THE ECONOMIC SITUATION

HL Deb 02 May 1956 vol 197 cc45-115

2.43 p.m.

LORD PETHICK-LAWRENCE rose to call attention to the economic situation; and to move for Papers. The noble Lord said: My Lords, a friend of mine recently asked her ten-year old grandson if he knew what was the meaning of a Budget. "Yes, certainly," he replied; "it is a law that they make in Parliament that makes the cost of everything go up." Sometimes these things are hidden from the wise and prudent and revealed unto babes. Only a day passed after the Chancellor of the Exchequer made his Budget Statement in another place and described it to the public in the evening before we found that the price of bread and tobacco had gone up and that the price of equities and gilt-edged on the Stock Exchange had increased. I never rate very highly the immediate reactions in the stock market, because so often they are reversed a little later on; but on this occasion this reaction certainly suggested to me that the City thought it saw the red light of disinflation turning to amber, and they expected that the green light would soon take its place.

Is this exactly the effect that the Chancellor of the Exchequer intended to produce? I should have thought not. It would seem to make nonsense of much of what he said in his speeches and of the atmosphere of crisis that prevailed when the Economic Survey was written. Has there been any real change since then, or since we had our last debate in this House on this subject? I personally see no signs of such a change, unless one is to count the small increase in the gold and dollar reserve, which is no doubt occasioned by seasonal causes, or the slight improvement in the sterling exchange which is probably the result of "hot" money. But the matter is so important that I think we are entitled to a direct answer from the Government with regard to it, for they alone are in a position to make a forecast of the financial weather ahead.

I will put my question as fairly as I can to the noble Earl who is to reply. What I am asking him is this: is there any evidence that inflation is being brought under control to such an extent as would justify any letting up of the most strenuous efforts to combat it? If, as I expect, the answer is an emphatic negative, then I contend that the Budget falls a long way short of being the powerful engine that it ought to have been for restoring our financial stability. That is not to say that it has no good features, which I shall not fail to mention in due course; but, taken as a whole, it is a thing of bits and pieces. It makes me think of the wares of Autolycus—no one article on the whole tray has any great intrinsic value, and none is sturdy enough to make much dint on our economy. The relief given to the self-employed in the matter of savings in pensions will be popular; the increased taxes on companies and on smokers will be unpopular. But in so far as they promote disinflation, which I cannot imagine will be very much, they deserve to be supported, especially if they are "trimmed up" a bit in the passage of the Bill through another place.

My Lords, when I opened the economic debate here in March last I urged the Chancellor of the Exchequer to take steps to promote individual saving and to supplement that by budgeting for a larger surplus above the line. I therefore welcome the fact that he has come to the same conclusion and has himself taken some steps to put both those suggestions into practice. Of course, the important thing is to attract new money. The mere transfer from existing Government securities into the newly created issues will be of no value, and I gladly repeat the assurances that were given by the leaders of my Party in another place, that any campaign which encourages our people to save money and to invest it, instead of expending it on consumer goods, will have our support. This, however, does not commit us to taking sides in the controversial question of the "Macmillan flutter". On that matter, all I will say now is that it seems to me a rather undignified expedient for a British Chancellor of the Exchequer to adopt.

I turn to the question of the below-the-line items in the Budget. By successive stages the late Chancellor pushed the local authorities into the market for their borrowings. The effect of this step on the finances of the country as a whole is to substitute a number of individual municipal stocks for the nationally sponsored issues of local loans. It makes the Budget look better on paper; it makes local authorities worse off in practice. But otherwise it makes precious little difference to the facts of the financial situation.

The Present Chancellor of the Exchequer now brings the nationalised industries into the budgetary picture. This means that, whereas they initially borrowed from the banks, and subsequently floated loans on the market with a Treasury guarantee, they will now be supported throughout by the Treasury, who will have to increase the volume of Treasury Bills to find the money. If the procedure came to a stop there, it would have an inflationary result, as I shall show later; but I imagine that it will not stop there. The Treasury will float new loans on the market from time to time to reduce the amount of the Bills. There will then be no great difference between the previous position and that of to-day; but so far as it is a little nearer to the facts on paper, I welcome the change. We never get the whole picture, of course, until we bring in all the other borrowings which are not done through the Treasury or the special Government institutions—borrowings on be- half of industries, of whatever kind. We cannot expect to get that information in the Budget and shall have always to wait for the Economic Survey.

I turn now to the announcement by the Chancellor of the Exchequer that he is aiming at a retrenchment of Government expenditure in the current year of about £100 million. I confess that I find this somewhat confusing. It is a commonplace with those who know anything of our financial arrangements in this country that whereas the Prime Minister and the Chancellor of the Exchequer of the day ought to be constantly struggling to do away with departmental waste, sums such as £100 million cannot possibly be saved without alterations in policy. I am satisfied that that view is entirely correct, in spite of the fact that there is a section of the Conservative Party which holds it to be entirely wrong. What then is Mr. Macmillan really proposing? Of course it is easy to call every shortfall in expenditure a saving, and to take a Supplementary Estimate for every addition—but I will not impute such an intention to the Chancellor of the Exchequer. I presume that he is really going to make policy changes which will be revealed, one by one, as they are decided upon. If that is what he means to do, then we cannot possibly form a judgment on whether his cuts are wise and good, or the reverse, until we know precisely what they are in each individual case.

So far, I have been dealing with things that are strictly within the four corners of the Budget itself. I have yet to deal with the other matters, most of them of paramount importance, which lie outside the Budget proper; before I do so I would say this to the present Chancellor of the Exchequer: whilst I do not believe his budgetary programme adds up to very much, he does seem to me to have profited from the mistakes of his predecessor. By this I mean that he realises that dear money cannot be the sole, perhaps not even the main, disinflationary weapon to be employed in the present situation. I know that I have often addressed your Lordships on this question of dear money, and I have no intention whatever of wearying your Lordships with a repetition of what I have said before. I will therefore content myself with the remark that from recent articles in the Press and in the bank magazines it would appear that the climate of banking opinion is changing. The view is emerging that neither the bank rate nor open market transactions by the Bank of England have the same potency to-day as they had in the nineteenth century. This is attributable to the huge volume of the floating debt, mainly in the form of Treasury Bills, which act as a cushion, preventing the contraction of credit which it was the object of old-fashioned monetary weapons to bring about. I commend this view to your Lordships.

I come now to the main question of the cause and cure of the present inflation. Thinking the matter over, I have come to the conclusion that there is something of the old Adam in most of us, so that we are all fond of putting the blame upon someone else. In particular, there is a widespread view held by the upper and middle classes to-day that it is the fault of the working man, and that if only he would not make such exorbitant claims for higher wages, and enforce them by threats of paralysing strikes, all would be well. The worker may or may not be wrong to do this—it all depends upon our philosophy of life. If we accept the view that everyone is entitled to make as much money as he can, and is entitled to use his economic power to the full for his own personal advantage, then I believe that the worker has a very strong case. In the first place, he can point out with proof that in the nineteenth century, when the balance of economic power rested with the employing classes, the manual worker was treated with savage inhumanity. In the second place, in the 'twenties and thirties of the present century he was allowed to be crushed by the deflation. To-day, when the balance of economic power has shifted in his favour, he asks why should he not take full advantage of it.

What is the answer? If we are to persuade him to abate his claims we shall have to do a great deal more than tell him that to do so is in the national interest. He will have to be convinced, as he is not at present, that we are at least restraining equally wasteful extravagance in other sections of the community. The working man is much better informed to-day than he was in days gone by, and he knows a great deal more about what is happening in circles of society other than his own. I have always been a great admirer of the British people for the honest way they paid their taxes. I sat for ten years in the House of Commons, covering the period of the last world war, and never remember a single instance when a Member of Parliament tried, at the instigation of his constituents, to reduce the burden which the Chancellor of the Exchequer sought to impose on the people. Many noble Lords were with me there in those days, and they will bear me out when I say that. In this we were a shining example to other nations where a different spirit prevailed.

But I regret to say that there has been a falling off in rectitude in recent years. I realise, of course, that the impositions on large incomes and on large estates are very heavy. I am willing to believe that the actual infringements of the letter of the law are comparatively few. Nevertheless, I am satisfied that there are substantial leakages through what is euphemistically described as "tax avoidance" and that these leakages are on the increase. The tax which it is principally sought to a void is surtax, arid it is becoming a commonplace among accountants that when the income concerned is derived from investment it is generally possible to reduce the payment considerably by manipulation of securities. I read in an economic journal a few days ago a statement to the effect that a lawyer had definitely stated that in such cases payment of surtax is becoming voluntary. That may be an exaggeration, but there is a certain element of truth, at any rate, in it. Of course, earned income cannot obtain a similar relief. But in that case the improper enlargement of the item known as "expenses" may be used to cover extravagant entertainment charges, and so escape both income tax and surtax. Finally, there is much abuse of the right to treat unlimited advertisement costs as a trade expense.

There is no need for me to elaborate these things. To a large extent they must be matters of common knowledge to most of your Lordships. I should, however, like to emphasise this fact; that if a given amount of revenue has to be raised, every pound that is improperly withheld in one of the ways that I have described is a pound which some other taxpayer will have to put his hand in his pocket and find, if he is paying honourably his full taxation. What I ask the Government and the Chancellor of the Exchequer to do is to face up to the full significance of these facts of which the Financial Secretary in another place has admitted that they have some tangible evidence.

I know that in the Finance Bill that will come before us in due course—it has not really been discussed so far in another place—there are one or two clauses that touch on some aspects of this question. But they go only a very little way. I am asking for something much more than that. I should be glad if the noble Earl, Lord Selkirk, who is to reply to the debate to-day, or perhaps the noble Earl, Lord Munster, who is going to reply after the continuation of the debate on Tuesday (I think he will be winding up for the Government) could assure us that a careful study of these facts is being made in the Treasury, and that if they prove to be what I have described, some really substantial and drastic action will be taken at an early date. Personally, I have always thought that if heavy taxation has to be imposed on the owners of great wealth, surtax was the most efficient way of doing it. But if it is now found that surtax has holes in it which are incapable of repair, other means of effecting the same end will have to be found. I see that suggestions are being made of various other means of taxation—such as a capital gains tax, or expenditure tax. Frankly, I have not studied these proposals, and I do not know in the least whether they would be practicable or, if practicable, whether they would be satisfactory. But I do know that the community will not suffer itself to be thwarted in giving effect to the measures which are the law of the land.

For my part, my Lords, I do not believe that we shall find any one simple and palatable remedy which will stave off the malady of inflation. I do not believe that it can be cured by dear money alone, by taxation alone, by personal appeal alone, and certainly not by the false doctrine that everyone should pursue his own personal advantage at whatever cost to others or to the community at large. Resolute action applied impartially by the Government is an essential prerequisite. Inspiration must be given by men and women of good will in all Parties and in all ranks of life. But only the people as a whole can make the sustained response which will win through to victory. My Lords, I beg to move for Papers.

3.8 p.m.

LORD REA

My Lords, the wording of this Motion calling attention to the present economic situation, while conventional in form, rather postulates an impossible task which, however, never daunts the lion-hearted noble Lord, Lord Pethick-Lawrence. I think we shall all join with him in his opening remarks and in praying that the red light of inflation will progress to the green light of deflation and will not remain for ever amber. It is right that we should have a debate like this and we are once more indebted to the noble Lord for seeking again this afternoon to focus 100 per cent. of your Lordships' concentration—if indeed such a percentage exists—upon a problem which it is, admittedly, beyond the human mind to grasp.

At the same time, we are all agreed that the economic situation demands the constant and meticulous attention of both Houses of Parliament; for it is still regrettably far removed from the happy circumstances when, if I may say so, notably under a Liberal Government, it could virtually be left to take care of itself; and the more it was unhampered by restrictive guidances, the more it seemed to prosper and flourish. It is, of course, the transition from the ancient mediæval political principle of national self-sufficiency to the later necessity of inter-State co-existence and interdependence that has brought about the need for regulating, in such unwelcome detail, the natural laws of supply and demand. Indeed, the complexities of international competition are being matched to-day more and more by the parallel complexities involved in international co-operation. We are, I submit, and hope, approaching a state where competition, in the sense of antagonism and rivalry between nations, will become a hindrance to national as well as to international progress and where prosperity will depend not merely on current peace but also on real and lasting good will.

