reserves would be accelerated. Soon, probably, we should reach the point of actual devaluation—though not because it was wanted.
  I am quite sure that Sir Stafford Cripps was entirely sincere when almost right up to the eve of devaluation in September, 1949, he said, in effect, "Never, never." There I would differ from the noble Lord, Lord Clitheroe, who, in his brilliant speech, talked about the act of policy of the Labour Government in devaluing at that date. It was not an act of policy; it was a surrender to forces beyond the control of the Government of that time. Here again, I am glad that the Labour Party have clearly said this. Mr. Harold Wilson said the other day that the Opposition were just as strongly as the Government against any change in the value of the currency. Yes, but that does not necessarily mean that the forces will not get so strong that it will happen, and then the familiar evils will again result. For every dollar we earned, you would have to put in more human effort and use more materials. And, of course, inevitably prices would go up and up, because everything we bought from abroad would have to be paid for with more pounds.
  When we got as far as that, we should be very near the point at which we should literally be unable to find the dollars to buy the food for our present standard of living, or even something a good deal less than that; and, in particular, the raw materials to keep our factories employed. When we reached that point, we should get mass unemployment. In my view, that is far and away the greatest danger, and perhaps the only danger, of mass unemployment that confronts this country. It is the kind of danger against which all the Keynes remedies are no remedy at all, for they were designed to stimulate and supplement a flagging home demand. Applying them to such a situation as I have just described would not only not
  248
  cure but would aggravate the trouble. That is the position which I think needs to be brought home to the people of this country as a background to whatever is the remedial policy adopted. I suggest that the Labour Opposition, while fully maintaining their right, of course, to criticise and advocate alternative policies to those proposed by the Government, might collaborate with us in doing so.
  So much for the suggestion of the noble Viscount, Lord Bruce of Melbourne. I should now like to come to a question which has occupied a number of the speeches during this debate—that is, the part that wage inflation is playing in the general inflation which we are discussing. I agree with the noble Lord, Lord Clitheroe, on the whole, in quoting Professor Pigou, that there are two main causes of inflation. One is public expenditure and the way in which it is financed, and the other is wage inflation. Of the two, particularly at this moment, in view of what is happening on the wages side, there can be no doubt whatever that far and away the more dangerous is wage inflation. Wage inflation, although not the sole kind of inflation, is indeed the characteristic form that inflation has taken since the last war, just as much as note printing was the characteristic form of inflation on the Continent of Europe after the First World War.
  Wage inflation results from one perfectly simple thing. To avoid it does not mean that wages should not increase; it means just this: that you should create your wealth before you spend it. The whole of the trouble in wage inflation has been, as the noble Lord, Lord Beveridge, pointed out quite clearly, that people have tried to spend beforehand the wealth that they or others hopefully anticipated they might produce in future but which, in fact, they did not produce. That putting of the cart before the horse, and increasing your spending power in the hope that you may increase the objects upon which you are going to spend it, instead of producing the objects first and then sharing them, has been the root cause of our difficulties and the biggest trouble from which we are suffering in the economy of this country.
  That evil has been immensely increased, as Lord Beveridge said yesterday, by the particular contribution made to it by the nationalised industries. As he

  249
  said, quite truly, they have led the way to the rounds of wage inflation. Why is that? I think it is for one simple reason. The whole of the system under which wage rates are negotiated was built up and developed its traditions when privately owned industries were competing with each other. Nobody on either side of the table in negotiating questioned the fact that, whatever might be the proper share of the profits between the management and shareholders on the one hand and the workers on the other, both sides had to draw from earned profits. That essential basis of the system was cut away when there was established a national monopoly which, because it was a monopoly and not subject to competition, could meet extra costs for wages by putting up fares or prices to the consumer, and, because it was nationalised, could if the consumer could no longer be persuaded to pay more, in ore way or another put the cost on to the taxpayer. In fact, that is what has happened, and that is why the national industries are spearheading the wage inflation process. That is the most disastrous thing in our present economic history.
  The real fact is that the nationalised industries have, in regard to the authorities which represent the public interest, power without responsibility. By this I mean that they can do things which compel the Treasury to pay, without any responsibility for collecting the money in taxes with which payment has to be made. At the same time, in relation to their workers they have responsibility without power, in the sense that they are responsible for organising their business efficiently and for negotiating rates of wages. But they have not got, for the reasons I have just mentioned, the power to compel, because behind their negotiations the workers feel and say, as they never did at the time when the system of wage negotiations was being built up, "Well, if you cannot pay these extra wages, put up prices; and, if that is not enough, then go to the Government."
  That, I suggest, is one of the biggest evils and dangers confronting us. Behind it is the whole question of full employment or the relation between the demand for and the supply of workers. Practically everybody who speaks on this subject confines himself to saying, "I am in
  250
  favour of full employment."But he is usually most reluctant to take the trouble to define exactly what he means by that phrase. There are same things that I think ought to be said in order to give perspective and proportion to what is likely to be the course of events in the weeks and months that follow. I should like to approach this matter by quoting from those who can speak, and have spoken, with great authority.
  First of all, let me take the pioneer and protagonist of full employment, Lord Beveridge, whom I am sorry not to see in his place at the moment. In his book, written in 1944, he said that full employment does not literally mean no unemployment; it means no more than 3 per cent. of unemployment as compared with the 10 to 22 per cent. which Britain experienced between the wars. It is well to keep that figure in rnind—3 per cent. of unemployment is what he defined as a state of full employment. Then, a few years later, in 1949, Sir Stafford Cripps, having experienced the consequences of people thinking of full employment as meaning not a single person ever without a job, was careful to say that full employment did not mean that an individual was guaranteed continuance in his particular job or even his particular trade, and that to insist upon the rigid maintenance of the present pattern of employment would be to destroy all hope of full employment. That was in 1949. Then, as recently as 1951, the Labour Government made a formal declaration of what they meant by a full employment policy. They said they had decided to express the full employment standard of the United Kingdom as a level of unemployment of 3 per cent. at the seasonal peak.
  Compare that with the present and what has been the recent position. Three per cent. unemployment means about 550,000 unemployed people in all. Over this last winter the percentage has been about 1 per cent., and that 1 per cent., or something a little under 200,000, covers "casuals" and people who have been unemployed for only a short time, after which they have usually quickly got better employment somewhere else. I emphasise all these figures because it may well be that, not because of a desire to create unemployment but in order to cure this fatal disease of inflation, any Government may have to adopt measures

  251
  that, as Mr. Gaitskell recognised only a few months ago, may well have as an incidental effect an increase of the figure, particularly of short-time unemployment, so that it rises to somewhere nearer 2 per cent. rather than the present 1 per cent. I ask the Labour Opposition to help us in getting over the view of what has always been understood to be the real meaning of the kind of full employment which should be the objective of Government policy. All that I am suggesting at the moment is that in itself that should not be regarded as a bad thing.
  I do not think that it is a good thing that there should be, as at this moment, about twice as many vacancies seeking men as men seeking jobs. When that is the position, when there is such a small number of people available for any new development or expansion that may be needed in the most crucial and vital industries, there is really no chance of making the progress in prosperity and the creation of wealth which the country otherwise could achieve. Therefore, I should like to ask that the sense of horror at any kind of number of unemployed, however small and however temporary, should be dissipated by the combined efforts of both sides. There must be a margin of people who, at any given moment, are seeking new employment, and the present measures of relief might conceivably be added to. That would be immensely better from the point of the working classes as a whole, and indeed of those temporarily unemployed, than that, as Sir Stafford Cripps saw, the present pattern of employment should be crystallised and made rigid, thereby preventing any future increase in prosperity.
  I should like to make one or two remarks about monetary policy. I agree with Lord Pethick-Lawrence and Lord Pakenham when they demonstrate, as they did demonstrate, the great cost and the great disadvantages of high interest rates long continued. I was glad, however, that the noble Lord, Lord Pakenham, and I think the noble Lord, Lord Pethick-Lawrence, agreed that, in its proper place, combined with and assisted by other measures, the high interest rate has its utility at certain stages of an inflationary period. But I agree that it is of the utmost importance that not too much should be put upon
  252
  that or any purely monetary weapon. I agree with the noble Lord, Lord Clitheroe, when he pointed out that under the present conditions of the market, with the great number of Treasury Bills, for example, the old classical weapons of monetary policy—open market operation, high rate of interest and so on—are not so effective as they were; and if they are not given the right environment and supplemented by other measures they would be much too expensive and not effective enough. In that connection I should like to see Treasury Bills restricted a good deal. It is all very well for Sir Edward Boyle to say—as he can say with literal truth—that Treasury Bills are not necessarily inflationary. But when they are increased to the extent and at the pace of Treasury Bills in recent years, and are devoted, as so much Treasury Bill finance is, to long-term expenditure that ought to be financed by loans subscribed to out of the savings of the people, then they are seriously inflationary.
  I believe that we have a good deal to learn from modern America in its use of the monetary weapon, both as to liquidity ratios and also as to the use of a much better system of intelligence and information about the movements of boom or depression. I hope that we shall try to learn the necessary lessons from them. Monetary policy could be made a great deal more effective if it were supplemented by some of the weapons that have successfully been used in America. Among those monetary weapons I would add one that has been used both here and in America and which I have always thought, for many years, to be an extremely valuable one—hire purchase. That is one of the best regulators. To ease up with hire purchase in days of depression and to tighten hire purchase in the case of a boom is a very simple and effective method.
  There was considerable debate as to whether high taxation is inflationary or deflationary. I did not entirely agree with the noble Lord, Lord Clitheroe, who said that it was at present inflationary. I believe one cannot give a plain "yes" or "no" to that question, for it depends on the time, and whether one is thinking in terms of a short crisis or the long-term effect; and it depends, too, on the kind of taxation. The first effect is, of

