THE ECONOMIC SITUATION (Hansard, 8 March 1956)

HL Deb 08 March 1956 vol 196 cc262-96 262

§ 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.

283

§ 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.

286

§ 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.