With this prospect in view, it is plain that in the economic field we must lay our plans with completely new and increasing anticipation of future trends; with much less emphasis on extemporising for the present, and with the relegation of the old economic machinery and conventional prototypes to history and to the museums. I put the importance of these three principles in that order—future, present and past. But because of the overwhelming amount of detail which Government Departments have to deal with, and deal with quickly, and because they have to assess and co-ordinate all their work with the minimum delay, it is not surprising, though it is regrettable, that Ministers are guided and advised, it seems, on the basis, first, of immediacy and expediency, or, when that fails, of precedent and custom, and only too seldom with a convincingly broad anticipation of what the future may bring. Of course I am not criticising our excellent Civil Service, which has IRA the function of creation—that function belongs to the Ministers, under the pressure of Parliament and of the electorate; and it is therefore disappointing and frustrating When an able Ministry produces, as it has just done, a rather pedestrian and uninspiring Budget whose only highlight is received by the public, on the one hand, with some little amusement and, on the other, with indignation.

After all the warnings and exhortations which we have received, and which have successfully induced in us all a willingness to face some unusually stringent form of self-sacrifice until the dangers of to-day's inflation are brought under control, it is a stinging anti-climax to be presented with such an anæmic syllabus. We see parsimonious neglect of such really deserving causes as the increasing difficulty facing old people, particularly old age pensioners; of the cultural field, with its moral and international values, especially as disseminated by the theatre; and particularly of that tragic and unvocal class of people with small fixed incomes, grimly facing, at the present rate of decline of purchasing power, either starvation or very cold charity. We see also a reprehensible and shortsighted policy of throwing away the established source of our best university material through an ill-thought-out scholarship means test. And we see the middle classes, abandoned by both of the big political Parties, bearing more and more of the burden shared by others who are more capable of bearing it than they are.

On the other hand, the Government fail to follow up some quite simple and easily followed leads given to us in other countries—on the Continent, in particular!where, for instance, a bicycle tax is found to be both reasonable arid profitable without injury to the manufacturer or harm to the owner. Nor should it be difficult to collect a 10 per cent. tax on hotel and restaurant meals costing more than £I a head and on every bottle of wine going with these meals costing over 30s. a bottle. These figures may sound comparatively high, but I think noble Lords will agree that nowadays they are not unusual. The payer of that tax would hardly notice he was paying it, and because he would hardly notice it, it would be a good tax. But instead of giving us a row to hoe, we are given warnings and sermons and exhortations, and we have the uninspiring spectacle of the Government, neglecting the country's readiness to accept some constructive hardship, going through all the motions of Olympian labour merely to produce a mixed family of mice and red herrings, with an occasional hare thrown in. Successive Chancellors of the Exchequer make no noticeable splash, except the over-familiar splash caused by drearily and repeatedly piling Pelion slap into Charybdis.

A Budget, however, is no more than a symptom of how a current Government view the current economic situation both at home and abroad. We in this quarter of your Lordships' House feel that the Government have lost sight of, or failed fully to recognise, the two outstanding and basic hindrances to economic progress in both these fields. In both cases there are, as I have said, first the fearful preoccupation with the present, handled in terms of the past or of extemporisation, and secondly, the failure to take a risk for the future: failure to cast one's bread upon the waters in confidence that in this modern world success will follow only the type of broad boldness which characterised the adventurers of a previous Elizabethan Age. At home, the one thing we obviously need is more productivity, and the one thing which is retarding that more than anything else is the still unsatisfactory state of industrial relationships, not only between employers and the employed but often between one employer and another and between various categories of workers.

In regard to employers, the Government are taking very welcome steps in a new Bill—the Monopolies Bill—to get over the difficulties which have reacted seriously and very wrongly on the nation's trade, but in regard to the workers, no parallel measure seems to be in view. The structure of the labour market is protected and guided by an organisation—the trade union movement—which we on this side of the House look upon as a very fine and admirable development in the modern political world. It has brought the workers into a position of power which they ought to have. It is led by men more often than not of high intelligence and calibre, and it is an excellent example to all other countries of a constructive and protective democratic institution. We on these Liberal Benches have taken pride in helping to foster its beginnings and we continue to support and defend its continuance and its aim. Indeed, we value within our own Party the contribution of the Association of Liberal Trade Unionists, who, unfortunately, like millions of other Liberals, are sadly underrepresented in Parliament.

But this trade union structure, which is now an immensely important part of the nation's life, and which can make or mar our national economic prosperity, has not been reviewed or examined, except from within, for far too long. The Conservative Party and the Labour Party seem to be completely silent on this matter. I suggest that it is the Liberal Party alone which presses for an immediate inquiry into the workings of trade unions and trade unionists. We are fully aware, of course, that this demand will be unpopular with the political and Parliamentary leaders of both the other big Parties, but we are equally aware that our demand is welcomed by masses of people in this country who are convinced that the present working of trade unionism can, and in some instances—often very important instances—does, impinge with injustice or hardship on all three of the elements concerned: the employers, whose efficiency can improperly be restricted; the worker himself, who we all know can be, and has been, victimised by harsh rulings from his own union; and last, but not least, the vast mass of the public, the consumers—the middle classes, in particular—who, whether they be employers or workers, or neither, are continually held to ransom by the dictates of this great organisation which exists for the public good but which occasionally works for a minority at the expense of the majority.

I repeat that we wholeheartedly support this great machine; but if only for the sake of the occasional trade unionist, not greatly interested in politics perhaps, who does from time to time get a raw deal, we ask that an inquiry be set up to bring this historic movement up to date: not to damage it; not to weaken it or to clip its wings; but to ensure that it shall achieve its true function in the world of to-day; the safeguarding of the worker and his position throughout the nation and in the interests of the nation. The only valid objection that I can see to this inquiry is that the trade union movement is so perfect, or so nearly perfect, that it is incapable of improvement. But do the Labour Party really think that this is so? Or are they perhaps afraid of losing votes if they tamper with an institution which sometimes affords an unfair political advantage? The right to strike is not an unfair political advantage; that is a perfectly legitimate political weapon. But the power to render a man workless and homeless because he cannot conscientiously conform to the political ideas of a small handful of his colleagues—the policy-making handful—is that a fair political advantage?

THE MARQUESS OF SALISBURY

I should like to ask the noble Lord one question. He said that the right to strike was a quite legitimate political weapon. I think he meant to say an industrial weapon.

LORD REA

I beg your Lordships' pardon; I should have said industrial weapon. Do the Conservative Party think that the trade union system is perfect? Or do they, also, rather fear losing some votes from the working class if, in the interests of pure justice, they seek to improve some of the anomalies which surely must have arisen in a movement founded ninety years ago and which, despite its unlimited influence on the nation, is still autonomous? If my remarks are interpreted as an attack on the trade union movement, then that criticism will be unfounded, because we support that movement with sincerity and good will. But, like many others, we are not convinced that by its present operation in all its present conventions the worker or the consumer is getting quite as good a deal as he might, either in short-term detail or in the long-term economic view. For that reason, I urge a review and an immediate inquiry, for the good of the whole nation, into the workings of the trade union movement.

In the light of the circumstances of to-day, the economic picture overseas is such a big one that I shall touch upon it in only two respects: one of broad principle and one of comparatively small detail. The broad principle is one which your Lordships will not be surprised to hear from these Benches: the principle once more of casting one's bread upon the waters; of making it easier for foreign nations to trade with us, in order that we may in consequence find it easier to increase our export trade to them. It is significant, I think, that since the war we have heard increasingly and all over the world a call for a reduction in trade barriers; that there must be bilateral and multilateral agreements not to raise further the economic obstacles to the free movement of goods. There seems to be arising a sort of universal acknowledgement that a world of watertight compartments is now an unworkable anachronism. In the changing values of English words and the English language I do not think that that particular theory has a name, unless it is perhaps in reverse what used to be called "Tariff Reform"!because these tariffs do need reform, if not abolition. In my younger clays I think that economic theory used to be called "Free Trade," but I would not seek to embarrass any Government with old Party labels; I would only urge them to go right ahead in loosening up all the archaic drags upon international interchange of goods, people, culture and good will.

This brings me to my final point, which is in the nature of a suggestion on one specific aspect of international reciprocity. I refer to the great need for the easier movement of men and women, and children, too, between this country arid other countries. It is recognised in the business world and in the academic world, and now more than ever before in the political world, that human contact with other nationals is most valuable and probably pays a very good dividend. Foreign travel is no longer the monopoly of the privileged few. The tourist trade, as your Lordships know, is now a vast industry, and it has conic most acceptably and admirably within the orbit of the "little man" and within his financial capacity. Even since 1950 the number of British people going to the Continent has risen from approximately 900,000 to what I am informed may this year be about 2 million and the amount per head spent on those ha days averages something between £40 and £45. I am convinced that this flow of British people to other countries, and, presumably, the resultant stimulus it gives to traffic in the reverse direction, is a most excellent and desirable thing to be encouraged in every way. But, my Lords. there is a sort of shadow hanging over the development of this business, in the form of the limitation of travel allowance money and all the complications and apprehensions which that brings with it. So I am going to ask Her Majesty's Government now to abolish forthwith this restrictive and, I think now, unrealistic form of control over the free movement of British citizens in their legitimate desire to travel.

It may be argued that since the annual allowance is £100 per head there is not really much hardship to the average traveller who, as I have said, spends £45 on average in each year. But there is something incongruous and irritating, and I think unpleasant, for a man of modest means, who has perhaps saved up £40 or £50 to take his small family for a cheap holiday, perhaps in the North of France, to be told that he must beware of spending more than £300 or £400 (which he has no intention of spending) and that he must fill up numerous forms, have his passport endorsed and go through a variety of irritations both before and during his journey out and on the way home again. The prospect of such difficulties is bound to discourage the uninitiated and is bound to be a brake upon any small potential ambassadors of good will.

At the other end of the scale there are those who wish, for reasons which may be neither extravagant nor self-indulgent, to exceed the limit of £100; and amongst the hardest hit in this respect are those who go to the dollar area, where expenses are particularly high, and those who, for some perfectly good reason, may have to go abroad from this country more than once during the year. The fact that the average expenditure is only £45 per head is, I suggest, adequate proof that this "£100-plus" category, if I may so call them, are few in number; and, therefore, it can hardly be argued that the total expenditure would be likely to show a large increase over the present figure if the travel allowance were removed. But though these "£100-plus" people are few in number, they contain a very valuable element of ambassadorship. They are the people—many of them—who mix with and talk to and are entertained by their foreign counterparts; and the humiliation of being unable to return casual hospitality, or of continually being seen to choose the cheapest dishes, the cheapest excursions, and forgoing a cup of coffee from cheeseparing necessity, seems to me to be definitely damaging to our national prestige and to the self-confidence and dignity of our fellow citizens. Of course, this is particularly galling when other nationals, including notably those who are commonly thought to have lost the war, are either in possession of a far larger allowance, or even have no restrictions at all.

Even the extra allowance for business travel is utterly and embarrassingly inadequate, and industrialists who go searching for foreign custom must often wonder whether their efforts are as important as the Chancellor of the Exchequer says they are, for they are sadly hampered by the indigent impression which they make. There is, of course, the big financial operator dealing in large sums in the black market, or by some evasion of the existing regulations, and I do not propose that he be freed from Treasury control by the abolition of the travel allowance. It is not beyond the power of our experts to devise some regulation which will keep him in order without penalising the freedom of ordinary people's normal personal expenditure; and, with this small reservation, it would seem that any objection based on the difficulties of the international Balance of Payments Fund would not be a substantial one.

I submit also that the machinery needed to maintain the restrictive fetters of individual liberty must be not only expensive but typical of the wasteful sort of departmental red tape which this Government have undertaken to eradicate. I do not know the number of people employed in printing, issuing, adjudging, stamping and recording documents in duplicate or triplicate—or worse; but apart from the 2 million unfortunate travellers who are thus imposed upon I imagine there must be thousands of clerical workers engaged on this, as I would think. useless work in the Foreign Office, the Treasury, the Bank of England, the Customs Service, and the Exchange Control, not to mention hundreds, or even thousands, of employees of banks and travel agencies throughout the length and breadth of the Kingdom. I therefore urge that, in the interests of national economy, and particularly of international reciprocity and prosperity, the travel allowance should be abolished at once, so that 1956 can start a period of much freer movement, much greater confidence, and a little more national dignity.