  253
  course, deflationary: it reduces the spending power. It may later, however, reduce incentives to the creation of new supplies, in which case it ultimately becomes, in that sense, inflationary. In that respect, it is exactly like reductions of investment. We are now trying to help the immediate critical position by reducing expenditure on investment. Continued over a long time, that process would have the effect of reducing production and thereby worsening the ratio between supply and demand. Whether or not taxation is in-flationary depends a good deal, also, on the form of taxation. Frankly, I regretted, in the Autumn Budget, the extension of purchase tax to pots and pans —articles which previously had not been subject to tax—because I think purchase tax has a more direct and sensitive relationship to wage demands than any other tax. When one finds what was really in itself a very small tax in its immediate reduction of expenditure (and which therefore could not do much good) applied, with the provocation that these were articles of domestic necessity which previously had not been taxed, the indirect result in causing inflation through increased wages was probably greater than the immediate advantage of reducing expenditure.
  The noble Lord, Lord Beveridge, referred in a very interesting part of his speech, with which I wish I had time adequately to deal, to the general system of wage negotiations. I have said something of the particular part played in that matter by the nationalised industries, but the case he put before your Lordships goes a good deal wider and further. There is a great deal in what he said: in that we want some mitigation of the complete union sovereignty of separate unions in dealing with wage negotiations. As he, or some other noble Lord, said yesterday, it is quite useless to say to a particular union: "Do not press for an extra 10 per cent. on wages, for the only effect of that would be to put up by 10 per cent. the cost of things you buy." That is not true, because the fact that they ask for, or get, that 10 per cent. will not necessarily result in other people getting it; and if they do not ask for it, that will not prevent other people from getting it.
  But what is not true of separate unions is true of the union world as a whole. If
  254
  we could get in regard to wages a policy that was in the interest of the union world as a whole, it would, in my view, be a policy almost identical with the national interest. That does not mean, however, that if we were able to do so it would be wise to have national negotiations for all wages conducted, let us say, by the T.U.C. That would be, likely to mean a uniformity of wages which would destroy the proper differential between different classes of workers, and would prevent a proper increase of wages for the expanding new industry as against the old static industry. Even if one could get a plain 4 per cent. increase, as in Sweden, or any other percentage, as the noble Lord, Lord Beveridge, seemed to think desirable, I do not think it would be a good thing. Some element of variability and flexibility is needed. But it is true that the disadvantages of inflation quantitatively fall, perhaps as to more than half, upon union members as a whole; and if one adds to that half those classes of the community who are not economically better off, the proportion is more like four-fifths. There is therefore a strong case for developing a system which would, to a greater extent, make effective on particular union negotiations the interests of the union world as a whole. This subject might be a suitable one in itself far debate—I ventured to put sonic proposals before your Lordships in July of last year.
  Lastly, a number of noble Lords referred to the necessity of recovering the dynamic character of our society. They were right; but, of course, one has to say that when we are in a critical position in regard to the exchanges and our reserves, as we are now, a solvent society is an essential and prior condition of a dynamic society. Once we can get past the critical danger of the drain upon our reserves, then we can be free to concentrate in every way upon incentives to extra production and the removal of all restrictions, whether on the workers' or the employers' side, that impair greater production of saleable goods. There is then hardly any limit to the extent to which wages can, with no harm to anyone and with great advantage to the workers themselves, advance, subject only to the fundamental condition, which has unhappily not been observed in the past, that you should first create your wealth and then decide how to share it.
  5.0 p.m.
  LORD SEMPILL: My Lords, may I join with your Lordships who have spoken previously in congratulating the noble Lord, Lord Pethick-Lawrence, upon initiating this debate and in thanking him for his interesting opening speech. I should like also to add to the tributes already paid by your Lordships to the noble Lord, Lord Clitheroe, on his maiden speech. The speech of the noble Viscount, Lord Bruce of Melbourne, which has already been referred to by Lord Wilmot of Selmeston and Lord Salter, impressed me very much. I thought it a notable speech, since, whilst dealing with the technicalities of this involved situation, the noble Viscount stressed again and again the psychological aspect. The psychological aspect was emphasised again to-day by Lord Wilmot of Selmeston, Lord Salter and others. I think it is vitally important. In fact, as I understood it, the noble Viscount, Lord Bruce of Melbourne, whilst indicating his view as to what should be done technically, pointed out that success would be achieved only when there came about a change in the attitude of mind all over the country. With that view I completely agree, as others of your Lordships have intimated that they do also. The noble Viscount, Lord Bruce of Melbourne, said at one point [OFFICIAL REPORT, Vol. 196 (No. 68), col. 156]:
  "we are up against as serious a crisis as we have ever been in our history, except in time of war."
  There is surely only one sound remedy for inflation, a subject upon which much has been said in this debate; and that is increased production. We ask ourselves whether this is possible to-day. As one engaged in production engineering, I would say "Yes," without question—but only provided that we stop pretending we have full employment to-day, when restrictive practices abound on both sides of industry. "Go slow;" "work to rule;" two or three men doing one man's job—this sort of thing is going on all over the country. Your Lordships will remember that the noble Lord, Lord Clitheroe, in his maiden speech yesterday, referred to full employment. He emphasised that it was a term only partly understood. Lord Salter said the same thing to-day. Lord Clitheroe used these words [col. 148]:
  256
  "It is not a true use of language to describe as full employment a situation in which everybody can get full wages. Full employment also must mean that everyone should do as much work as he can reasonably be expected to do."
  The result of these practices to which I have referred, as your Lordships well know, gives rise to dissatisfaction and an overall feeling of frustration. This is inevitable. These restrictions, broadly speaking, do not, however, apply in the expanding industries, since employer and employee are still aware of each other as fellow human beings. I suggest that the question which needs to be answered is why, in a period of crisis, in which we are to-day, and of inflation, should not restrictive practices be abandoned and production increased up to the full volume of purchasing power.
  There are probably several answers. For example, if labour-saving or output-increasing devices are effectively used, they must inevitably reduce the amount of labour required in those industries where, for any reason, demand does not expand correspondingly. This is consistently denied on the grounds that in expanding industries, like, for example, motor car production, productivity has increased sixteen times in forty years; and still there are more people employed than ever before. Is it seriously considered that during a similar period the British coal industry could either have sold sixteen times as much coal or have reduced its personnel to one sixteenth? Your Lordships will have heard recently a great deal about automation, which is already here. It brings with it the possibility of an enormous increase of man's capacity to produce—perhaps by twenty to thirty times. Has anyone made clear how the present economic system adjusts the ability to purchase what is produced, bearing in mind that prices cannot be cut to one-twentieth or one-thirtieth because of the very large capital investment in automation which has to be amortised?
  Surely, my Lords, we have to ensure that the supply of the right volume of money, issued at the right time, is the main objective of monetary policy. The periodic boom or slump indicates that this is quite haphazard; and, that being so, the question of ensuring that the right volume of money is put into circulation is crucial. Would it not be correct to assume that the reason why the Government of New Zealand not long ago set up a Royal Commission on Monetary

  257
  Policy, was to consider, and find answers to, such questions as this? I understand that the Commission's Report is due some time next month. As noble Lords of far greater experience in economic matters have spoken on these questions, emphasising the seriousness of the position to-day, may I, who am but a student in the economic field, say that in my opinion it surely cannot be many months before we strike bottom and then commence to learn the results of past errors of judgment the hard way. That, I suggest, is the only sure road to recovery.
  5.10 p.m.
  LORD DOUGLAS OF BARLOCH: My Lords, the noble Earl, Lord Selkirk, who spoke for the Government yesterday said that their policy was to attack causes and not to attack symptoms. That is a sentiment with which I, and all of us, no doubt, would sincerely agree. But I wonder whether the measures which have been proposed by the Government do, in fact, reveal the implementation of that policy. They appear to me to be a diverse mixture of measures, some of which are dealing only with symptoms and not with the causes at all. There is a large measure of agreement in your Lordships' House that the root cause of the difficulties with which we are at present confronted is inflation, but I am not so certain that there is uniformity of view as to what inflation really consists in. For my part, I understand inflation to be a condition in which the price of commodities is increasing and in which that increase of price is caused by an increase in the amount of money in circulation—that and nothing else. And that is precisely what we are suffering from at the present moment.
  Take what has happened during the last seven years. Between 1948 and 1955 the volume of industrial production rose by about 35 per cent. During the same period the amount of currency in circulation rose from some £1,200 million to over £1,700 million. What was the inevitable result? There was an increase in prices, so that the increase in consumer expenditure during that period amounted to £4,000 million a year, of which £3,000 million was due to increase of prices. The inference from these facts is perfectly clear. If one goes back over a longer period, one finds that the currency in circulation in 1938 was only £442 million, and now it is about four times as much.
  258
  The inevitable result has been a tremendous increase in prices, compared to what they were before the war. If inflation is to be prevented, it is essential that in the first place the Government should control the note issue and should prevent it from going up year after year as it has done. I do not forget for a single moment that the circulation of bank credit is also a form of currency and that it has gone up pari passu with the increase in the note issue. But the final and ultimate responsibility for all this rests upon successive Governments, which have steadily pursued this policy.
  If this is the truth of the matter, it is clear that the policy which the present Government are pursuing is erratic and contradictory. What, for example, had the measures which were included in the emergency Autumn Budget to do with the increase in the note issue? Nothing whatsoever. The increase in purchase tax and profits tax has nothing to do with controlling the volume of currency in circulation. So with regard to the more recent measures which have been proposed. The reduction of housing subsidies has no relation at all to the increase in circulation; nor has restriction upon hire purchase, though both measures may in themselves be defensible. It may be perfectly true that it is highly undesirable that people who are well able to afford to pay for accommodation should have their houses subsidised. It may also be true that hire purchase has a demoralising influence and tends to make people forget that they ought to earn before they spend. But that is not, in itself, a cause of inflation so long as hire purchase is financed by the saving of somebody. Of course, if hire purchase is financed by the creation of credit, and if the Government allow credit to he created for that purpose, then we have inflation. But that is not the result of the institution of hire purchase; it is the consequence of the inflationary position which is allowed to come into existence.
  These measures have really nothing whatever to do with the fundamental difficulty with which we are confronted, which is due entirely to the policy of successive Governments in allowing the creation of currency and of credit to proceed at the rate at which it has done. I know that it is said that we can control this tendency by controlling expenditure. That was the advice which Keynes gave