3.32 p.m.

VISCOUNT HAILSHAM

My Lords, my contemporaries, of whom I am glad to see quite a number in this House now, have always told me that I ought to leave economics alone because, they allege, I know nothing whatever about them. This harsh judgment I have never been able wholly to accept. On the other hand, on this particular occasion I would not seek to avoid the severity of the sentence. except for my desire to say a word about what was undoubtedly the most widely publicised, if not perhaps the most economically important, of the Chancellor's proposals in the Budget. I doubt whether I should have thought it right to say anything about it were it not for the extent to which I was filled with dismay by the intervention last week of the most reverend Primate on the subject of premium bonds—a dismay which I felt not only for the occasion which he chose, which rendered it virtually impossible for anyone who did not hold in contempt the Rules of Order to give him any kind of adequate answer, but also for the matter which he included in his speech by way of argument.

I feel that I should be less than courteous to the two eminent speakers who have so far addressed your Lordships if, before I approach that theme. I did not address a word to each of their two interesting speeches. If I may say so, I thought the noble Lord who spoke from the Liberal Benches was unduly contemptuous of the Budget because, to my mind, he confused the importance of the Budget with the number of important changes in taxation which that Budget contained. There are not many important changes in the present Budget, but it does not follow from that that it is nothing but a collection of mice. In some ways I rather wish it were. But a Budget which raises £5,000 million of taxation from a country which has been burdened for years with economic difficulties can never be anything else but a labour of Hercules; not the apocryphal labour!-did I understand the noble Lord aright?—of putting Pelion into Charybdis, but one of the real up-to-date labours of Hercules. When, in addition to the £5,000 million to be raised by taxation, the Chancellor deliberately budgets for a surplus of £445 million !rather more than half the pre-war Budget—by way of sheer extraction from the taxpayers' pockets, in order to achieve disinflation, I can only say that the fact that this can be accepted with some degree of equanimity by both sides of this House is a great tribute to the public spirit of the British people and its political Parties.

May I say a word by way of respectful admiration to the noble Lord who introduced this debate? I always feel for him peculiar feelings of veneration, because my father always told me that they sat next to each other in Division at Eton. The thought of those spendid Titans in their heroic youth learning side by side has always filled me with great wonder. I have sometimes, in my less respectful moments, wondered who cribbed from whom and who gained. But if the noble Lord will allow me to say so, I never listen without gaining a great deal from the right balance and maturity with which he expresses economic views to your Lordships' House. While it would be too much to expect a Conservative to agree with everything the noble Lord says, I do not think one ever fails to learn and be enriched by it. There was one sentiment which he let fall with which I think every Conservative would agree —namely, that economic integrity can be obtained only by a sense of dedication on the part of all elements in the community, and that the habit into which people are sometimes apt to fall of devising ingenious methods whereby other people shall share a greater part of the burden is lo be deprecated in all quarters of society.

Before I turn to what I have promised to be my real theme, I should like to say that I am hoping for the day—with what chance of success I know not—when the Chancellor of the Exchequer will find it possible to distribute a little part of the surplus for which he is budgeting this year. To my mind, the individual allowances of income tax have now ceased to bear much relation to reality in view of the depreciation in the value of money. I hope that, before this Parliament comes to an end, the Chancellor may find it possible to revise his system of taxation by easing the burden on all classes by bringing those allowances back into relation with reality.

When we see in operation a system of full employment in which the balance of payments cannot be achieved, or achieved with security, to my mind it falls as an inescapable conclusion that we are spending—as I think is often said—too much on our home consumption and too little on our export trade, since the capacity of our factories is at the moment running at its maximum. I was therefore particularly glad to see that the Russian visit had resulted in some prospect of an advance in trade between the two countries. During the Korean war there was every justification for the kind of restriction we had to impose upon trade with the Communist countries; but now that there seems a real prospect of, at any rate, an indefinite period of peace ahead of us, we should, I think, develop that trade to the maximum extent. I believe that the development of that trade will not only assist our economic difficulties, but will also give an additional guarantee of peaceful co-operation between the two sides in which mankind find themselves divided.

I now propose to say a word—I am glad to see that there are two right reverend Prelates here to hear what I have to say—on the subject of premium bonds. Bishops are always talking to us about politics, and we welcome the freshness and vigour with which they express their opinions. But perhaps they will sometimes forgive the man in the pew!and that I certainly am, because I go to church. Sunday by Sunday, unworthy as I may be—saying a word or two to the Bishops about the leadership which they give the Churches in matters which ought to be within their province. Perhaps they will gain from our freshness and sometimes our brashness of expression. When, in the sixteenth century, we cast off the jurisdiction of the Papal authority we did so on the basis, if they will forgive me for saying so, that Holy Scripture contained all that was generally necessary to salvation. We did not do so in order to sot up a number of Popes all over the country, designing to add to the Holy Scripture new prohibitions and maledictions and greater burdens than even our fathers were able to bear.

There has always been, my Lords, a lunatic fringe in the religious world which has thought to improve upon the Ten Commandments. I do not know how many they would add. There are some people who would say that there are at least twelve, adding to the original war establishment: "Thou shalt not bet" and "Thou shalt not drink." They are not to be found in the twentieth chapter of Exodus. What is to be found is an express prohibition in the fourth chapter of Deuteronomy against adding to the prohibitions imposed by the authority of the Divine command. Neither betting nor gambling nor drinking can decently be treated in the same way as adultery. To do him justice, the Archbishop was perfectly frank about this. My complaint against him is that he gave aid and comfort to those who would deal with the matter in this way and who are perpetually talking to us as if a glass of beer or a "flutter" in some form of gambling (in which, I may add, I never indulge, because I should always lose if I did), was to be treated as something expressly prohibited by the Divine command. It is not. The violent indignation which was excited in some quarters by the suggestion of premium bonds can be attributed only to this kind of false doctrine, directly contrary to what can be found in the Bible, that drinking and betting should be prohibited and are on the same basis as the major sins.

Now, my Lords, I was particularly struck with what my noble friend Lord Halifax said the other day: betting is evil from the moral point of view only to the extent that it encourages people to spend more than they can afford and thus deprive their families of the means of support; or, alternatively, only in proportion as it leads some people to attach too great a value to money. The latter ground, too, is a purely moral evil, and, as such, I should have said, with respect, that the Legislature had nothing whatever to do with it. I was reading only the other day the essay of Mill on Liberty in which exactly this kind of point was made. If it is the former evil with which we must deal, we must, I think, bear in mind what kind of evil it is that we are trying to define. I should have said myself, in contradistinction to the unco' guid, that the way in which to discourage gambling or, for that matter, drinking, is to get rid of the social evils which have given rise to them. In the main they become a social evil largely because of poverty, and that is why in this period of the twentieth century, although their incidence may have increased—of that I have no evidence—they are much less of a social evil than they were in the nineteenth century: and social legislation is a much better answer to betting and gambling than this perpetual preaching against them as if they were a major sin.

I wish to fit this consideration into the effect of the particular proposal which is now under discussion. I am not in the least interested in the jejune, pedantic and legalistic argument as to whether a premium bond is a lottery or not—that seems to be a boring and irrelevant discussion. The question is whether and to what extent it will be productive of social good and discouraging of social evil. To my mind that question, properly posed, can yield only one answer, and that is this: if gambling is a social evil at the present day only (i) because it leads people to spend more than they should upon gambling so as to deprive their families of support, or (ii)—and I should concede this at once—because the encouragement of a big gambling industry diverts economic effort at a time when we can ill afford it from the forces of production and really valuable activity, then the introduction of a premium bond can do nothing but good. It is aimed at syphoning off money which would otherwise go into gambling into a form of saving by the attraction, similar in character to gambling but opposite in effect, of a chance gain in place of a regular rate of interest. If it takes money out of pools and away from racecourses and puts it into savings it will divert the money from an uneconomic activity into an economic activity; and by providing that in no case will a loss be possible it will prevent the gambler from depriving his wife and children of the means of support.

I do wish our Bishops—I really wish our Bishops—in dealing with the moral evil would allow themselves to face these serious intellectual points about gambling before bursting into print and into song full of admonition of Governments on political issues, and then expecting their laymen to applaud heartily. The truth is that this is not leadership, it is a bad example; and it is a bad example on precisely the kind of thing upon which we look to our Bishops for protection and support. We want to be protected against heretical views of sin; we want to be protected against the constant imposition of false and imaginary burdens upon our consciences, and we want, on the whole, to face the serious economic and political issues without the introduction of false religious and irrelevant doctrinal considerations.

When I turn to the political critics, who have tried to exploit this religious confusion which I can only attribute to a confusion of mind, I am bound to say that I feel even more strongly about the matter. In another place, a prominent spokesman for the Party opposite described the premium bond as a "squalid raffle". I suppose in the ordinary run of political vituperation that is not unduly excessive language, but I must say that researching into the Manchester Guardian of about a year back I was somewhat surprised to learn that in order to raise additional funds for the Labour Party, the National Union of Labour Organisers in 1954 devised a scheme for operating a Party football pool, to run in competition with the commercial pools. A company was registered in August, 1954, under the title of Clarion Services Limited, and weekly coupons were distributed from September 11 onwards. A deduction is made from the total money staked by competitors as a grant to Party funds. Two hundred constituency Labour parties were reported to be participating, and in January, 1955, it was further reported that the pool earned £1,000 profit for the Party in the first eight weeks, a second £1,000 in the next six weeks, and at that date the rate of earning was increasing rapidly. Moreover, according to the Manchester Guardian, one of the Labour Party newspapers said it could, in the end, reasonably hope to raise £500,000 a year!roughly equivalent to the Party's total revenue in 1953. If premium bonds are a "squalid raffle", the attempt by a political Party to arouse false bigotry in order to achieve political advantage is nothing but squalid hypocrisy.

3.50 p.m.

LORD LUCAS OF CHILWORTH

My Lords, I hope the noble Viscount who has just sat down, having delivered himself of a typical Lord Hailsham speech, which we have all enjoyed immensely, will forgive me if I address myself on this occasion to something which I consider, and I hope your Lordships will consider, is of slightly more moment and comes within the ambit of the Motion moved by my noble friend: how we in this Country in the future are going to earn our daily bread. I take that to be the main and focal point of Her Majesty's Government's fiscal policy since they have been in power. I have understood that the main object which confronts us is to increase our export trade, and so bring into balance the exports which we send from this country and the imports which we have, perforce, to import. In addressing myself to this problem, I intend to ask some stern questions and, for my part, I hope to give what I consider to be at least some honest answers. Therefore, at the very outset I wish to take sole responsibility for the opinions I express: they may commend themselves to some of your Lordships on both sides of the House, but I dare not hope that they will be received with commendation from everybody.

The first question that I should like to ask Her Majesty's Government is by what process of reasoning or deduction they think that in 1956 we can export from this country sufficient goods to match the imports that we seem to import from the rest of the world. In my living memory we have never achieved that before. Never in the history of this country have we achieved a balance between physical imports and exports. Why do we expect to do it now, when conditions are entirely different from what they were before the war, when we have rampant throughout this world a spirit of nationalism, when every country is striving to be self-sufficient, when we see countries like Japan, Western Germany and others, with their technology so increased that they are far greater competitors in this export world than they were before the war?

I have in my pocket a small straw which shows the way the wind is blowing. I have here a lighter, a perfectly good one; it never fails to work. It is sold in the United States of America and Canada for 20 cents—I s. 8d. It is "made in Japan". This one, which was given me, bears the hallmark of a well-known beer that is sold in Canada. Similar lighters are given away by the thousand. It is a perfectly good lighter, a copy of a well-known British lighter, the Ronson; it cost 1s. 8d. and it never fails to work. That is a slight straw showing the competition that we have to face.

I spent the winter in California, a country that God Almighty has blessed with the most perfect climate and with a people who are the kindest and most hospitable I have ever met. I was afforded the opportunity of studying at first hand the dollar market qua exports. I had the opportunity of discussing this matter with bankers and industrialists in California, and I came to the conclusion that to make any worthwhile impact on the dollar export market is an impossibility. That is a serious thing to say. May I make one thing perfectly clear to your Lordships? I was on the West coast of America, not on the East coast, but there is one thing that I would warn your Lordships about, for it is going to become one of the greatest social problems that America will have to face—that is, the gigantic drift from the East to the West. Already, when I was in Los Angeles, a colony of 4 million people, the population of Los Angeles county was growing at the rate of 40,000 a month. The prosperity in California needs to be experienced to be believed.