  259
  to the Treasury in 1940, and the Treasury were acting upon that advice when they introduced the system of post-war credits as a means of combating inflation. But that measure has failed, as every measure of that kind is inevitably bound to fail: such steps will not and cannot work. What we have seen during the last fifteen years is the proof of it. Inflation is bound to follow so long as Governments are content to allow the note issue in circulation to increase year after year.
  I deprecate also the view which has been expressed by some speakers in this debate that the cause of our troubles is mainly the work of the trade unions in forcing up wages. That has not created the inflationary position with which we are confronted—indeed, it has little or nothing to do with it. I do not deny that it is possible, if the demands of the trade unions are excessive and they are granted by employers, that troubles can flow from that. It could easily happen that the cost of production might rise so high that it would become impossible to sell goods at a profit, particularly in foreign markets, and consequently our exports would fall away and our ability to buy the food and raw materials which we require would be diminished. But that again has nothing at all to do with inflation in itself: that is an entirely separate and different problem. Therefore, it is not correct to say that the trade unions, by securing increases in wages, have been responsible for this situation. It was not they who increased the monetary circulation. It was successive Governments who were entirely responsible—and I draw no distinction between one Government and another, so far as this matter is concerned.
  During this debate we have been told—and this I understand is the view of the Government—that in order to combat inflation the public ought to save more. I am all in favour of saving. I was brought up to believe in thrift; I was brought up to believe that you should not spend money which you had not got. But once more, what is the position? What is the use of any Government advice to people to save, so long as conditions remain as they are at present? The workman who puts his money into savings certificates finds in the course of time that, even with the addition of interest.
  260
  they purchase less than at the time when lie invested his money. When he is invited to put his money into things of that kind, he is being asked to lose it, because of the inflation which is taking place year after year and which is reducing the purchasing power of his investment. In those circumstances, for which the responsibility must lie upon the Government, it is futile to ask intelligent people to put their money into investments of that kind, because they know they will inevitably end up with less purchasing power than they had to begin with.
  It is absolutely essential that we should restrict the volume of currency in circulation and prevent the price level from continuing to rise year after year. If that is not done, these troubles will continuously recur, and we shall march forward from crisis to crisis. I wish that I could see on the part of the Government some clear and definite recognition of this fundamental fact. It is dangerous to our economy; it is unjust and unfair to important, respectable sections of the community; it pillages the old age pensioner, the man who has saved up his money in order to provide something for himself, the executive, and the scientific, technical worker who is not a member of a mass union and whose wages or earnings do not keep pace with the continual increase in the cost of living. It is injurious to everybody of that class, and it is helpful only to those who are in the position of being speculators, and who are able to put their money into things which are increased in price because of the diminution of the purchasing power of money.
  This, of course, is a doctrine which is well known and which has been borne out by hundreds of years of experiment. Country after country has given illustrations of this kind of thing; yet it seems that nobody is willing to profit by the experience of the past. Nobody is willing to learn the simple lesson that it is necessary to prevent prices from being increased and to stop multiplying the amount of money in circulation, and that the real criterion, with a properly developing economy, is that when production is increased the prices of commodities ought to fall and not rise, so that the benefits of industrial progress are spread more evenly over the whole community. That is the lesson of this situation, and I wish I could see signs that the Government realised it more clearly.

  PRIVY COUNSELLORS' CONFERENCE ON SECURITY
  5.26 p.m.
  THE MARQUESS OF SALISBURY: My Lords, with the permission of your Lordships, I should like to intervene to make a short statement on the Report of the Conference of Privy Counsellors on security. A White Paper is being published summarising such of the contents of the Report as can be properly made public, and copies will be available in the Printed Paper Office immediately. The Government have decided to give effect to all the recommendations which the Conference have made. My right honourable friend the Prime Minister, who is making a similar statement in another place, wishes to express the Government's gratitude to my noble and learned friend the Lord Chancellor, and to the other noble Lords and right honourable gentlemen who took part in the Conference, for the thoroughness and despatch with which they performed their task.
  VISCOUNT ALEXANDER OF HILLSBOROUGH: My Lords, I am much obliged to the noble Marquess for giving us that information. I have not yet had an opportunity of seeing the White Paper, but when I have done so I will consider whether there is anything more to be said. I should say, from the reports I have heard, that the Government are taking the right action, and I imagine that it will not be necessary to raise the matter again. However, I should like to read the White Paper before committing myself.
  THE MARQUESS OF SALISBURY: I shall, of course, be at the disposal of the noble Viscount at any time he wishes to see me.

  THE ECONOMIC SITUATION
  5.27 p.m.
  Debate resumed.
  LORD COLERAINE: My Lords, this is the first, and I believe the most important, of a series of debates which will occupy your Lordships during the coming weeks, all of them dealing with different aspects of the same problem. To-day and yesterday we have been discussing the economic situation; next week there is to be a debate upon Middle Eastern policy; the week after that, I believe, there is to be a debate on defence; and then again, later, a debate on general foreign policy. I believe that each one of these debates is concerned with the same thing—namely, the weakness of Britain in the second half of the 20th century. I consider that this debate is the most important of them all, for unless we can solve the economic problem we can have no effective defence, because we cannot afford it; and certainly we can have no effective foreign policy. In the final analysis, the success of a foreign policy must be commensurate with the power behind it. Foreign policy cannot be based on mere bankruptcy. That is what we have been seeking to do since the war, and that is what we are seeking to do now. But it just cannot be done.
  I believe that the economic and fiscal measures which the Government have taken will be effective to resolve the immediate crisis, and will be effective in the short run. Provided the Government stick to their guns, as I believe they will, and provided they are prepared to face any unpopularity that they may incur, I am sure that we shall surmount this crisis, just as we surmounted the crises of 1951, 1949 and 1947. But it will not be enough that we get over this immediate difficulty. It will advantage us very little if we get over the immediate difficulty and then start off again on the old "rake's progress" and face another crisis in a year's, two years', or three years' time.
  I do not believe that we can continue indefinitely on the course that we have followed since the war. I do not believe that we shall he able to walk for ever along a precipice in a kind of stupor of inflation, sometimes with one foot dangling over the edge and sometimes withdrawing a yard or two from the edge. I do not believe we can do that indefinitely; and if any noble Lord does believe that

  263
  we can go on for ever and ever as we have gone on for the last ten years, I would recommend him to read the seventy-six pages of Mr. Krushchev's speech delivered to the Communist Party in Moscow a week or two ago. We have either to get right away from the precipice or one fine day we shall find that we have tumbled into it.
  I am not an economist, and I cannot follow the noble Lord, Lord Douglas of Barloch, in his highly complicated but interesting diagnosis of the situation. But probably I should not be contradicted if I ventured the platitude that the root of our difficulties is that ever since the war expenditure has outrun income. Now there are two ways of dealing with that situation. The quickest, most effective and, probably, in the short term, the only way, is to cut expenditure. But, in the long run, in my judgment, that is not sound policy. In the long run, we can only draw finally away from the precipice, not by reducing expenditure or going in for a policy of contraction, but by a policy of increasing income. I hope that, while the Chancellor of the Exchequer is dealing with our present difficulties, while he is battling with the present currents that have so nearly overwhelmed us, he is turning over in his mind the longer-term aspects of our national problem.
  Now how can we increase our income? There seems to me to be two ways of doing it—by working harder, and by having at our disposal more horsepower. In other words, we have to recover those old-fashioned virtues to which the noble Lord, Lord Douglas of Barloch, referred, of hard work and saving. Some people, far more knowledgeable than I am, say that there has been too much investment and that that is what we are suffering from. In a sense, no doubt that is true; but in another sense it must be quite untrue. I do not know whether your Lordships remember a couple of extremely interesting turnover articles that appeared in The Times about a month ago called, "How much Investment?" The story those articles told was that in the first years after the war, in the years of the nationally planned economy and the Labour Government, while we all thought we were depriving ourselves to increase our investments in order to become more competitive in the
  264
  future, statistics, not only from this country but from other countries, showed that nothing of the kind was happening. On the contrary, the figures for 1950 showed that in this country we were spending far more on consumption than the United States, France, Germany or Italy, and that we were putting far less into investment than any of those countries, even Italy. If those calculations are correct, it is obvious that we are not suffering from too much investment—except in this sense: that if there has been too much investment it is because there has been too little saving, and not because there has been more investment than we need to increase our productivity.
  Are there any measures which the Government can take to encourage hard work and saving? Most definitely there are. I believe nothing would do more to increase our national income and national output than a reduction of taxation. That affects management at all levels. At its present level, taxation is a definite deterrent. It is a deterrent to the managing director and it is a deterrent to the youngish man with all his family responsibilities who is just coming into the higher levels of management. And it is a deterrent just as much to the charge-hand in the works. I think that most people who have any experience of the factory floor would probably agree with me that it is sometimes extremely difficult to get people to become charge-hands. They are afraid of the extra responsibility, they are afraid of breaking away from their old friends and they are afraid of becoming "one of them" instead of "one of us," and they do not do it. One reason why they do not do it is that if they do, the effect of the present P.A.Y.E. system is that any addition they get to their wages by taking on the extra responsibility is only marginal. It affects a charge-hand just as much as it affects the managing director.
  My noble friend Lord Clitheroe, in his lucid, moderate and most compelling speech, which I can assure him sounded quite as well as it read in Hansard this morning—and it read very well indeed—referred to this question of taxation. My noble friend said that he did not regard high taxation as being deflationary. The noble Lord, Lord Salter, just now rather