Discussing this matter with some of the biggest industrialists there, listening to what they had to say publicly, and even taking into consideration, as one always has to do, the fact that 1956 is a Presidential year in America, I came to the conclusion that there are all too many industrialists of high rank in America who had quite persuaded themselves— and, unfortunately, had succeeded in persuading many other people—that the American prosperity and standard of life could go up and up and know no bounds, even in the middle of a world of economic disequilibrium; and even, in some cases, of starvation. That is not to say that I do not think our dollar exports could be better—I think they could. As your Lordships know, I have a particular affinity with the motor car industry. I studied the position out there. I am going to say quite frankly that if we judge our middle-class motor exports to America and compare them with the middle-class American automobiles, we are five years behind. There are exceptions.

The Rolls-Royce motor car in America is experiencing a boom because at long last it fulfils the American requirement as regards styling and automatic gear boxes. The Jaguar is another one that will find a ready sale in America. That small sports model, the M.G., is also selling remarkably well, because it is a gadget—I say that with no disrespect. But if you take what I would call the middle range of our exports, the American will not look at them. The American motorist has decided that he is finished with moving a gear lever—he wants automatic gear change; he wants power steering and power brakes, and he wants a lot of power under the bonnet. May I again refer to Los Angeles, a county of four million inhabitants and just over two million motor cars—one motor car to every 1.8 of the population. The American wants a new motor car every year and he wants something different from the model he had the year before. California is the most gigantic motor car market in the world, and it is the most competitive.

Why do we expect to sell these motor cars? When your Lordships listen to stories about record sales, I would beg you to bear in mind the simple fact that a 100 per cent. increase on one is only two. Within the limits of the special models I have mentioned we have a margin; but if we think we are going to make a dent in any market in America we have made a great mistake. In California I collected plenty of evidence of the apathy of the British exporter. Sitting opposite I see the noble Lord, Lord Rochdale, who is President of the Manufacturers' Association. He knows about that apathy; it has been conveyed to him. In California we have operating an excellent British-American trade agency. What is their heartbreaking task'? It is to hear from British manufacturers, after contact has been made!in some cases six months afterwards—that they are not interested. Why should they be? What is the incentive given to the British exporter to take the risks, especially in the dollar market? I can assure your Lordships, whether or not it is nice hearing, that nobody is going to make any worthwhile dent in an American market before the gates are shut and barred. That is not very nice hearing, but I came away from my sojourn in America with the unhappy feeling that there economic isolationism is rampart. That is the Amercan way of life to-day.

While I was in America I thought I would take the opportunity of going to Canada, so I went to British Columbia. I am sure that your Lordships will not think that Canada ends with Toronto. The great expansion of British Columbia is staggering. I had the opportunity of discussing at great length certain projects with the Premier of the British Columbian Government and his Ministers. There they are gasping for the export of British capital and British "know-how." In that part of the Commonwealth they are afraid that they will be overrun first with capital from other countries. It was borne in upon me and my reflections that what we in this country must do is to get back to the position we occupied before the war. So far as my knowledge of economic history goes, the physical trade balance between exports and imports was going against us right up to the war and it was saved by the interest on our overseas investments, our invisible exports and the export of British brains. That is the position to which we must return.

From my examination of this problem I would say that the best bet we have for the export of British capital and British brains and "know-how" lies in British Columbia, in Canada and in the Rhodesias in Africa. I know the question I have asked myself and which must be in all your Lordships' minds—namely, where is the money to come from? To me the answer is simple—so simple that it will bring a smile to your Lordships' faces. We are never going to get that capital by trying to get a £300 million surplus on our trade account. I say that to-day that is a physical impossibility. We are going to get that capital by a reduction of what the noble Viscount, Lord Hailsham, has stated to be the herculean burden that is resting on the British taxpayer—a reduction of the £5,000 million that is breaking us. We are the most heavily taxed country in the world. We are broken. Here are we, at this stage of our lives, supposed to be enjoying the greatest prosperity this country has ever known; and the disincentives to work or to export or to take risks which have been the safeguard of Britain in the past, mount year by year. The only increase in taxation that was made in this mammoth Budget was an increase in the profits tax, both distributed and undistributed. What an incentive to the British exporter to take risks overseas! I do not care what political ideology one has in regard to the question of profits, it is the hope of reward that sweetens labour. The British exporter has no incentive to go into these hard and stern markets, never knowing whether he is going to be kicked out from one year to another.

Turning to the British workman, I would say that it is no good saying to him. "Invest in. success. Work and earn money", and then, when he has earned the money, saying to him, "You are not going to spend it, because we are going to increase purchase tax and the cost of living." Can you expect the British workman not to say. "All right; I have two alternatives: either you increase my wages to pay for the increased cost of living, or I do not work." What other answer is there? Where is this money to come from? I said that the answer is so simple that your Lordships would laugh. The answer lies in a reduction of the overpowering burden of taxation. The Government have given—what did the noble Viscount call it?—a squalid lottery—

VISCOUNT HAILSHAM

With respect, I was quoting the remark of a leader of the Labour Party.

LORD LUCAS of CHILWORTH

I do not mind what a leader of the Labour Party called it; I do not mind what anybody calls it. But it is no basis for the fiscal policy of this country. I know that the noble Viscount will forgive me for saying so, but to me it is amazing that the British House of Commons—I hesitate to criticise another place—can spend so much time and that the noble Viscount can spend so much of his well-known forensic eloquence on something so trivial that I would not even mention it, and yet ignore the fundamentals of our very existence, all the things that matter, how we are going to earn our daily bread. When I come to dissect this £5,000 million the item which I pick out overwhelmingly for reduction is the £1,500 million spent on defence. I was not here, so I did not have the privilege of listening to the speech of the noble Lord, Lord Hore-Belisha, but I read it with rapture and thought it one of the finest speeches on the subject that I have ever known. What did he say about waste of manpower and money? He said [OFFICIAL REPORT, Vol. 196, col. 1229.]: When I was in Malaya last year, I was told that at one time we had 70.000 troops—not only United Kingdom troops, of course, but local troops and police forces as well—engaged against some 3,000 bandits. It has been stated that in Cyprus there are only about 65 well-trained gunmen, supported by a rabble; and against these we have 20,000 soldiers and 3,000 police, with a Field-Marshal in command. That is how the British Army, with the addition of other Services, is being used to-day; and for that the British taxpayer pays £1,500 million a year.

On Saturday, in what I thought was one of the best leaders in The Times I have read for a long time, the question was asked: "How much is enough?" The leader was commenting upon a speech by the noble and gallant Field Marshal, Lord Montgomery, and said: There are times when Field-Marshal Montgomery is not above trying to make our flesh creep in the interests of defence. The noble and gallant Viscount had said that nobody in Europe is doing enough, and that some nations are not doing anything, about civil defence; and The Times asked the pertinent question: what is enough? What is within the realms of possibility? I expect some of your Lordships will have read this leading article. I hope all noble Lords will read it. It ends: Whilst it is the duty of a commander of Lord Montgomery's stature to sound a warning when he considers it necessary, there are other more pressing dangers that lack such a publicist. I am not seeking to fill that rôle. The article goes on: One is that preparations for fighting a total war could bankrupt the West; another is that by concentrating our attention on the remote danger of total war we could, in the meantime, lose the cold war by default. The "cold war" is the economic war. I may be told by the noble Earl, and by many other noble Lords far better versed than I am in military strategy, that all this expenditure is necessary. If that is true, my reply is: then do not think that ever in the lifetime of anyone in your Lordships' House we are going to get out of this economic crisis. We shall live with it for the rest of our lives.

I do not think many people in this country fully realise the danger of our present position. We are almost bankrupt. I do not know how long we can go on. We have no chance of seeing any remission of taxation when we are driven to having to put up taxation by one-half of 1 per cent.; mortgaging our future to keep alive; trying to be a great military nation, policing the world, when we have not the physical capacity to do it. The noble Lord, Lord Rea, talked of trade unionism. Why is there all this trouble on the question of automation in a certain factory in Coventry? It is because, in his heart, the British working man does not believe that there is such a thing as full employment, and he is afraid. He sees the spectre hovering in the background and fears that one day he is going to stand once again in an unemployment queue. That is our basic trouble.

When I was basking in the sunshine of California and in the economy of America I saw that America has an entirely different philosophy on this question, and the Americans cannot understand why we do not do the same as they do. "Spend your way out of depression," is what they say. When I asked, "Do you think this will ever last? Do you not think you are going to get a bump?" they said, "We may get a lot of bumps, but we get a lot of ups. The trouble with you folk is that it is all bumps." How true! When I think of the wastage such as the noble Lord, Lord Hore-Belisha, pointed out, I recall a speech by the noble Lord, Lord Mancroft (I am sorry he is not here this afternoon), when he used to regale us with speeches from the Back Benches. That particular speech has always stuck in my mind. Speaking from personal experience, he said that the trouble with the Army is that they always send five men to do one man's job, and when they get there they find there is not even a one-man job to do. To-day they do not send five, they send ten. Look at the colossal wastage in the Royal Air Force! We are spending millions of pounds on aircraft that are out of date before they come off the drawing-board. Yesterday there was an air crash involving one of the most obsolete types of aircraft which the Royal Air Force has still in use. I live within shooting distance of Transport Command, and twelve months ago the self-same model of that aircraft was flying round and round training pilots. All it was doing was wasting the taxpayers' money. Now the fifth such crash has taken place. Yet when I raised the question of obsolescence and danger I received a "dirty answer" from the Air Ministry.

What greater service could we do in regard to the imports question than produce more food in our own country? We are ploughing up the land, but what are we sowing? Concrete! Miles and miles of concrete, to take bigger and better bombers, to carry bigger and bigger atomic weapons which will never be used. I am one of those peculiar people who have never believed that there will ever be a shooting war. I should think our two visitors from Russia must have laughed to themselves, as they went back home thinking how successful they had been in. frightening the Western world into spending so much money on war-like preparations. Your Lordships may differ from me, but at least this has always been a House in which a man can speak his mind with sincerity.

One of the greatest competitors we have ever had in the export market since the war is Western Germany. We have 280,000 of our best youth stationed there, at a cost of millions of pounds, while until the other day not one of the young men of Western Germany had been put into uniform. We are still supposed to be receiving £50 million a year to defray the cost of maintaining British troops over there, and the first thing the authorities in Western Germany do is to reduce their income tax. Does that add up to sense from our point of view? All the time we are carrying this load!and I cannot see that in my lifetime the burden of taxation in this country will ever be much less!while the incentive to work, the incentive to risk, has gone. We should get back to some of those principles which we learned years ago!notably that it is the hope of reward that sweetens labour. All we get is exhortations. The only incentives offered in the Budget were what the Economist described as incentives to gambling arid procreation. There was no incentive to work harder; no reward for working harder. There was an added burden upon the industries of this country—a disincentive.

When I was in His late Majesty's Government I learned, in all my connections with the inner circles of Cabinet Committees, this lesson: that if we attempt to plan the peace-time economy of this country on a war-time basis the end, inevitably, will be bankruptcy. And we applaud a Chancellor of the Exchequer whose sole contribution to the solution of this dire problem!and it is the only solution he puts forward—is the saving of £100 million. Chicken-feed! And while the Chancellor of the Exchequer is saying twat, the Army, the Navy and the Air Force are making up their minds that they are not going to be quite so silly as to have economies in their individual Services. To-day we see the Air Force taking over land, and building houses for greater numbers of personnel, when the crying need is that they should have half what they have and use it better.

I am grateful to your Lordships for your patience and your tolerance in letting me say this. I believe that I am voicing the thoughts of thousands and thousands of people in this country. We have been in the grip of a military economy ever since 1939. When we had the greatest military strategist in the world as a Prime Minister, I could not hope for any respite; but I did hope that the present Government, under new leadership, would be able to provide a solution to this problem. But to-day we find ourselves without any hope and in greater trouble than ever. The only chance I see of this country getting back its prosperity, and keeping its standard of living at a decent height, is to export its brains and its capital, and to acquire its capital from the savings of the Government. But the Government export everyone to save except themselves. Whether we like it or whether we do not, if we go on spending £1,500 million trying to live up to the old-fashioned idea of being a great military nation the end is inevitable. If the answer of the noble Earl who is to reply to the debate should prove to be that this state of affairs must go on, then I see no hope for the future.