  265
  took issue with him on this point. I, for my part, side with my noble friend Lord Clitheroe. I do not believe that high taxation is deflationary and, conversely, I do not believe that low taxation is inflationary, provided that the increased spending power given to the individual is balanced by less spending power at the disposal of the Government. In other words, there must be a reduction in taxation. I am certain that we cannot survive indefinitely with Government expenditure at anything like its present level and with taxation taking anything like the proportion of the national income that it does today.
  The last time I referred to this problem of public expenditure and taxation in your Lordships' House, my noble friend the Leader of the House made the perfectly fair point that there was not much purpose in talking widely and handsomely about reducing expenditure unless you could give some indication of where expenditure might be reduced. I will try to meet that point which, as I say, is a perfectly fair one. I have no doubt at all that some administrative economies can be made, and that they would be worth making, but I grant freely that they would not be substantial in the sense that they could make any real difference to the weight of taxation.
  If we are to reduce Government expenditure—and I regard it as an essential of survival—then we have not only to look at the administration, but at policy itself. We must get out of the habit of mind of believing that there are certain subjects which are too sacred to mention and which must be left out of our discussion. Whatever the policy is, however desirable it may be, however worthy it is, if it is bringing us to ruin we have to call it into question.
  I should like to say a word on the social services. I do not believe there is anyone in this country, in any Party, who does not want the best social services that we can afford, in the sense, at least, that, so far as we can prevent it, no one will suffer through misfortune that is outside his control. That is not at all the same as saying that the Welfare State as it has developed since the war must develop indefinitely, for ever, or else the people will be defrauded. There are some respectable authorities—for instance, Mr.
  266
  Colin Clark—who maintain that the Welfare State as it is operating to-day not only is imposing a burden which the country cannot bear, but does, in fact, constitute a colossal fraud on those who imagine that they are being benefited by it, and in particular a colossal fraud on the working classes. Whatever may be the truth of that, there is no doubt that the Welfare State carried too far must act as a deterrent on effort, because people do not have to work, because things which they ought to get for themselves are provided free; therefore they have more purchasing power to spend on other things. It seems to me that that must have an effect on society.
  I would appeal to noble Lords opposite—I know they will not agree with what I am saying—not to feel that this is a subject that cannot be called in question. A year or so ago I had the privilege of visiting the Soviet Union with some Members of your Lordships' House. One of the things that struck me very much about Russia was that they had an elaborate system of social services, far more elaborate and comprehensive than I had anticipated before I went there, but, so far as I could make out, there was not one single social service provided in Russia for which the recipient did not make some payment according to his means. I do not believe that that would be a very bad principle for us to look into.
  There is another field of expenditure that must be in our minds—that is, defence. I would not for a single moment say that we can afford to cut defence in order to get some advantage in some other field. We cannot afford to cut defence in that sense. But I am not at all sure that we ought not to recast our whole thinking about defence in terms of the modern world. It seems to me fantastic for a country in our position, with the economic difficulties that we have, to take the line, as successive Governments have, that we ourselves must at all costs manufacture the hydrogen bomb because, if the United States made it for us, it would be derogatory to our dignity. I believe that the attitude of the West German Government is far more realistic. So far as I know, they are rearming and are going to fulfil their obligations; but they are placing the orders for their arms elsewhere. Somehow, I think we have to realise that defence is no longer some-

  267
  thing which is the duty of every little individual country. It is a responsibility which has to be spread over the whole Western world and all the nations who are trying to organise their defence together. I do not know what economies can be made in that direction, but I am certain that some could be made if there was a recasting of our whole view of defence.
  There is one other matter that I should like briefly to raise. It is this. My noble friend Lord Salter a few minutes ago said that the nationalised industries were the spearheads of wage inflation and that wage inflation, in his view, was the main cause of our immediate difficulties to-day. He is probably right that the nationalised industries are the spearhead of wage inflation, but there is another spearhead. It is this. There is a tendency whenever a Government contract is held on a cost-plus basis—and I believe that in the defence programme a number of contracts are given on that basis—for the contractor, who is afraid of being short of labour, to go out of his market and bid for labour even though he does not want to use it. That has the effect of forcing up prices and increasing the inflationary effect of unreal wage demands.
  I am afraid I have taken a few minutes more than I had intended to, but I would ask the Government to look into this question of public expenditure, to be afraid of nothing and to remember this. The noble Lord, Lord Salter, just now, talking of a dynamic society, said that one could not expect a dynamic society with an unstable currency. That is true, but there is another truth: we shall never get a dynamic society growing out of a feather bed.
  5.50 p.m.
  LORD BRAND: My Lords, I had not intended to say anything in this debate because I have been out of the country for two months and felt that I was out of touch; but after listening yesterday afternoon to the debate, I thought that one who comes from the City, as I do, ought to express his opinion about the statement recently made by the Chancellor of the Exchequer. I therefore take this opportunity of saying that I fully agree with all that the Chancellor of the Exchequer has done. His statement concerns mainly investment but, of course,
  268
  in the Budget he has still to deal with the other side, which is internal consumption demands apart from investment. We must wait for the Budget to see what he is going to do about that. But I have no doubt whatever that drastic measures are required, not only such as have been taken now but others too.
  I think we have reached a dangerous point on our inflation journey. It has been going on for a long time; it is gathering force and, if know anything about inflation—as I have told your Lordships before, I have seen it with my own eyes in an extreme form in Germany and other countries—at a certain point it becomes more and more difficult to stop. I think we have reached the point where either we must stop it or it will go a great deal further and produce disastrous consequences. In my opinion, there is no time to lose, and I think severe measures such as a bank rate of 5½ per cent.—which is very severe—are better than tinkering, because if the severe measures have the required effect the Government can then quickly take them off. I dare say the noble Lord, Lord Pethick-Lawrence, will agree that all experience shows that you have to stop these tendencies at an early date—the earlier you stop them, the quicker you can take off the brakes. We have not done that as much as we should have, and I think now is the time to do it.
  Some economists, in talking about capital investment, say that the whole trouble is that we have suddenly spurted with our capital investment during last year and this year, and that that has broken our back. But our capital expenditure is not nearly in proportion with the capital expenditure of our competitors. We are behind-hand with our capital expenditure; we have been behind-hand ever since the war. I well believe that the great increase in capital expenditure—or capital starts, as they are called—in this last year or eighteen months may have been the proximate cause of our increasing troubles. But that only shows that we have left no room for the capital investment which we must have. We have no room, partly because of defence expenditure and partly because of consumption demands on too high a scale. Yet room must be made for capital investment on a large scale if we are to progress and are to compete with our

  269
  competitors. Nevertheless, as the Chancellor of the Exchequer's statement indicates, for the moment, until we get straight, capital investment has to be curbed. It is sad that it should be so, in my opinion, but these things have to be done. First of all we must avoid disaster.
  I agree with what the noble Lord, Lord Pakenham, said yesterday: that another way of talking about inflation is to say that our vital need is a strong, stable and convertible currency. Certainly we are far from that at present. I have never thought, and do not think now, that convertibility is possible until inflation has been stopped and until public opinion has accepted the necessity for a strong, stable and convertible currency. Public opinion does not now accept that. Probably a large part of public opinion that matters does not know anything about a stable convertible currency. What is happening about wages at this moment shows that the wage-earner does not fully understand inflation and does not accept the need for a stable currency. That may apply to many employers, too, because, until the trouble gets serious, employers like inflation just as wage-earners may. Profits are good under inflation and the employer gets plenty of orders. The more home demands increase the better for him, because home trade is much more easy than export trade. Why should be bother about exports if he can sell all his goods in this country? Therefore there is sometimes a sort of conspiracy between capital and labour. The only trouble is that in the end it brings disaster on both.
  To show what is happening at the moment, let me quote some figures for wage increases—basic wages, not earnings—in the last few years, 1954, 1955 and 1956, which I took out this morning. I believe these figures to be correct. In 1954, they increased by £185 million; in 1955, by £265 million; in 1956, in the middle of March—that is, in two and a quarter months—they have increased by £180 million. There are further claims now which would add up to at least £300 million. Leaving out for the moment the further claims, those two and a quarter years have seen increases of £630 million in basic wages, and, if we were to assume that further wages are going to be granted as demanded, the figure would rise to £930 million. All that means that, as
  270
  long as this process continues, the task of the country and of the Chancellor of the Exchequer grows more formidable all the time. We have not only, somehow or other, to counterbalance or to reduce the too great demand that exists now, but we have got to catch up with all these new demands; and that is a formidable task.
  I do not want to enter into Party politics, but my feeling is that, while the Chancellor of the Exchequer has a great responsibility, trade union leaders also have a great responsibility. As we all know, they are men of great ability and moderation, who have a great knowledge of industry. They must know that ultimately the maintenance and improvement of the standard of life and of employment depends on this country having a strong, stable currency, and that this requires strong reserves. Other countries seem able to earn them, but we do not. A figure was given the other day in regard to Europe, by, I think, Sir Oliver Franks, in his annual statement to Lloyds Bank shareholders. He stated that European gold and dollar reserves had increased by 5,000 million dollars in 1955, whereas we scramble along trying to prevent ours from falling. Yet the need of our country for reserves against sterling is vastly greater than the needs of other countries, because sterling is a world currency which everybody requires and which everybody can "bear" on the markets of the world if they think it looks weak, and particularly because we are huge debtors to the world, especially to the sterling area.
  These, too, are not only our gold reserves; they are the reserves of Australia, Malaya and every other part of the Commonwealth, and we must be ready to provide the dollars they want. While we cannot get going in increasing our reserves, these other European countries can do so, just as, while we cannot stand the amount of capital expenditure we ought to stand, they go ahead with very much greater proportionate capital expenditure. How is it that we cannot do it? I believe the noble Lord, Lord Coleraine, has some of the answers: that we lead too easy a life, that we do not work so hard and do not accept new ideas as the Americans and the Germans do; and, generally speaking, that we are not dynamic. How we are to change and get like our competitiors, I am not sure.

  271
  In another way, the present situation must be somewhat distasteful to trade union leaders. I do not want to enter on controversial ground. No politician dares to mention the word "wages." I read the speeches of our leaders. They never mention wages, although they sometimes say something about dividends, because they know that those who receive dividends have not many votes, while wage earners are a different matter. In my opinion, trade union leaders have always been against all privilege. Now inflation forces upon them the necessity of demanding for their followers, at frequent intervals, privileges in the way of increased incomes which no other sections in the community can or do ask in the same way. I do not blame the trade unions for saying "We are not going to suffer from inflation—as the cost of living goes up, so do our wages go up; and if they do not go up, we must coerce the community until we get what we want," but the rest of the community cannot do that. They are not organised. The other day I thought how much I wished that the tax-gatherers would go on strike. Why should they not? They are probably badly paid, or not nearly so well paid as many other classes who do work of a similar nature.
  VISCOUNT ALEXANDER OF HILLSBOROUGH: They seem to get what they want without striking.
  LORD BRAND: Ultimately, they do, for a year or two later the Government say "We must do something for the Civil Service" and their earnings are put up, because the wage-earners have it already. Despite the present attitude of the wage-earner that it is wrong if incomes do not immediately follow the cost of living, the increases do not obtain for other sections of the community. I say, therefore, that the trade unions are now in a privileged position. In the end this is dangerous to the trade unions and to our democracy as well. For this reason alone, a return to stable prices is very desirable. At the moment for this large section of the community—namely the wage-earners—the wage increases, as I have shown, are not in any way under the control of the Government or the Chancellor of the Exchequer. This naturally adds great obstacles for the Chancellor's plans for reducing internal demand.
  272
  Our great difficulty in our democratic community seems to be that of making people aware of the terrible dangers of very serious inflation. Inflation looks very pleasant to a great many people, including the recipients of dividends, because profits increase with inflation; but I fully support what my noble friend Lord Selkirk said about its disastrous implications. I can think of nothing more disastrous to this country, or bringing greater danger, than to allow the present condition to continue to develop. I support the most drastic measures to stop the rot, and I believe that it is the work of all patriotic men to support such measures, and for all Parties to join together in preventing what all would, in the end, consider a disaster—that is, the further progress of inflation.
  6.8 p.m.
  VISCOUNT ALEXANDER OF HILLSBOROUGH: My Lords, I am sure noble Lords in all parts of the House will agree that the setting aside of these two days for a discussion of the economic position has been really worth while. It was opened by a survey of the situation by my noble friend, Lord Pethick-Lawrence, with his usual calmness and that impartiality in assessing the various components in the problem which we always expect from him, laying the foundation for a wide and interesting debate. I thought that the Chancellor of the Duchy of Lancaster, the noble Earl, Lord Selkirk, although I did not agree with all that he said, showed evidence of having made a careful study of what he was going to say before he made his contribution to the debate. There has been fairly general agreement upon the definition originally given in the speech of the noble Lord, Lord Pethick-Lawrence, of what constitutes inflation, although I was exceedingly intrigued by the much later contribution on the same subject from my noble friend Lord Douglas of Barloch. I had great sympathy with him when he came to deal with remedies for the total of the note issue and its effect on the actual economic position of the people of this country.
  In spite of all the good intentions of my noble friend, Lord Wilmot of Selmeston, in opening his speech, I am bound to say I find it almost impossible on such an occasion as this to separate the responsibility of the Government as such, at the end of four and a half years

  273
  of office, from the situation that we face to-day. It is not as though we have not had economic crises of similar components, although different in magnitude, at various times since the last war; but we are now dealing with a situation which, as was pointed out by my noble friend who opened the debate this afternoon, is, in our view, directly the result of Government policy. Whatever Lord Brand may say about the responsibility of trade union leaders, you must remember first of all that the Government set out the text of the position and wrote the prescription in the Election address of 1951, which has already been quoted by my noble friend Lord Wilmot of Selmeston.
  LORD BRAND: I should like to point out that I did not say that the trade unions caused inflation. I do not think they did. I am only saying now that inflation is increased by what may be regarded, perhaps, as very natural demands for wage increases which are made at more and more frequent intervals.
  VISCOUNT ALEXANDER OF HILLSBOROUGH: As this debate progresses and stage succeeds stage, I find that noble Lords on the other side differ with each other in almost every speech. Yesterday we had one banker, Lord Balfour of Burleigh, disagreeing with the noble Lord, Lord Clitheroe, who was making his maiden speech—and making it, I thought, in an excellent style, such as we, old comrades of his in the House of Commons, should expect. I wish to make clear my firm belief that when there is a crisis in the country, whether it be an internal one in relation to our economic position, whether it be in relation to our economic safety in connection with the overseas position, or whether it be the kind of crisis which we had in 1939–40, the Britisher has something in his heart which always shows at such times and makes him want to spring to the aid of his country—if he knows the position.
  The noble Lord, Lord Salter, who spoke earlier—I am sorry that I was out of the Chamber for part of the time when he was speaking—stressed the need for co-operation in telling the truth about the situation so that it might be understood by the people. I am all in favour of that. But our people have been very seriously misled during this past four and
  274
  a half years—very seriously misled indeed. And we were misled in 1951. The Government of which I was a member, with a majority of only four or five in another place, felt that in view of the situation then arising we were bound to ask the country for a mandate in order to control that situation—which, undoubtedly, was getting dangerous, just as it has been getting dangerous recently. And what were we accused of? We were accused of running away because we asked for a mandate to put our own really well-tried policy into operation. So it is not possible to get away altogether from the past in approaching this subject now.
  I would say next that if co-operation is to be obtained in telling the truth to the people, we shall need a certain basis for that co-operation. If remedies are going to be applied which will be costly and hurtful to the people, it is only right that you should go to them and, if they have other remedies to suggest, you must be willing to consider those remedies and then put into operation the sort of measures in which you find the people are willing to co-operate. There must be agreement on the best remedies to be applied. In the course of statements which they have made about their proposals for dealing with the situation, the Government have said, again and again, that they are willing to apply any kind of control which they think will be effective in the circumstances. But we never get any effective control suggested by them except the use of the money weapon. Up goes the bank rate. The effect of that move is quite indiscriminate. Very often it is most hurtful to the things that it is most necessary should be allowed to continue. And the Government is really leaving it to the hank managers to carry out a control policy which is intolerable to the bank managers. The policy ought to be settled and carried out by the Government, with the assent and co-operation of the people of the country.
  The monetary remedy is the main one which is being applied, together with that extraordinary part of Government policy which arises from their idea that they are going to check inflation and help to restrain the organised operations of trade unions for maintaining the economic position of the workers, by increasing the

  275
  prices of basic necessities of life. If you think you are going to get the cooperation of the trade unions in a policy like that, you should think again. The Government seems, furthermore, to believe that increasing the price of necessities is going to curb consumption. If you follow that line you are not going to get co-operation from the trade unions. How can you expect it? When I think of that side of the picture, I cannot help feeling that noble Lords opposite have a very poor idea of what the real situation is. First of all we had the removal of subsidies which helped the consumer. Incidentally, many of those subsidies always seem to be misinterpreted as being subsidies to agriculture, but they were, in fact, a great cushion for the general consumers in the country. When it comes to seeking the co-operation of the workers by saying that one of the main planks of your policy is to increase the price of bread and milk to the extent of £38 million a year, I suggest you will find it difficult to make them believe that that is going to be effective. You may assure them how serious you are and how much concerned you are about their basic welfare—not, perhaps, just in regard to their present condition, but having in mind what inflation might do to them in the future—but if you proceed on those lines you are indeed going to have a difficult job to get them to co-operate with you.
  How right the noble Viscount, Lord Bruce of Melbourne, was—and others who followed his line also—in pointing out the importance of the psychological aspect in this matter. How are you going to get the people on to your side with a Government policy such as this, which, in our view, is really a foolish one? That is our case against the kind of policy which we have had portrayed to us. Moreover, if you are going to rely entirely on those two weapons, to which I have alluded, then, as the noble Lord, Lord Pethick-Lawrence, pointed out, in the national Budget it will be found that the cost to the State for its borrowing is vastly increased.
  The noble Lord, Lord Balfour of Burleigh, apologised for not being able to be here. He seemed to be very concerned about the fact that I might be touching upon some of the matters which
  276
  he mentioned. And I must refer to what he called "the Dalton cheap money inflation" in the post-war period. When the State was able to borrow money on Treasury Bills at the percentage which existed in 1951, the cost to the State was roughly £17 million. For the year 1955 the noble Earl, Lord Selkirk, thought the figure was about £123 million. Taking into account the increased charge upon the national Exchequer which will result from the last decision to increase the bank rate, we may say that the cost to the Treasury or to the nation if the bank rate continues at the same level for another twelve months will be nearer £160 million. Then, in a few months, as my noble friend Lord Pethick-Lawrence pointed out, £840 million worth of 2½ per cent. National War Bonds fall due for redemption, and whoever watches the markets knows that he will then be able to get 4 per cent., 4½ per cent., or even 5 per cent. interest instead.
  And you have driven the local authorities away from getting loans in the decent orderly way from the Public Works Loan Board and sent them to the market. You will have driven them away from borrowing at 3 or 3½ per cent. to borrowing at 5¼ or 5½ per cent. on the market. Bankers may well be able to sit above the storm and pour out their medicinal remedies upon us: they will not be touched by it either way; they get the rates they fix for the market. I do not blame them, if they can go on doing it in that way. The Government will not be able to borrow at much less than 5 per cent. for that conversion. Does anybody suggest that that is not so? And by the time this increased cost is added to the Budget, there will be an additional charge upon the nation of something nearer £200 million than £150 million.
  Even then, we have not arrived at the whole cost of the Government policy, because, as was pointed out in another place, of the effect of the increased charges an our overseas balances. If, in 1954, this had already reached, through the direct policy of the Government, an increased charge of £110 million per annum, to-day it must be nearer £200 million because of the increased cost of borrowing as a result of the 5½ per cent. bank rate. In my judgment, the cost altogether is going to be somewhere between £350 and £400 million. Your

  277
  Lordships will see from the Financial Statement issued with the Budget that it takes an income tax of 6d. in the £ to raise £116 million. Everybody is telling us to-day that the only way to induce more production and deal with the situation is to reduce taxation. But what sort of taxation? A number of noble Lords have said that they want a reduction of direct taxation. Who do they think are going to benefit by this? It must be the managing director or the manager, or even the charge hand—but not the great body of workers. Those are the people who will benefit from a reduction of direct taxation.
  LORD COLERAINE: And of indirect taxation.
  VISCOUNT ALEXANDER OF HILLSBOROUGH: Who will pay the increased cost of this borrowing policy? Are the Government to go on increasing the prices of milk and broad, cut the tariff on Danish bacon, go on taxing the necessities of the people—in order to make things better for them? It is a policy out of Bedlam. And is all this not simply because, whatever kind of financial situation the Government find themselves in, as a Party they are tied by the heels to this political dogma: that they can deal with these matters only on the basis of a "free-for-all," of free enterprise? Look at what it has done for you. You have missed the opportunity you had when the terms of trade turned in this country's favour.
  Then it was said by the chairman of Lloyds Bank, and again by my noble friend to-day, that the Government ought never to have been in a position, when the terms of trade turned in out favour, to allow an absolute decline in the gold and dollar reserves—they ought to have been building them up. Instead of that, what do we find? The very people now urged to accept cuts in this, that and the other, are "led up the garden" by the Government. You had a General Election specially staged, with a Budget in which you gave away largesse, mostly to those who paid income tax, with only a small relief in purchase tax. And now what have you done? In the latest adjustments, you have increased purchase tax again, sometimes putting it on afresh. You are taxing commodities now all the time, and that has to be paid for by the people you are concerned about, by
  278
  workers who have produced an unprecedented increase in the volume of commodities, a greater volume than ever produced at any time in the history of this country.
  Let us be fair to them. You say that you can treat this evil by taxing what they have to live on. If it is not something that goes in the mouth, you proceed to tax the places where they live, by reducing the housing subsidies. There will be further stages of the Housing Subsidies Bill introduced the other day in which subsidies are to be reduced, and everybody in a provided house will have to pay increased rents. There has recently been a re-assessment of rates, and consequently, everybody has been saying that there will be much lower rates. But they are being decreased by nothing like the extent they might have been if interest rates to public authorities had not been constantly going up over the last three years on the basis of the Government's policy.
  So the Government have been steadily turning it over in this way, all in order to maintain their dogma that they cannot deal with this at all by way of physical controls. There are now bankers, as well as others—as we see if we read their speeches carefully—who are convinced that they will not be able to manage this inflationary position entirely by monetary controls. The noble Earl, Lord Selkirk, said yesterday that there were certain disadvantages about physical controls and made some comments about quotas. I know that sometimes these things are awkward, but we cannot get fairness in the distribution of a commodity the consumption of which we wish to reduce unless there is physical control. How do the Government propose to act? Do they propose to go on taxing the commodities consumed by the people time and time again, irrespective of the size of their incomes, or are they going to have a system of distribution which lowers consumption but distributes fairly to all the people? "Oh, no," you say, "that might mean rationing." It might or might not.
  THE MARQUESS OF SALISBURY: Does the noble Viscount mean rationing?
  VISCOUNT ALEXANDER OF HILLSBOROUGH: I am just putting it into your mouth. I say that it might or it might not. We think that a great deal