4.25 p.m.

LORD CHERWELL

My Lords, I will not endeavour to follow the various noble Lords who have spoken. There are so many topics that might be raised. I will not break a lance for tax avoidance, but I should like to recall to the noble Lord, Lord Pethick-Lawrence, that its charter, I believe, derives from a statement of that great Socialist Lord Chancellor, Lord Sankey, who said that everyone is at liberty so to arrange his affairs as not to draw upon himself the incidence of taxation. I will not go into the question of Russian trade, for though the figure which has been mentioned, covering a period of ten years, sounds quite a lot, in fact it is something like 2 per cent. of our total trade, even if all the allowances for which the Russians have asked are made. I will not follow the fireworks of the noble Viscount. Lord Hailsham, though I very much agree with a great deal that he said. I think another argument he might have used was that a Neolithic man who withheld his seed corn from his family in order to plant it on the gamble that he might get a bigger crop probably ought to be condemned. I do not quite know by what means the Church proposes to settle who is to bat first in the Test matches without going into the wicked gamble of tossing a coin.

I was much interested in listening to the noble Lord, Lord Lucas of Chilworth, and to the tribute which he paid to the capitalist American economy and the great prosperity derived from it. His desire for lower taxation, of course, is shared by all of us. I do not think I had better start on any of the long arguments about armaments, a subject which has been discussed among other questions. That might lead me much too far. I entirely agree with the noble Lord that one of our great dangers arises from failure to pay for imports by our exports. The deficit that has arisen this year is in the main due to the increase in imports. Whilst the value of our exports, visible and invisible, rose between 1954 and 1955 by 3.3 per cent., the cost of our imports rose in the same period by 13.4 per cent. Instead of a surplus (taking Government expenditure abroad into account) of £155 million, we therefore had this deficit of £147 million. Obviously, that sort of thing spells bankruptcy. However unpleasant the remedies, it cannot be allowed to go on.

The main reason why we have imported so much, as has often been said, is that we have tried to do too much and live too will. We have been building and equipping factories and increasing stocks; we have erected schools and hospitals, not to mention dwelling houses and cinemas; and at the same time we have improved our living standards. If we had increased productivity equally fast or made corresponding sacrifices in consumption, as they seem to have done in Russia, all this might have been manageable. But we did not; on the contrary, we spent on consumption £794 million more in 1955 than in 1954.

On the family scale all this is elementary. If you want to get your shop enlarged or your house redecorated you will have to find the money to pay for it. If you have savings you may use them up or you may mortgage your future by getting an overdraft from the bank. But unless you resort to this, you will either have to do without your new car or radio, or drink and smoke a little less, or refrain from building and decorating. The nation does not seem to realise that exactly the same thing holds true in the case of the country as a whole. As a country, our savings, our gold and reserves, are woefully low. Indeed, they should be described as working capital, not as savings. Compared with the volume of our business, they are definitely far too small to give any security in the case of unfavourable turns of fortune. As for getting an overdraft, I am afraid that long ago we exhausted the patience of our American and Commonwealth bankers, though happily not their great fund of courtesy and friendship.

Therefore, we are inevitably thrown back or cutting down demand at home!in other words, reducing expenditure!and this, of course, is what the credit squeeze is for. Naturally, it is bound to be unpleasant. Its object is to prevent people from buying things they would like to have. Short of reintroducing rationing and the like, the only way of doing this is to make goods less attractive by taxing them or by making it harder for people who would be prepared to pay the higher prices to borrow money to pay for them. Unfortunately, the squeeze is bound to operate throughout the whole economy, so that sometimes people might be discouraged from buying goods that help production in the same way as people are discouraged from buying inessential and luxury goods, and it is bound to cause inconvenience and, occasionally, even hardship. At any rate, it seems to be working and our trade balance seems to be slowly improving.

In these matters Government measures can make a real difference, but it is far more difficult to see how the Government can cope with what I consider to be the even greater danger—that is, inflation, the constant rise in prices. I know that people in authority, or hoping one day to be in authority. have to express themselves carefully, and politicians dependent on a popular vote may be shocked at the frankness of what I am about to say, but I have no hesitation in asserting—and I invite contradiction on the part of the noble Lord, Lord Pethick-Lawrence!that the rise in prices is due almost entirely to the fact that earnings have risen faster than output. It is no use being mealy-mouthed about this subject. When we come down to fundamentals, at least 90 per cent. of the cost of the average article is the cost of the labour needed to produce it, distribute it and sell it to the public, and of course to maintain the equipment required to make it. The only part of the cost that in the long run does not go back into wages or salaries in one form or another, apart from the trivial fraction paid in rent or royalties, is the quantity distributed in the form of dividends to people who have put up the money to build a factory and equip it and who risk their savings so as to make production possible; and this, when taxation is taken into account, is not much more than 3 per cent.

The relation between wages—in Which, of course, I include overtime earnings!and prices is complex. If earnings go up without a corresponding increase in output, obviously the cost of manufacture must rise. But there is another aspect. If the people have more money to spend than there are goods for sale in the shops, nothing will prevent them from outbidding one another and thus forcing up the prices. Short of general rationing and controls, the law of supply and demand is bound to win. This situation is admirably high-lighted in the March Bulletin for Industry, which your Lordships have no doubt seen. It is shown there that the weekly output per employee in the United Kingdom has gone up in the last five years by only 9 per cent., whereas weekly earnings have gone up by 45 per cent. As a consequence, in the same period prices have gone up 30 per cent. In West Germany, weekly output has gone up 40 per cent. and weekly earnings 42 per cent. and, in consequence, prices have risen by only 8 per cent. Could there be a clearer or more definite relation exhibited between prices and wages? If earnings go up faster than output, nothing any democratic Government can do can possibly prevent prices from rising, short of such a violent deflation as to cause enormous unemployment. Only in a totalitarian State, with direction of labour, pegged wages and rationing, and all the rest of the paraphernalia of compulsion, can prices he kept down by Government action.

It is sometimes pretended that it is an open question whether prices chase wages or wages chase prices. Frankly, to put it mildly, this is a meaningless question. If wages rise without a rise in output, prices simply must go up. It is merely a matter of arithmetic. Short of extra taxes and subsidies, there is nothing anyone can do about it. You cannot force anyone to manufacture at a loss. Whether wages will rise when prices go up is a totally different matter. It is a psychological or perhaps a political question. If the wage earner really understood the appalling danger of the inflationary spiral, he would realise that a rise in wages would riot improve his position. Again, if we had unemployment on a considerable scale, as is bound to come if the wage-price spiral continues, he could not enforce his demands. In other words, if wages rise, prices must rise; but if prices rise, wages could remain fixed. Only if they do will the inflationary spiral be halted.

Some foolish people think that these difficulties could be avoided by monkeying about with currency. I am glad that the noble Lord opposite shakes his head. This is a very old fallacy. Some temporary trading advantage may be gained by devaluation, but this is only transitional while things are getting into adjustment. If we devalued the pound we should get less goods for every pound's worth of goods we exported, so that we should be worse off than ever. There is another, and perhaps even graver, danger. Any sort of devaluation or hint of devaluation of the pound would inevitably shake confidence in sterling. Members of the sterling area, on whose behalf we hold, I suppose, a thousand million dollars, would inevitably be tempted to place their reserves of gold and dollars elsewhere and the sterling bloc would disintegrate. If London, instead of being the banker of the sterling area, merely represented the United Kingdom in financial affairs, disaster would stare us in the face. In the long run, our imports must be paid for by exports. That devaluing the pound would enable us to get something for nothing is a delusion. Such a measure, perhaps even such a proposal, might well set us on the road to galloping inflation.

The Germans had some experience of this in the early 1920s. The value of the mark dropped so fast that on payday wage-earners rushed off on their bicycles to buy anything, whether they wanted it or not—even railway tickets to anywhere—rather than hold depreciating bank notes. Indeed, people in restaurants were advised to order and pay for all the food and drinks they were likely to consume during their stay as soon as they sat down to table, since prices might well have doubled by the end of the evening. It sounds a joke, but they did not find it so. Most of the Germans who lived through inflation agree that it was far worse than the war. The terrible memories of it which remain may well be the reason for their admirable self- discipline in demanding increases in wages only corresponding to the rise in output.

It is because of this close link between wages and prices that the round of wage increases this spring gives so much cause for anxiety. Almost certainly this will cause a rise in prices in the autumn, and we shall again have the trouble-makers blaming the Government for it and inciting the workers to demand consequential increases in wages. And, of course, as I have said, if wages are raised again, prices are bound to follow. Normally, of course, employers have to resist wage demands because they cannot afford to increase the costs of their products unduly. But with all the money floating around (I recall that annual earnings per employee have gone up 8 per cent., while output has gone up only 4 per cent.; and wages and salaries make up three-quarters of the disposable income) this argument loses its force.

It must be admitted that some employers are short-sighted. Many factories are engaged in finishing semifinished materials. In these, overheads and the cost of their raw materials may well be, say, 60 or 70 per cent., and labour costs only 40 or 30 per cent. The employer may say to himself that a 10 per cent. rise in wages will therefore raise the cost of his product only by 3 or 4 per cent., which the market can stand. He forgets, or does not take into account, the fact that this same argument is apt to apply all down the line, and that the labour costs in the factories producing his semi-finished raw material will also be forced up, so that the final cost will rise by something very like the 10 per cent. he has conceded.

For his part, of course, the temptation to ask for higher wages is strong to a working man who does not realise the danger of the inflationary spiral. If the trade union leaders, who understand the true position, try to restrain their men they are overborne by unofficial strikes. These are usually led by Communist shop stewards, who seem to have an inexhaustible fund of enthusiasm and energy which enables them to attend all the factory meetings and get themselves elected, usually by a very small fraction of the total membership, to positions of influence and authority. This seems to me to be one of the great dangers that confront us. If the trade union leaders who really understand the situation could control their members, something might be done to prevent the inflationary spiral bringing us all to disaster. But it is not a very easy subject to explain to working men, who are naturally usually much more interested in cricket and football, and perhaps even football pools, and the like; and the Communist trouble-makers can always discount a leader's arguments by saying that he has been nobbled by the employers.

The next decade will show whether parliamentary institutions can survive the stresses which modern conditions of transport and industry and manufacture bring in their train. Democracy is supposed to be the rule of the majority. Yet vast numbers of people, the whole of London, sometimes even the whole nation, is at the mercy of a tiny fraction of the population, very often only some tens of thousands of men. Last year's dock strike, due to a quarrel between two unions, cost the country, probably, £200 million. And this is only one example of the way in which quite small numbers of men, usually worked up by subversive elements, can hold the whole community to ransom. If this is not the law of the jungle, I do not know what is.

It is sometimes said that we ought to have a labour policy with a basic wage related to prices and agreed differentials for different jobs with long-term engagements, and enforceable penalties against both sides for breach of contract!that is to say, for strikes or lock-outs. But I doubt whether there is any prospect at this time of getting general agreement on any course of this sort. There would be all too much scope for misrepresentation; it would be all too easy for trouble-makers to organise unofficial strikes and bring the whole plan into disarray and disrepute. Only a change of heart of the population can save the situation. If the working man realised what is at stake, I am sure he would respond, as he has done in every crisis in our history. But he is easily led astray by the enemies of democracy into believing that he should try to get as much as possible for doing as little as possible. Only if men once again take a pride in their work, and resolve to make as good a product as circumstances allow; only if there is a return of the old-fashioned outlook, that a man should be ashamed to take an honest day's pay unless he has done an honest day's work, can we hope to recover from the insidious malady by which the country's economic future is threatened.

I am afraid that in what I have said there has been nothing new or striking but a thing can be trite and yet true. In fact, I am sure that the leaders of the Labour Party would not seriously dissent from it. They know perfectly well that a nation's standard of life cannot be determined by a majority vote; that we can consume only what we produce, and that if wages are increased, prices must rise. To insist on these facts does not tend to enhance one's popularity. A patient who is told that he ought to give up his favourite diet is apt to take a dislike to his doctor, and may even call in a quack. But a doctor's first duty is to his patient. I hope, therefore, that the labour leaders will play their part, even though it be unpopular, in explaining the true position to their followers and in curbing the irresponsible elements who are inciting the wage-earners to pursue the road to ruin. For unless a stop can be put to the inflationary spiral, democracy in this country cannot survive.

4.48 p.m.

LORD CONESFORD

My Lords, the House is once again greatly indebted to the noble Lord, Lord Pethick-Lawrence, for initiating an important debate. As one who always listened to him with interest in another place for many years, may I also record my particular gratitude, because this is, I think, the third occasion on which I have ventured to address your Lordships in a debate which he has initiated. I shall take great care not to repeat what I have urged on the two earlier occasions, though I may say that I stand by every word of what I then said. Before I embark on the ma in subjects on which I intend to speak, I would say a word or two about a matter raised by the noble Lord, Lord Rea!namely, the question of travel allowances. It may be that a more appropriate occasion will arise for discussing that particular topic, but I listened with great interest and sympathy to what the noble Lord said to-day.

I have always thought that the present limitation on foreign travel imposed on the ordinary person was a much greater evil than was generally supposed. I spoke on this subject when the Exchange Control Bill (now the Exchange Control Act) was going through another place, and I moved an Amendment to give the right to foreign travel. I think that one of the injuries the restriction does is to our whole conception of freedom in a free society. After all, what does it involve? It involves an arbitrary choice by the Government of the day between the people's pleasures. By what system of justice can it be alleged that the trash of Hollywood is a necessity but that a visit to France is a luxury? Only by an act of tyranny—the ipso dixit of the Government. Let me say at once to my right honourable friend, who I know will not be unduly troubled to reply on this particular topic, that of course every fair-minded man realises that in present circumstances the Government must take precautions against the export of capital; but I agree with a great deal of what the noble Lord, Lord Rea, said about the possibility of relaxing this limitation on foreign travel. I was glad to see that I have received substantial reinforcement this afternoon in what hitherto has been a fairly lone fight on my own part, though supported, and eloquently and ably supported, by two articles in the Economist newspaper.

On the last occasion when the noble Lord, Lord Pethick-Lawrence, moved the same Motion that he has moved this afternoon, on March 7 of this year, I said something of the importance of encouraging production, encouraging savings and showing, at long last, some appreciation of the plight of the middle and professional classes. I find that I used these words [OFFICIAL REPORT, Vol. 196 (No. 68), col. 205]: For them, it is urgently necessary that provision should be made in the coming Budget so that they can at least provide for their own pensions in old age. I referred to the expert reports the Government had received showing how this could be done. May I therefore say at once how much I welcome the start that my right honourable friend the Chancellor of the Exchequer has made towards carrying out the recommendations of the Second Report of the Millard Tucker Committee. This I believe to be the most important and potentially the most beneficial of all the Budget proposals. I hope that my right honourable friends will not think me unduly critical if I say that I think the Chancellor of the Exchequer ought to go a little further even in the present Finance Bill. I hope he will carefully consider, as I am sure he will, whether he must reject a recommendation that was common to the Millard Tucker Committee and to the Royal Commission on the Taxation of Profits and Income, that part of the permitted benefit might be, subject to a maximum limit, a lump sum payment.

The Chancellor of the Exchequer rightly laid emphasis on the important part savings played in this Budget. I think most of the proposals he made regarding savings have been generally applauded. Indeed, I think that the only controversial measure he has proposed is this matter of premium bonds. My own view on the moral question some people believe to be raised is that I agree with what was said by the right reverend Prelate, the Lord Bishop of Carlisle, on February 8 this year, when he said [OFFICIAL REPORT, Vol. 195, col. 822] that gambling is not intrinsically evil. I believe that to be the true view, and it was supported with eloquence and wit this afternoon by my noble friend Lord Hailsham. To do the most reverend Primate the Lord Archbishop of Canterbury justice for what he said on April 26 of this year, when he objected to the Budget proposals, he did not suggest—indeed, he could not have suggested—that his objection was based on Christianity.

I believe that the wisdom of the Government's proposals will be judged by their success. Will they persuade people who would not otherwise save to do so? I shall not develop that matter further, after the most eloquent and witty speech of my noble friend Lord Hailsham, except to say this. What passes all understanding is that the Government should be so schizophrenic as to seek to encourage savings, if lent to the Government, by a controversial lottery and at the same time to discourage savings, if invested in productive industry, by a further attack on the distribution of profits to shareholders. I shall not again re-state the overwhelming case against the differential profits tax. That case has been cogently stated by the Royal Commission, and the Royal Commission's recommendation of a single tax on corporate profits has been supported by an immense volume of economic authority, including Sir Oscar Hobson, the Economist newspaper and many others.

In two successive Budgets the Royal Commission's advice has been deliberately flouted, and on this occasion no reason of any kind has been given. Her Majesty's Government must not be surprised if, in the circumstances, there is a growing opinion that their motive in this strange affair is stupidity for its own sake. I must admit that one other motive has been suggested. It is believed in some quarters that the attitude of "Let's be beastly to the shareholders" will conciliate the Opposition and convert them from advocating universal State-ownership and control to belief in a free society. Of course, it will do nothing of the kind: it will merely incur their contempt.

In the debate in another place, it is true, an ex-Chancellor of the Exchequer praised my right honourable friends the Lord Privy Seal and the Chancellor of the Exchequer for following his lead and for rejecting the considered advice of the Royal Commission. He referred, in a most illuminating phrase, to profits being (I quote his actual words) "dished out to shareholders." When I read that speech I was reminded of a story which was current in the Temple in my early years at the Bar. It was about our fellow-practitioners of Lincoln's Inn. At the time a case was in progress in the Chancery Court on the construction of a will, and a great number of counsel were engaged representing various interests. At the end of the third day there was a rumour that the case might be settled. A conversation was overheard between two counsel returning to Lincoln's Inn, and one said to the other: "If this case is settled, the whole estate will be frittered away among the beneficiaries." That is precisely the attitude of Her Majesty's Opposition to the distribution of dividends to those entitled to them.

What makes the thing the more strange is that several Members who speak with great authority for the Socialist Party in another place deplored the fact—as it is deplored by many in all parts of the House—that not so great a proportion of the national product as they would like was devoted to new machinery and the re-equipment of industry. But why on earth should any company devote money to re-equipment if the shareholders are never to receive any benefit from the investment? Of course, some of these honourable and right honourable gentlemen may think, "Oh, that is a great objection to private industry continuing to exist, but it can all be remedied by nationalising everything and then you can re-equip without consulting the shareholders." Can you? I remember the enchanting declaration, for which I cannot at the moment give a date or a place, of a Finance Minister who fell from office, dismissed, I think for incompetence, in a Communist country behind the Iron Curtain. He said, after his dismissal, "I made the mistake of nationalising industries too rapidly so that there was no private industry left to make profits to pay for the losses on what I nationalised."

In dealing with the question of dividends, in case anybody thinks that there is something to be said for the general policy of "Let's be beastly to the shareholder," the Government themselves have recently shown in two publications that wage and salary-earners are, in real terms, 40 per cent. better off now than they were in 1938, whereas shareholders are 30 per cent. worse off. I cannot think that there can be much case for increasing this disparity—certainly not in the interests of justice, though it is sometimes alleged that something on these lines should be done in the interests of social justice. As one who spent some years in the service of the law, I think I have sonic idea about what is meant by justice (at any rate, I have a great admiration for the Common Law of this country), but I have always been puzzled to know precisely what was meant by social justice. I have come to the conclusion, which I declared some years ago in another place, that social justice bears the same relation to justice as social credit does to credit.

My Lords, I was glad to note that in the debates in another place, several Ministers expressed their determination to conquer inflation. I am delighted, and, of course, I accept entirely their sincere determination to do so. It is vital for our survival that they should succeed, but I hope that they will not underestimate their own responsibility. There is everything to be said for enlightening the public about the facts, but it is utterly wrong to think that exhortation of others can relieve the Government of their own responsibility. I hope that Ministers no longer share the illusion—after recent events I do not think they can—that their task will be done for them by the trade unions or their leaders. It is quite useless —indeed I myself think it is unfair—to ask trade union leaders to refrain from putting forward a claim for increased wages so long as it remains true that, if such a claim is put forward, it will certainly be granted.

I do not believe that we shall conquer inflation, which constitutes the greatest of all risks to the future employment and prosperity of our people, unless we learn to distinguish full employment from over-full employment. I hope that those noble Lords who did not hear the speech of my noble friend Lord Salter on March 8 this year will read it in Hansard, because he dealt, as the House then thought and as I know all who have studied it think, so admirably with this question of the distinction between full employment and over-full employment. Perhaps I might quote just one sentence in which he referred to what the late Sir Stafford Cripps had said on this subject [OFFICIAL REPORT, Vol. 196 (No. 68), col. 250]; 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. Some of us have had the experience, either in another place or when speaking in constituencies at General Elections and at other times, of finding that whenever a Conservative speaker has spoken of over-full employment, he has run a serious risk of misrepresentation. It is often suggested that what he really wants is unemployment. The suggestion is completely false. It is obvious, indeed, that if we had the waste of unemployment we should stand little chance of surviving our present difficulties.

But let me deal in the simplest way with the task confronting any Conservative who is misrepresented in this way. Let me inform the House of what I believe to be the first occasion on which a Minister of the Crown described our state as one of over-full employment. It was done by Mr. Herbert Morrison in a Press conference on August 20, 1947, at the time when he was Lord President of the Council. For the convenience of your Lordships I have procured the comparative figures of the rate of unemployment, first, when Mr. Herbert Morrison, as Lord President of the Council, described our condition as one of over-full employment; secondly, in the corresponding month last year, and finally, the most recent figure. In August, 1947, the number of unemployed represented 1.5 per cent. of the working population; in August, 1955, they represented 9 of 1 per cent. So, if Mr. Herbert Morrison was right in describing the conditions in August, 1947, as conditions of over-full employment, how much more so was that true in August of last year! The figure for March, 1956, is the most recent that I have obtained, and is 1.3 per cent. I have given a summer figure as well as the latest figure, because, as noble Lords in all quarters are aware, there is a seasonal change in these matters: unemployment goes up in the winter months and down in the summer. So the comparative figures are: August, 1947, 1.5 per cent.; August, 1955, 9 of 1 per cent.; and March, 1956, 1.3 per cent. No Conservative, therefore, need be in the least afraid of describing our position as one of over-full employment, when, by the express statement of one of the principal Ministers of the Socialist Government, a condition when there was greater unemployment could be justly described as over-full employment.

In every economic debate in which I have taken part, I have made a plea for the middle and professional classes. I do so again. I believe that the greatest defect of the present Budget is its failure sufficiently to lighten the burden on these overtaxed men and women, more heavily taxed than anywhere else in the world, and thereby to encourage the contribution that they can make to productivity and success. I wonder whether even today, the Government are alive to the threat to our future unless something is done quickly.

I hope that noble Lords will have noticed a letter that appeared in The Times on April 11 of this year. It is signed by Mr. Barclay Inglis and contains two paragraphs. In the first he draws attention to the nation's desperate shortage of highly qualified scientific, technical, and administrative personnel", and mentions some of the steps recently taken to deal with this matter and to obtain new recruits. He refers to the first grants from the £3,500,000 Industrial Fund for the Advancement of Scientific Education in Schools", Then he says that almost at the same time it was reported that an American corporation had retained the services of a London employment agency to find executives and technicians for vacancies in South America at salaries ranging from £5,000 to £17,500 a year. The second paragraph of his letter is as follows—I propose to read it verbatim: It is surely less than logical to restrict the export of the obsolescent armaments of yesterday while permitting free trade in the technologists to whom we shall look for the design and production of the machines of tomorrow, and it would appear, Sir, that a system of export licensing is called for to prevent the further depletion of our stock of these men, until such time as industry begins to offer them comparable pay in this country. I hope that the writer was being ironical. Having asked many people who read that letter to give their view, I can only say that the majority did not understand this to have been written in irony. In case anyone understood him literally, in case he intended what he said to be taken literally, I would point out that in the passage I have read he was treating men as things, things in which one could trade and of which there were stocks. He was treating men as if they had no natural right to the choice of what they did or the nature of their work. That is not the language of those who would preserve a free society. In the march to 1984, it may be later than you think.