  279
  of control could be managed without rationing. But we say that if you let your policy run not by trying to curb consumption by taxing commodities, you will produce the most unfair results you can imagine. If you go to the trade unions on that basis and try to get cooperation, you might as well save your journey and your breath, because you will not get it.
  If this Government will look at the situation anew and say to themselves that they must deal with inflation on a basis on which there can be the maximum cooperation between sections of the community, that they will not shut out of their plans and ideas any kind of physical control that may be required, in addition to monetary control (for, as Mr. Gaitskell said in another place and as my noble friend Lord Pethick-Lawrence said yesterday, we are not without appreciation of the power of the financial weapon in the right place and in the right quantity), something might be done. But when the Government rely upon the monetary weapon to the extent that it is their one main weapon, all I have to say is that they must look elsewhere for co-operation. If they take the broad view that they might have to use both and then seek co-operation from those who can be so powerful in helping them, then they may be able to deal with the situation. There is much more to say, but I will leave it at that. I am grateful to all noble Lords who have helped to make this debate sincere and lively. Perhaps I have been a bit lively, but I speak as I feel. If the Government want to get the country with them, they must be fair to all the people and not merely to a class.
  6.30 p.m.
  THE MARQUESS OF SALISBURY: My Lords, I am sure we shall all agree, even if we do not agree about everything, that we have had a debate during the last two days which it would be a gross understatement to call useful or even valuable. To my mind, it has been a most remarkable debate; in fact, it has been one of the most remarkable debates that we have had since I have been in your Lordships' House. It has been illumined, in particular, I think, by such notable contributions as those made by the noble Lord, Lord Clitheroe, whom we were all so glad to hear, the noble Viscount, Lord Bruce of
  280
  Melbourne, and the noble Lord, Lord Balfour of Burleigh, yesterday—and, of course, I would not exclude the noble Lord, Lord Pethick-Lawrence, whom we all, in every part of the House, are always delighted to hear—and to-day by the brilliant and statesmanlike speech made to us by the noble Lord, Lord Salter, and the later equally interesting speech made by the noble Lord, Lord Brand. I am sure we all agree that every one of these speeches deserves earnest study from audiences far wider than merely your Lordships' House, and I hope that they will get it. Personally, I feel extremely diffident in intervening in such a symposium of authorities.
  The last time we debated the economic situation in your Lordships' House was, if I remember rightly, at about the beginning of November. I am afraid that I then inflicted an intolerably long speech on your Lordships, and I am sorry to say that, owing to the length of this debate and the number of issues raised, I am bound to take some little time this evening. But one thing, at least, I can spare your Lordships. Last time, greatly daring, I attempted to define the nature of the problem facing the country at that time, as I saw it. I do not propose to inflict such an experience upon your Lordships this evening, for, apart from everything else, so far as I know, the character of the problem has not changed in any way since that date. Two main things, I believe, have emerged from our discussion. One is the serious nature of the situation that faces us. That, I think, was recognised by noble Lords in every part of the House, and it was re-emphasised this afternoon by the solemn, almost grim words, as I thought, that were used by the noble Lords, Lord Salter and Lord Brand. Secondly, I think it is generally agreed that the problem, if I may so express it, is not so much a problem of earning as a problem of spending.
  I imagine—I believe the noble Lord, Lord Wilmot of Selmeston, said so this afternoon—that on all these things, and, indeed, on what I may call the definition of the problem, there is no difference between us in whatever part of the House we sit; that has been brought out in almost every speech that we have listened to. It is universally agreed, I think, that if the British people were not spending

  281
  quite so much at the present time, the inflationary pressure on goods and services would be immediately reduced. I do not say that our present anxieties would then be at an end, but, at any rate, they would be greatly lessened. The real question, as I see it—and it is not an easy one—is how, and by what possible means, the British people can be discouraged or restrained from doing something which, in itself, at the proper time, is not only harmless but desirable, but which, at the present moment, at the scale at which it is taking place, is definitely harmful and, indeed, dangerous to the country.
  The noble Lord, Lord Pethick-Lawrence, last November, dealt in his usual wise and objective manner with this very point, and if I remember rightly (I have looked up his speech again) he listed five ways in which he suggested that inflation might be restrained. The first was by increased production; the second was by monetary methods, which, of course, in plain words, means raising the bank rate; the third was by reducing the amount of money in the hands of consumers by direct taxation; the fourth was by extensive control of the whole economy; and the fifth was by putting up the price of consumer goods by placing some special impost on them—that is to say, by indirect taxation. The noble Lord indicated that he, personally—and I hope I do not misrepresent him—preferred the fourth alternative: namely, extensive control of the whole economy, and I think he said so in so many words. He believed that that was better than what he called the "indiscriminate bludgeon" of the bank rate; and gather that that is still his view, because I think he used the same word, "indiscriminate," in his speech yesterday.
  In my reply I explained why my Party had never liked extensive controls. One reason, at any rate, was expressed on that occasion by the noble Lord, Lord Brand, far better than I could possibly have expressed it, when he said, advocating the monetary method: [OFFICIAL REPORT, Vol. 194 (No. 27), col. 156]
  "… to my mind it is vastly superior to attempting again to control directly our incredibly complicated financial machine by civil servants in Whitehall."
  It will not be any news to noble Lords on the other side of the House if I say that Her Majesty's Government share
  282
  that view; they have always shared it, and they share it still. In saying that, 1 can assure your Lordships that I imply no criticism of the admirable and devoted officials who advise Ministers on these matters. It is merely that in our opinion—and we represent a wide body of opinion in the country—this particular job is beyond either their sphere or their powers.
  When, therefore, action had to be taken to curb this exuberance of spending, if I may so call it, we decided, as your Lordships know, to apply a combination of the other methods mentioned by the noble Lord, Lord Pethick-Lawrence, which, to our mind, were much more applicable to a free economy. We did our utmost to increase production; we employed the monetary method, and the bank rate was raised twice; we put up the prices of consumer goods by indirect taxation, instead of increasing direct taxation which I believe would have been the method of the two that would have been preferred by the noble Lord, Lord Pethick-Lawrence. Broadly speaking, those were the methods that we employed last October.
  I gather it is the view of the noble Lord, Lord Pethick-Lawrence, and of the noble Lord, Lord Wilmot of Selmeston, and others who have spoken from the other side, that these methods which were applied by the Government have utterly failed. I certainly would not accept that. I think it is an example of the well known fallacy of post hoc propter hoc. Even last November several noble Lords with wide knowledge of the City, and among them, I believe, the noble Lord, Lord Brand, stressed that it was likely to take a few months for monetary influences to produce their full effect; and the noble Earl, Lord Perth, who speaks with extensive knowledge of this sphere, told us yesterday that there were already signs that the measures of the former Chancellor of the Exchequer, which were applied at the end of last year, were beginning to bear fruit, as I understood him to say, at any rate in the sphere of private industry. As I say, I would not accept for a moment that these measures, which were bound to take some time, had been ineffective in their operation. It is too soon yet to say that.
  VISCOUNT ALEXANDER OF HILLSBOROUGH: I am interested in this matter, and I should like to put a point to the noble Marquess. These operations have been in being since the end of 1951 or the beginning of 1952, in different circumstances—namely, when the terms of trade were favourable, and also when the terms of trade were unfavourable. The net result, after four and a half years, is that the Government's balances are in greater jeopardy than they have ever been.
  THE MARQUESS OF SALISBURY: These measures were not applied until last year. The raising of the bank rate began last year, and there have been two cases of it since. But I am proposing to deal with the situation, and I am not out to burke the full facts, as your Lordships will see from what I have to say. I certainly agree—and this is what I was coming on to—that it is far too soon to suggest that we are anywhere near through our troubles. On the contrary, as we all know, in every Party, there are pretty formidable figures on the debit side of our account which might appear—and I say this frankly to the noble Viscount, Lord Alexander of Hillsborough—to nullify any advantages which have yet been earned. If exports have gone up by 8 per cent. in value, imports have gone up by 15 per cent. The rise in imports is, indeed, as I understand it, more than twice the rise in industrial production. In any case, the rise of 8 per cent. in exports of this country, which is in itself an excellent thing, compares with rises in exports of the United States, Western Germany and Japan of 9 per cent., 18 per cent. and 27 per cent. respectively. The result is quite obvious—the trade gap has widened. It widened from £50 million a month in 1954 to £72 million a month in 1955. As we all know, during the same period the gold and dollar reserves fell, though there has been, as your Lordships know, a recent recovery since December of upwards of 90 million dollars. I have not tried, I hope the House will agree, to blink the facts. I do not want to blink the facts, and I think it is quite right that both this House and the country should know them.
  There is another hard fact that we have to face. Throughout the year which I have mentioned, world conditions have been favourable to industrial expansion, and the total value of world trade is going
  284
  up. Our own unsatisfactory state of affairs can be attributed only to conditions at home. It is not that production has been flagging even here. Production, as I have said, has shown a rise. The fact is that we have been consuming far too much at home, and as a result we have not been able to sell enough to other countries to pay for what we have bought from them. That, as I see it, is, quite briefly, the hard situation with which we are faced, and that is the reason for the new measures which the Chancellor of the Exchequer has announced.
  Those measures have been fully discussed during the last two days. First, the bank rate has again been raised, as your Lordships know, from 4½ to 5½ per cent. That step has been approved by some. It has been approved by the noble Lord, Lord Brand, by the noble Lord, Lord Balfour of Burleigh, and it was approved, I think, by the noble Earl, Lord Perth. It was disapproved of by others, by the noble Lord, Lord Pethick-Lawrence, the noble Lord, Lord Wilmot of Selmeston, the noble Viscount, Lord Alexander of Hillsborough, and others. I do not propose to go again this evening into all the arguments which were traversed last November and again during the last two days. I should like to say only this. It has, I think, been made absolutely clear during this debate by those who advocate what is called, or has been called, the monetary weapon, that the main purpose of raising the bank rate is to produce an astringent effect on all those engaged in enterprise, at times when inflation is a danger. It is a warning to go slow. For this purpose, no doubt, it is well suited, because we all know the effect is immediate and widespread, since with it go up the Treasury Bill rate, the bankers' deposit rate and the cost of bank overdrafts. In fact, it affects the whole field of borrowing. It is, to use the expression which was used yesterday afternoon by the noble Lord, Lord Balfour of Burleigh, "a pervading influence"—a very good phrase to describe the effect of it.
  But the whole essence of that policy, as the noble Lord, Lord Brand, has emphasised, if it is to produce its desired effect, is that it should make the maximum impact on those whose operations make the rise necessary. Unless it does that it will have failed in its purpose; and that is why, as I understand it, it