5.14 p.m.

LORD ROCHDALE

My Lords, I listened with the greatest interest to the speech of the noble Lord, Lord Lucas of Chilworth, and with much of what he said one could not but agree. I must say that I envied him his months in California, I hope he put them to good effect—he certainly seems to have done so. With much of what he said I agree, and I am not going to follow him in all he said about defence. But I must comment on one aspect of his remarks, and that is his reference to our exports to dollar markets. I entirely agree with him, of course, that our exports to dollar markets leave a tremendous amount of room for improvement, but we must be careful to get the matter in the right perspective. Do not let us forget that, taking our exports as a whale last year, all over the world, we had an all-time high record. That is something to be borne in mind when considering the exports to one particular sphere or part of the world.

When we come to Canada—and, as the noble Lord probably knows, I myself was in Canada earlier this year at discussions to see how we could increase our exports to Canada—certainly there is a great deal that could be done. But what I think it is important for us to know is that there are eminent Canadians over there who feel exactly the same as we do, and who are making tremendous efforts to try to encourage not only us to go over there and sell to them, but their people to come over here and buy from us. And I hope that, between us, we shall be able to make improvements.

LORD LUCAS OF CHILWORTH

I am most grateful to the noble Lord. If I gave the House the impression that I was including Canada in what I said, I am sorry, The noble Lord is quite right: the Canadian position is entirely different from the American position. I was rather thinking of the American dollar exports and not the Canadian dollar exports.

LORD ROCHDALE

I was coming to American dollar exports in a moment. Curiously enough, the figures for our exports to America last year were very much better, and the total figures were very much better, than our exports to Canada. But there again, there is room for a great deal of improvement. I would only add this further word on that subject. The noble Lord took the example of cars. I was rather surprised, incidentally, that, having come back from the United States, he was not talking about "automobiles"—but that is by the way. I am not sure, however, that cars are a very good example to take, because while they are a very important item, they are a very large one; and I am quite sure that some of the advantage we can gain from our exports to the United States rests in a large variety of smaller items. In fact, I think it would be a surprise to many of your Lordships to see the immense variety of exports, often in quite small packets, that go to build up our figures to the United States.

That is all I am going to say on that matter, but it leads me on to the main point of what I want to say to your Lordships, bearing on exports—the question of investment in our industries at home. I suppose there is none of us here who, if confronted with the simple question taken out from any other context, would not recognise the importance of adaptability, inventiveness, ingenuity and all that in our industry; no one would question the importance of these qualities. No one would but agree that, to achieve them, we must put aside adequate investment. I have no doubt that people would say to that question: "What a silly question to ask! The answer is obvious."I agree that it ought to be obvious, but I am quite certain that there are others besides myself (I rather fancy that here the noble Lord, Lord Lucas of Chilworth, will agree with me) who are somewhat concerned whether the importance of this question of investment in productive industry is fully appreciated; whether we give sufficient attention to it or whether we are not, perhaps, rather inclined to take it for granted.

A few years ago, at the time when private industry was being criticised for not investing enough, as compared with nationalised industry, in new machinery and plant, when Mr. Butler introduced his investment allowance, there were those who said, "This is only a small item; it will not do very much good." I myself took the other view, and I believe I was right, because in fact that allowance did a great deal of good and was an excellent thing. If I may take an analogy, I believe it acted as a catalyst does in chemical processes: it set in motion a whole chain of reactions which, in the long run, brought about a considerable amount of industrial investment. Whilst the increase in industrial investment in this country has been quite remarkable over the last two or three years, we have to remember that it is only remarkable in relation to where it started—which was at fairly low level. Therefore, it is not really anything like enough at the moment. That being so, I should have thought that we cannot possibly allow ourselves any let-up in this matter. If the investment allowance acted as a catalyst, as I believe it did—something small setting in motion a whole lot of other things—there is in the other direction a serious danger that anything done to damp down investment, however small it may seem, might easily, in the end, have a most unexpected and unhappy result.

In our last debate on March 8, in which I did not take part, my noble friend Lord Jessel raised this question of the level of investment. My noble friend Lord Selkirk, in replying to him (I say this with the greatest respect, because I always listen to my noble friend's speeches with great interest, as they carry great weight) did, I think, on that occasion, slightly miss the point. Lord Selkirk said—and I quote from coloumn 186 of the OFFICIAL REPORT for that day: I think that, over the whole sphere and range, capital expenditure is likely to be considerably higher this year than it was last year. That sounds very nice, but to my mind it is no use saying that investments will be bigger this year than last year, because industrial investment is not something that can be turned on and off at will, like a tap. Industrial investment depends on a great many things. It depends on ideas; and ideas are very susceptible to economic climate. They are susceptible not to the climate that is existing at the time when the buildings are being put up, the machines installed and the bills finally paid, but to the climate that is in existence at the time when the ideas are originally conceived. To my mind that is a most important point. The investment to which my noble friend Lord Selkirk referred, this year's investment, will have been planned some years back. What about the years ahead, if we are going to damp down to-day? If we fall back in the race here, shall we ever be able to catch up, especially at a time when, as the noble Lord. Lord Lucas of Chilworth, has so forcefully said, export trade is becoming increasingly competitive the world over?

It seems to me that we sometimes forget that our ability to export depends not merely on how much we can produce, not merely on the price at which we can produce, not merely on what delivery we can give, but also, and perhaps even more so, on design, versatility, inventiveness and imagination. Let us not forget the lesson that more than one industry in this country has had to learn in the past, in the hard way: that what may seem to-day to be the normal and proper things for us to make and export will to-morrow be the things that our customers themselves are making for themselves; and unless we are busy thinking of something to take their place we shall find that our export figures in the years ahead cannot be maintained. Therefore we must be ready, and we cannot be ready without adequate investment.

I certainly agree with the later statement made by my noble friend Lord Selkirk in the same debate, that what we need to do is to make quite sure that one scheme does not get in the way of another so that both are held up. I recognise that the investment allowance, to which earlier I paid tribute, has only been suspended and not done away with altogether; that to some extent the loss has been made good by the reinstatement of the initial allowance, and also (and here I should like to pay a particular tribute to the Chancellor of the Exchequer) that there has been reinstated the investment allowance for furl-saving equipment, scientific research and shipping. But for all that, the fact remains that some curb has been placed on industrial enterprise and investment. That may he essential; we may get away with it somehow. But I think there is, equally, a danger that it may prove to be the beginning of a slippery and dangerous slope. I am sure all your Lordships will agree with me that it is never wise to get on to a dangerous and slippery slope, certainly not in the dark and certainly not when you are not quite sure where you are going.

What, as I understand it, has been attempted by the Chancellor of the Exchequer, is to steer a line, on the one hand between the curbing of consumer spending, and, on the other, investment. There is no doubt that politically it is quite obvious which of those is the easier to adopt; and of course your Lordships will not mind my saying that in many ways private industry has long become accustomed to being the Aunt Sally of the country. That is a remarkable thing, but I believe it to be true. It must be most remarkable to some of our competitors, particularly those on the other side of the Atlantic to see how we treat and regard our private productive industry. After all, productive industry is the only goose we possess that has any golden eggs at all to lay. How has that extraordinary situation come about? I believe that it stems from this most unfortunate bogy of private profit. Of course, there will be some, in every walk of life, who abuse their privileges, but this bogy, this attack on private profit, is most unfortunate from the point of view of the country as a whole. I would say that anyone who has at any time done anything to foster that bogy has a great responsibility to bear. I have no doubt at all—in fact, I can bring chapter and verse to bear this out—that there are far too many small industrial firms (and may I remind your Lordships that a high proportion of industry consists of small industrial firms) operating upon a margin of profit which to-day is far too small, either for their own health or for the health of the country as a whole. It is in the light of these arguments that I want to mention one or two points concerning the Budget.

Should the Chancellor have been tougher with the private consumer, as opposed to industrial investment? Unpleasant as that would have been for all of us, if it had to be one or the other then I believe it should have been the private consumer, although I readily admit that judging from the reception of the White Paper on The Economic Implications of Full Employment and other portents that have been noticeable, there is at least doubt whether that would have been a very easy course to pursue. From what has already been said, it will not surprise your Lordships if I entirely agree with my noble friend, Lord Conesford, in what he said about the profits tax. I simply cannot understand how that could have been put up, although, of course, the amount is small —about a half of one per cent. on undistributed profits. Yet the effect is there; it is something that hits at the private industrialist who is thinking about how he can get the money to produce something new or better or cheaper.

There can, of course, be no investment without savings, and therefore I fully applaud the Chancellor of the Exchequer's emphasis on that aspect. I do not propose to enter into the premium bonds controversy, delighted as I was with everything that my noble friend, Lord Hailsham, had to say. I do not happen to be a man who gambles. The reason that I do not do so is my own business, and I do not dictate to other people whether or not they ought to follow me. It is a purely personal point of view. But, by the same token, one recognises that there is gambling and that people do like lotteries; and therefore I am certain that it was absolutely correct for the Chancellor to take the line he did. The only regret I have is that administratively, apparently, it is going to take so long to put into effect.

I turn now to another thing I welcome in the Budget: the decision for the time being to take over the financing of nationalised industries. What I am about to say may lead to my being accused of being political, which is the last thing I wish to be in this particular content. May I quote the Chancellor of the Exchequer when he was making the point that, whatever other advantages there might be, obviously it would give him somewhat more control of investment in nationalised industries.He said [OFFICIAL REPORT, Commons, Vol. 551 (No. 134), col. 865]: Still, if one actually presses the fee oneself into the piper's hand, one has a better chance of influencing the tune. The step which the Chancellor of the Exchequer has taken could give him better control over investment and over the balance as between nationalised industries on the one hand and the private productive section of industry on the other hand.

No one is going to deny the tremendous importance of our basic nationalised industries—fuel, power, transport and so on. When they do not do just as we think they should, we all rather enjoy criticising, but one cannot very well criticise them in fairness unless one gives them adequate funds to make good equipment where it falls short of what is necessary. If I may draw an analogy between industry—taking the whole range, nationalised and private—on the one hand and the Army on the other, in Army jargon there is the term, "the teeth land the tail", the "teeth" being the fighting troops and the "tail" the services. Obviously, neither can do without the other: both have to be properly and adequately equipped for their purpose. But if there has to be any priority, surely it must go to the "teeth". So it is here in industry. The "teeth", the fighting troops of industry, are the private section of industry that has to go out into the field and fight for export markets. That is where no second-best in equipment or investment can be allowed. Either we get the sales we want or we clear out altogether, and if that happens all these basic industries—transport, fuel and power—are of little importance to us. I should have thought that that was fairly obvious, and I am sure the Chancellor has been right to equip himself with this additional weapon so that he will have it at his disposal in the event of its having to be used.

It remains to be seen how he uses that weapon. I am sure it will be easy for considerable pressure to be brought upon him, and where it is a case of one or the other he will be pressed to lean towards the nationalised industries as opposed to the productive industries. I very much hope that he will resist that pressure. I say that, not because I wish to favour any particular class of individual in this country, but because I believe that if he does not resist it it will be to the harm and disadvantage of everyone, whether shareholders, owners, management or employees generally, throughout industry as a whole.

5.37 p.m.

LORD COLERAINE

My Lords, I owe your Lordships an apology and, in particular, I owe the noble Lord who opened this debate an apology, for the fact that I was not in my place to hear the opening speeches. The reason for that was that I had a very long-standing engagement at the Mansion House which I was obliged to keep. I hope, therefore, that your Lordships will feel that what might look like a discourtesy was not intended as one, and was only an unhappy accident.

At this hour I do not want to embark upon any detailed examination of the Chancellor of the Exchequer's Budget proposals. I have read the Chancellor's speech as carefully as I can, and in my own view, for what it is worth, the present Chancellor seems to have a clearer realisation of the dangers in which we stand and the difficulties which confront us than any of his predecessors since the war. I have considered to the best of my ability the proposals he has made. Like my noble friends, Lord Rochdale and Lord Cones-ford, I do not agree with every one of them, but, by and large, I feel reasonably confident that the Budget, with the measures already taken, will do the limited job that, I take it, it was intended to do. I believe it will for the time being stem the tide of inflation, that it will ease for the time being the strain on our balance of payments and will give us a breathing space. At any rate, it does point to the right road ahead.