  285
  has been decided to raise the rate once again. I would say, in answer to the noble Lord, Lord Grantchester, who asked me a question, that, although I have not been able to verify it, I think there is no reason to suppose there is any difference between the Chancellor of the Exchequer and the Governor of the Bank of England on this particular question.
  LORD GRANTCHESTER: I asked whether the initiative was with the Chancellor of the Exchequer or the Governor.
  THE MARQUESS OF SALISBURY: I do not think that the machine works in that way. There is very close contact between the Chancellor of the Exchequer and the Governor. The sort of idea that there is a bargain between them I do not think operates. They are two people working together for a common end.
  VISCOUNT ALEXANDER OF HILLSBOROUGH: It is quite clear now that under the new Statute the Chancellor of the Exchequer has the final say. I think that is what the noble Lord, Lord Grantchester, is arguing about.
  THE MARQUESS OF SALISBURY: That is the result of legislation which the noble Viscount's Party thought it right to introduce. The purpose of raking the bank rate was to leave no doubt in anyone's mind of the determination of the Government to carry through this policy and to curb inflation at all costs. That is its purpose and that, I submit, is its justification.
  The same, I think, is true of the second method which has been employed by the Chancellor of the Exchequer to achieve his purpose; and that is credit restrictions. First, there are restrictions on issues which are operated by the Capital Issues Committee. I do not purpose to say anything about them, because I think they were dealt with by my noble friend Lord Selkirk. Secondly, there were the other restrictions on credit, to companies and to individuals, operated through banks. Broadly speaking, of course, the object of these is exactly the same as the object of raising the bank rate, which is to reduce the flow of money which goes out and which, ultimately, is bound to increase the volume of consumption.
  LORD WILMOT OF SELMESTON: Could the noble Marquess answer this point? Is there any differential in the directive in favour of export enterprise?
  THE MARQUESS OF SALISBURY: No, I do not think there is, but I am going to deal with the question of controls in a moment.
  Some noble Lords have complained (I think the noble Viscount, Lord Alexander of Hillsborough, did, and I do not object to his having done so) that the effect of these restrictions has been harsh. That, too, I think, was the view of the noble Lord, Lord Pethick-Lawrence. The honest truth is that I am afraid any measures to restrict credit are bound to react harshly on somebody. That is the hard truth which we have to face. Even the operation of the extensive controls which have been advocated by noble Lords opposite would have had a harsh effect on those to whom they applied. It would be no good to tell the workers, or others to whom these controls were applied, that their particular product was less important than some and that therefore the Government had decided they must suffer first. They would only reply that that was not their concern. All they knew was that it was they and not others who were laid off or put on short time. Whether the methods of noble Lords opposite or the methods applied by the Government were adopted that would still remain the same.
  Moreover, the policy of import restrictions, as was pointed out, I think, by the noble Lord, Lord Balfour of Burleigh, last night, is most unlikely to achieve the desired result, or at least to the same extent, because, as he said, import restrictions are applied to a limited number or range of commodities. The danger is that though, no doubt, that would reduce the consumption of those particular commodities, it merely diverts the desire to consume on the part of the community to another range of commodities; and then it becomes necessary to put an import restriction on those. So, gradually, it is necessary to build up an immense machinery of control which cannot be, in our view, at any rate, in the interest of the free economy.
  Perhaps it is because, subconsciously, they know that fact that the noble Lord, Lord Pethick-Lawrence, and others who have spoken did not seem particularly

  287
  anxious to define their Party's policy when they were challenged yesterday. The noble Lord said that they had not got the information. Throughout the two days' debate—and it has lasted a good many hours—we have never had any definition of the official Labour policy, either from the noble Lord, Lord Pethick-Lawrence, or from the noble Lord, Lord Wilmot of Selmeston, who made such a slashing attack on the Government—or, indeed, from anybody else. There was no single policy proposed. That is surely rather odd. If the Opposition have all the facts and figures that are necessary to enable them to condemn the policy of the Government root and branch, is it not a little queer that none of the facts and figures should enable them to put forward some alternative to that policy?
  LORD PETHICK-LAWRENCE: With all due respect to the noble Marquess, I do not think that is quite fair. It is always understood that the Opposition can only put forward their proposals in general. We cannot put them forward in detail because we have not the figures. I was most careful to put forward proposals of quite a specific kind, though I could not tell the precise results.
  THE MARQUESS OF SALISBURY: I am not disputing that at all. I did not hear any proposals. I did not interrupt any other speeches and I hope that I may be allowed to continue uninterrupted, as the hour is rather late. Nor did I get any more light on Labour policy from the speech of the noble Viscount who leads the Opposition. I had been looking forward to that speech. As the obscurity continued through all of these speeches, I said to myself: "I must wait for the speech of the Leader of the Opposition. He will divulge this well-kept secret; he will let the cat out of the bag." Then, as his speech went on, I became more and more despondent. I am sure that that was the reaction of all of us.
  VISCOUNT ALEXANDER OF HILLSBOROUGH: The noble Marquess does not look despondent.
  THE MARQUESS OF SALISBURY: Gradually, I realised that there was nothing at all coming. There was the same attack on the Government. I grant the noble Viscount that at the end there was a very general reference to the possi-
  288
  bility of some physical controls; but nothing more. I can only conclude from this sad experience that either the noble Lords opposite have not been able to agree on a policy—and, of course, that is always a possibility—or, perhaps, they have agreed on one but they think it would be too unpopular for them to mention in public at the present time.
  VISCOUNT ALEXANDER OF HILLSBOROUGH: It has been mentioned all right.
  THE MARQUESS OF SALISBURY: I can only conclude that what they have in mind is a kind of petrified forest festooned with rules, regulations and controls, and possibly rations. At any rate, the complete silence of the Opposition Front Bench, as a Party, on an alternative policy—except, of course, for the cutting of the advertisements of the I.T.A. which was mentioned by the noble Lord, Lord Wilmot of Selmeston—is very odd. I could not help feeling that it slightly weakened the force of their attack.
  There have been, indeed, some positive suggestions in this debate. There was one which came from the noble Lord, Lord Grantchester, on the Liberal Benches, who proposed that we should drastically reduce the expenditure on defence. I am afraid that, in the present unhappy situation of the world, that is not likely to appear practicable to most noble Lords in this House. Then there were the constructive proposals put forward by the noble Lord, Lord Balfour of Inchrye, in the extremely interesting and, as I thought, important speech that he made, with regard to the replacement of imports from sources outside the sterling area by imports from inside the sterling area. I can assure him that I shall pass on everything he has said to the proper quarter, but for the moment I can only say that the more rapidly we can increase the productivity of the sterling area, and in particular the Commonwealth and Empire, the better I am sure it will be both for us and for the world in general.
  LORD WILMOT OF SELMESTON: The bank rate will not do it.
  THE MARQUESS OF SALISBURY: That does not prevent me from saying that it would be a very good thing to happen. At this point, I might also say a word in answer to a question which the

  289
  noble Lord, Lord Balfour of Inchrye, asked, whether I could give any assurances as to the economic arrangements which are to be made, or might be made, between this country and the Gold Coast when the Gold Coast obtains Dominion status. The answer is—and I am sure he will accept it—that these arrangements have not yet reached such a stage; but I can assure him that the point he has made is being borne very much in mind.
  Then the noble Lord, Lord Coleraine, who made a most courageous speech, not only put forward a powerful plea for economy but did what I have hardly heard anybody have the hardihood to do; he suggested where the economies might properly be made. First of all, he mentioned the Welfare State. He certainly will not expect me to say anything on so delicate a subject when I have had no notice of what was in his mind. The noble Lord also mentioned defence. As I understood him, he asked: Why did we make the hydrogen bomb? Why did we not leave it to other people? There I am afraid that I cannot agree with him. I believe that the hydrogen bomb to-day is the main, and perhaps the only, deterrent to world war. I do not think we could properly unload on to our Allies the whole of the burden of making this deterrent. Moreover, if we did, I believe that we should lose all control over foreign policy and, ultimately, all control over our destiny. I feel, therefore, that that is not a proposal which would commend itself either to the House or to the country. I hope the House will forgive this digression which I have made into these various points which have been raised by noble Lords who have spoken.
  Now I should like, if I may, to return to the main argument with regard to the chief speeches which have come from those who sit on the Front Opposition Bench. I have said that I regretted that there was no clear statement of the official policy of the Party opposite, but I must add that we have had the personal views of the noble Lord, Lord Pethick-Lawrence, and of a number of other Labour Peers. That, at any rate, is something. I would add this to what they have said. I do not suppose there is a single one of us who sits in any part of this House who likes the credit squeeze in itself. There are very few people who do not suffer, directly or indirectly, from
  290
  the result of it; but, as I see it, that is all the more reason for acting firmly, stopping inflation and getting back to normal as soon as possible.
  That brings me to one other step which the Government have taken, and that relates to the question of Government expenditure. If I remember aright, this was the subject of the main attacks which were made upon the Government when we had our last debate last November. We were told again and again at varying times, from all sides of the House, that the Government were asking everybody else but themselves to economise. I was therefore glad to hear the noble Lord, Lord Clitheroe, say that in his view that was at any rate not a reproach that could be levelled against us to-day. Indeed, the reductions that have been imposed on Government expenditure in the latest measures of the Chancellor of the Exchequer are severe——they might even be called savage. The estimates of the nationalised industries have been cut by £50 million. Capital expenditure in other spheres financed directly by the Government has been cut by £20 million. Expenditure on education has not been cut—it is too important for that, even in these times; but at any rate it has been slowed up.
  The grant of loan sanctions to local authorities and other capital schemes has been severely restrained. The bread subsidy and the milk subsidy have been about halved, with a saving of £38 million. That particular measure has been criticised to-day by more than one noble Lord, and the impression was given, I think by the noble Lord, Lord Wilmot of Selmeston, and also by the noble Viscount, Lord Alexander of Hillsborough, that it would inflict a severe hardship on all working people.
  LORD WILMOT OF SELMESTON: On the poorest.
  THE MARQUESS OF SALISBURY: On the poorest, on the poorer people. I hope that noble Lords will not seriously contend that it will inflict severe hardship on the ordinary working man and his family at his present rate of wages. A population who can spend £887 million on alcohol, £880 million on tobacco—those are both the latest figures—and £250 million on sweets—that is for a year back—are not going to be reduced

  291
  to penury, when spending on that scale, by an extra charge of £38 million a year on bread and milk.
  VISCOUNT ALEXANDER OF HILLSBOROUGH: May I just ask this question? If that is the Government's policy, the noble Marquess seems to prove, by his reference to the other commodities, that putting on taxation would never curb consumption. Nearly all these things are highly taxed now, yet consumption goes on and on. The Government seem to want to curb consumption now by putting a tax upon milk and bread.
  THE MARQUESS OF SALISBURY: Is not the difference really this: that on milk and bread there is actually a subsidy? The people who buy bread and milk were getting and, to some extent, are still getting, some subsidy from their fellow citizens, and that puts those commodities in a slightly different category from those to which the noble Viscount refers. The noble Viscount himself ought to realise that they are in a different category. If I may say so, I thought that a large part of the argument used by Lord Wilmot of Selmeston was founded on an illusion, since he gave the impression that during the years of the Conservative Government the cost of living had risen more than the purchasing power of the people. That is not true; his information is not correct. The fact is that during that period the purchasing power of wages has risen by 18 per cent. as compared with the cost of living. Those are the official figures.
  LORD WILMOT OF SELMESTON: I believe I did not really fall into that error. But there are large sections of the public whose purchasing power has not risen as high as the cost of living, and therefore they resent what the Government are doing.
  THE MARQUESS OF SALISBURY: If we come to the poorest of the poor, we have our wonderful social services, the best in the world, which are specially devised to deal with cases of that kind. The noble Lord, Lord Wilmot of Selmeston, said in his speech that he was not actuated by Party motives. I must congratulate him on his ingenuity in starting with a measure of strict impartiality: but he did, in fact, make far the most powerful
  292
  Party speech of anybody who has taken part in this debate.
  My Lords, lastly—and this is the last measure that I want to deal with—there were the measures of the Government with regard to hire-purchase. I am told that these have been criticised in certain quarters, although I do not think they have been in the last two days. I feel sure this House, at any rate, will agree that the Government have been absolutely right in the present situation in placing severe restrictions on an over-expansion of hire-purchase. After all, looked at in one way, hire-purchase is the most inflationary of all forms of trade; it is the opposite of thrift, for it means that those who indulge too freely in it not only put by nothing out of their present income but mortgage their future. Of course, I do not want to say that hire-purchase is always wrong; it can fulfil a most useful and valuable purpose. There are, as we all know, circumstances in which there is no other way open for those with small incomes to provide themselves with necessities—as when young married couples have to furnish their homes. For that sort of purpose, hire-purchase is of the utmost value. But it is certainly not a luxury which we can afford to indulge too freely at the present time, especially when, as the Chancellor said, practically everyone is employed and wages are higher than ever before.
  I am sorry to have kept the House so long but I am coming gradually to my final remarks. Those are about the measures which have been taken during the last few weeks by the Chancellor of the Exchequer. I have tried to describe the motives that led him to take them. Though, in some respects, they are different from those announced last October, the purpose underlying them is, as I have said, basically the same. They have a dual object: first, they seek to make it more difficult for the British people to buy on the inflated scale that lately they have been doing; and secondly, they aim at diverting the goods which the British people would have bought to the export market, to pay for those essential imports without which we cannot live.
  One would like to think that they will have one other long-term result, which I am sure would be agreeable to everybody in this House: namely, that they will help

  293
  to re-create in our people a spirit of saving. On this, I agree most profoundly with what was said both by the noble Lord, Lord Pethick-Lawrence, and by Lord Winster in the wise and moderate speech which the noble Lord delivered yesterday. Individual saving is surely the best of all antidotes to an inflationary spiral of the type which we are now experiencing, for it automatically sups up, if I may use that phrase, surplus spending power, without any action on the part of the Government, and yet it does not take away from the producer the wealth he has earned. It is there when he needs it, and in the meantime it is being used productively to increase the wealth of the country. Personally (though it may seem to some people old-fashioned) I do not believe that this country will ever really recover until people again begin to save.
  I know very well that saving is much less attractive than it used to be. Some sections of the population are so heavily taxed that they simply cannot save. That, I think, is the position of the greater part of the middle classes. And those sections which are better off than they used to be have not the same reasons for saving as they used to have. In the old days, to use an old phrase, they used to "put by for the rainy day;" but now, happily, under the Welfare State, I do not say there is no rain, but the rain is likely to be much less heavy than in former times. Moreover, there is, as Lord Winster said yesterday, another reason for the reluctance of the people to save: it is the fear that if they do save their savings will lose their value. That we all know to be true. We all know people who have been influenced by that particular consideration. But they are really their own worst enemies, because it is the very fact that they all rush in and spend that further depresses the value of the £, and in that way, as I see it, they themselves help to destroy the purchasing power, not only of the money that they save, but also of the money that they spend. No, my Lords, I am sure that that is not the way to preserve the value of the currency and to restore prosperity. In the long run, I am certain—and I am sure I represent the view of nearly everybody here—that individual saving is the only way in which the wealth of the country can be built up and the future secured.
  294
  I have tried this afternoon, at the end of this very long debate, to bring once more to your Lordships' minds the nature of the crisis with which we are faced and the measures which the Government are taking to deal with it. I am not going to pretend this afternoon that these measures are going to achieve the results for which they were introduced without temporary inconvenience, and indeed, without temporary sacrifices, by the people of this country. It would be foolish and unwise to suggest anything of the kind, for, after all, the object of the whole policy, as of all policies that aim at curbing inflation, is to induce people to do without something, even if it is something that they would very much like to have. That is the only way that one can reduce the pressure on goods and services which produces an inflationary spiral.
  Noble Lords on the other side of the House may fairly suggest that ours is not the best way to achieve that object. They may be inclined rather to favour alternative methods—methods of higher taxation and of more extensive centralised control. But even if the methods favoured by the Opposition were adopted, the result, I submit, must be largely the same: it must be to induce or compel people to buy less than they are buying now. That must be the purpose, and unless a policy—any policy, I do not care what it is—achieves it, it will fail to avert the dangers which are at present threatening the country. The value of money in terms of goods and the purchasing power of the £ in the markets of the world, will continue steadily to fall and there will be nothing before the country but misery. My Lords, here I agree with what was said by the noble Lord, Lord Beveridge: nothing that the Government can do will be entirely effective unless they have the willing co-operation of the people. I do not say that restraint cannot be imposed by force; I suppose in the ultimate event, it can. But I hope most profoundly that that will never happen here, for, if it did, it would mean that that system of free democracy, which has always been our greatest pride, would have failed.
  A free democracy is not an easy form of government. It is probably the most difficult to operate that has ever been devised by the mind of man; for it means a high degree of public duty on the part

  295
  of all sections of the community, and a willingness on the part of every individual citizen to subordinate his own interests, to some extent at any rate, to the interests of the community as a whole. Up to now, always, in peace and war, the British people have been ready to do this: they have always been ready to rise to the level of their responsibilities. Once they have realised the gravity of the situation they have never flinched from any measures which might be necessary to restore it. To-day, in my view, we are faced with just such another crisis in our history.
  To-day, as we all know, we are faced by many perils without and within our borders; but I believe profoundly, like the noble Lords, Lord Bruce of Melbourne and Lord Coleraine, that perhaps the most dangerous, and certainly the most insidious, of all is in the economic field. The noble Viscount, Lord Ridley, in the speech he delivered last night, reminded us that we are a trading country, and that is profoundly true. We live by trade, and unless we can trade and sell in the markets of the world we shall die as a great nation; and we shall richly deserve to die. There is in this country to-day much talk of what we ought to have, of the standard of life to which we are entitled. There is only one standard of life to which any country is entitled—the standard it makes for itself by the effort it puts forward by the sweat of its brow.
  As the noble Lord, Lord Conesford, said last night, that is the harsh reality we all have to face. If we wilfully ignore
  296
  facts, if we try to take out of industry more than is in it and put up the cost of production to a level at which foreign customers will not buy our products, and if, while doing that, we still expect the same standard of living as before: if we do all those foolish things then it will be the end of our reputation in the world on which our system of life depends. But if we face the facts, if we are prepared to exercise restraint and are ready to put by, not for a rainy but for a sunny day, then assuredly the sunny day will come.
  7.12 p.m.
  LORD PETHICK-LAWRENCE: My Lords, in rising to withdraw my Motion I want to say just this: I am quite sure that, on whatever side of the House we sit, we have tremendously enjoyed the badinage of the noble Marquess. The noble Marquess sends plenty of arrows in our direction, but they are not poisoned arrows and we do not resent them. The time will come when we shall pour arrows on his side, but for the moment I will content myself with withdrawing my Motion.
  Motion for Papers, by leave, withdrawn.

  SEXUAL OFFENCES BILL [H.L.]
  Reported from the Joint Committee on Consolidation Bills, with Amendments, and re-committed to a Committee of the Whole House.
  House adjourned at thirteen minutes past seven o'clock.