But I do not believe for a moment that the Budget will do more than that, or that it intends to do more. I do not think we can expect this Budget to restore our solvency—restore it, I mean, beyond peradventure. The most we can hope for is that it will put us back to the status quo ante, to the position we were in eighteen months ago, before the present crisis began, a position which we enjoyed over a period of years—intervals of uneasy equilibrium disturbed by recurrent crises. I think that on whatever side of the House we may sit, every one of us feels that to-day we stand in a position of real danger. Ever since the war, in fact, we have been balancing on a knife edge, and even if the present Budget achieves its objectives, its limited objectives, we shall still be in very great danger.

I believe, in spite of some evidence to the contrary, that we are in greater danger to-day than we have ever been since the war. Just how dangerous our position is two facts, I think, show. First, though world trade is going up markedly, our share of world trade is going down very markedly. And there is another straw in the wind, if you like to call it so. I read the other day that in the last three months for which figures are available exports of motor vehicles from Germany outstripped exports of motor vehicles from this country. It is a very serious thing if the figures which I saw are correct. Surely, there is only one road to safety; there is only one way we can take to get us back, not to the pre-crisis position but to a real and permanent condition of equilibrium. I do not believe that we can do it through the monetary weapon, though I think that, in present circumstances, the monetary weapon has performed great services. I do not believe that we can do it just through austerity and rest-mint, though at the present juncture some degree of both is clearly necessary. I do not think that we can become strong merely through curbing personal expenditure. If that is all we have to look forward to we have nothing to work for. I do not believe that we can become strong—in spite of everything that is said about the need for saving, and recognising that everything said about it is true—merely through saving, because there is not a sufficient margin for saving. There is, I am sure, only one way in which we can get out of these difficulties that have clogged us for the last ten years. That is by increasing our income and our earnings and increasing them substantially. Of course that is easier said than clone. Noble Lords opposite, I think, believe that we can increase our national earnings very substantially by central economic planning. Personally, I do not believe that. After all, we had six years of it, and it did not do the trick. In my belief, we can get the increase in earnings, the increase in productivity, which is necessary only if each and every member of society feels that he derives some direct and personal advantage from his efforts.

I do not believe it is any use talking widely and handsomely about our national responsibility, and about how the nation must rise to it, for the fact is that what is the nation's responsibility is no one's responsibility. That is not cynicism—unless it is cynical to recognise that we are dealing with human beings and not simply with figures of speech. I believe that we have in this country enormous reserves of character, energy and skill that are not being fully used; and they are not being used, in my judgment, for one reason, and one reason only—that is, because of the immense burden of taxation which bears down, and beats down, upon every section of the community. I know that there are some people who maintain that taxation at its present levels is not really a disincentive, but, quite clearly, there is some level at which taxation must be a disincentive. No-one, for example, would say that the State could take l00 per cent. of the national income without destroying incentives. No-one would say that the State could take 50 per cent. without destroying incentives. There is some level somewhere at which taxation does result in inefficiency and, furthermore, does lead directly to inflation.

There is a respectable body of opinion among economists, I believe, which holds that the maximum amount which any Government, in any country, at any time, can safely take of the national income is about 25 per cent. I said deliberately that it was a respectable body of opinion, because I first read that statement in a Fabian pamphlet before the war. But I think it is generally accepted that 25 per cent. is about the safe limit. If it is exceeded there is, inevitably, trouble. And the effect of too great a weight of taxation, of taking too great a proportion of the national income in taxation, is twofold. Both are very bad. Of course the rate of taxation we have now does not destroy incentive altogether. Clearly not. But it does blunt the fine cutting edge of it. And that is what we need—the fine cutting edge. The heavy weight of taxation does blunt the edge of personal endeavour. That is one thing which it does. The other thing which too heavy a weight of taxation does is to lead to waste and extravagance. I do not imagine that there is any businessman in your Lordships' House who has not heard, in the last few years, when some proposition is put before a board of directors—a proposition to cost, it may be, £5,000 or £10,000—someone say, "Let us do this; it will not cost us that amount. Mr. Macmillan, or Mr. Butler or Mr. Gaitskell is going to pay half."That kind of attitude leads inevitably to waste and extravagance and directly to inflation.

If we accept the fact that 25 per cent. is the safe limit, where do we stand? My noble friend Lord Cherwell made some very telling comparisons between ourselves and Germany on the question of wage costs and prices. It is worth making similar comparisons on this question of the relative weights of taxation. In the United States of America the total weight of Federal and State taxation altogether is 26 per cent. of the gross national product. That is just a little over the margin which I have mentioned, but there is a good deal of inflation in the United States. In Germany, the total weight of taxation is also just 26 per cent. of the national product—that is Federal Government taxation, State taxation and so on. In the United Kingdom it is at least 33 per cent., and if one includes insurance contributions I should think probably it is as high as 35 per cent. In the light of that comparison how can we hope to get out of our difficulties, to increase our earning capacity, our productivity, what you will, without substantial reductions in taxation? I believe it to be an absolute impossibility.

Of course, it is not a simple matter to reduce taxation. It raises problems political, social and economic, of a severe, even a harsh, kind. Of course, if it were only a question of reducing taxation by itself, the matter would not be too difficult. But if we reduce taxation without at least equivalent reductions in Government expenditure, then, as we know to our cost, we create greater problems than we solve. The real problem is how to achieve a substantial reduction in Government expenditure. In the last economic debate in your Lordships' House I ventured to suggest certain fields of economy, and among other things I touched upon the Welfare State. If your Lordships will be patient with me for a few moments more, I should like to develop briefly the argument that I put before your Lordships then.

My personal attitude towards the Welfare State is, I imagine, that of every Member of your Lordships' House. No one who has gone over the country today and seen how people live, the condition of their homes and children and who has compared that with what he remembers of how people lived before the war, can deny that there has been a great social advance—a very great social advance indeed. No noble Lord on either side of the House would wish to put that in jeopardy. Certainly I would not. But it is possible to accept sincerely and wholeheartedly the principle of the Welfare State without accepting in every detail the mechanism by which the Welfare State is operated at any particular moment.

If noble Lords cast their minds back ten or twelve years ago to the days when the foundations of the present Welfare State were laid, in the days of the wartime Coalition and the first Labour Government, I think they would feel that the background against which the Government were working then was far different from the background against which the Welfare State has been operating. Towards the end of the war, and in 1945 and 1946, what was in the minds of us all was conditions as they were in the 'thirties, conditions of mass unemployment and fairly acute deflation. But, in fact, the Welfare State has had to operate in exactly the opposite conditions—conditions of full employment and acute inflation. I do not believe that there is any one of us, in any Party, who, if creating the Welfare State to-day, would use exactly the same plan as he used ten years ago.

Is there any way in which we can hope to use the experience we have gained since the war so that we can have the advantages of the Welfare State without its disadvantages? I believe that there is, and I should like to put this general idea to the Government. I will ask them to look at the National Health Service and at the method by which it is financed. I know that the Guillibaud Committee have given the National Health Service a clean bill of health; but, not unnaturally, the Committee were looking at the National Health Service in the context of the national health. I would ask the Government to look at it in the context of the national economy as a whole. What has happened to the Health Service in ten years? In 1946, it was estimated that it would cost £165 million a year in 1956, it is costing £600 million a year. The curious thing is that a large number of people, probably the great mass of the population, believe that they get the National Health Service free. Of course, they do not; they are paying £660 million a year for it. Others believe that they are getting it as a result of the insurance premiums they pay. They are not. What I would ask the Government to do is to consider what the position would be if the National Health Service, instead of being financed by the taxpayer, were financed by premiums paid by the beneficiaries.

I must make one or two assumptions which may not be justified. First of all, I assume that a premium of 4s. per head of the populat1on per week would finance, on insurance principles, the National Health Service at its present level. Secondly, I assume that in some cases —for example, old-age pensioners and youngish couples with large families—a premium of 4s. per head per week would be too high. And therefore I assume that a sum of, say, £200 million a year should be provided by the taxpayer to help finance the payment of premiums in these cases. If the National Health Service were financed in this way, there would 'be a saving in taxation of £400 million a year, and that would be enough to cut purchase tax by half and take a shilling off the income tax—and that surely would be very agreeable.

Of course, there is an evident fallacy in the argument so far as I have developed it—that is, that whether the citizen pays £600 million a year as taxpayer of whether he pays it as a policyholder, he still has to pay it. But it is not altogether a fallacy, because there are two elements in taxation. The amount is important, but the method by which it is raised is immensely important, too. I suggest that there would be a great difference in the effect upon people's minds, in particular in the effect upon incentives, if the National Health Service were financed through the payment of insurance premiums. The difference is this: if a householder pays his 4s., 8s., 12s. or 16s., or whatever it is, a week by way of insurance premiums, then, once he has worked to get that amount, once he has worked sufficient overtime, once he has displayed a little more energy than usual and earned the amount to pay the premium, everything else, though not exactly tax-free, is half tax-free, if a shilling is taken off income tax and purchase tax is halved. So, from the moment he has paid his premium, he goes ahead, knowing that of what he earns during the week he will be able to keep a much greater proportion than he does now. Under the present system, every time he works overtime he knows that the tax collector is going to take what he considers to be not a fair share of it.

I have put this suggestion forward. A private Member of your Lordships' House is at an immense disadvantage in making constructive suggestions—probably that is why one does it so seldom; one has not access to all the facts. One's calculations have to be one's own and not those of a Department. Nevertheless, I think that if the Government would explore the possibility of financing the Welfare Slate more on the insurance principle and less on the basis of taxation, there might be a great advantage and a way might open up out of our difficulties.

5.59 p.m.

THE CHANCELLOR OF THE DUCHY OF LANCASTER (THE EARL OF SELKIRK)

My Lords, I should like to thank all the noble Lords who have spoken this afternoon. It is of great value to hear the frank and independent opinions of noble Lords who speak with great authority, who are tied to no Party and who say exactly what they think. At the outset, I should like to answer the question which the noble Lord, Lord Pethick-Lawrence, posed: whether inflation to-day is so far under control as to justify letting up. I give him the unequivocal answer he gave himself: no, it is certainly not.

I should like to expand some of the reasons why that is our view. There are a number of favourable signs. For instance, the gold reserves, as the noble Lord said, have risen. But it is worth remembering that they are still £70 million below the level of the reserves we had in 1945; and, moreover, unlike our position at that time, we now have an annual payment of 200 million dollars to make to the United States of America. I can say, however—and this is good news—that to-day the results for April are announced, and they show an increase in our gold and dollar reserves of 50 million dollars, which is satisfactory. Our foreign exchange rates have been remarkably steady since the autumn Budget and have remained almost continuously in the upper half of the official rate bracket; and, perhaps almost equally important, transferable sterling is moving up now well into the bottom of the official exchange bracket—it is now 2.785, which I understand is the highest since May, 1954. The point made by the noble Lord, Lord Cherwell, about the significance of sterling, is of tremendous importance.

The trade figures for February and March of this year are encouraging. There is in this country an easing of demand in the industries producing consumer durable goods; that is to say, those metal industries where we are particularly anxious that there should be a certain amount of easing of pressure. There has been a reduction both in bank advances and in deposits over the past twelve months, which is to the good; and production continues to rise. Your Lordships may have observed the comment of the Chancellor of the Exchequer when he said that our deficit last year of £103 million represented an overspending of 2d. in the pound. That, I think, indicates that over the whole population it is quite clearly capable of rectification; but, bearing in mind the narrowness of the margins we are working to, I feel that it must be regarded as serious and indicates the delicacy of the balance that the Chancellor must exercise in the decision which he comes to.

Now may I turn to one or two points that are not quite so favourable. The first is the level of retail prices. They remained remarkably stable from November until March, when they rose two points. The demand for labour still considerably exceeds the supply; that is to say, vacancies are much more numerous than the number of unemployed. In the early part of this year personal incomes have been rising faster than prices or than production. Indeed, I think it is fair to say that recent wage increases have not yet made their full influence felt on the price level. If it is then claimed that the increased prices will be justification for increased wages, we shall undoubtedly quickly price ourselves out of the foreign market. If the belief that we can maintain a closed economy becomes general, then I am certain it will lead to the bankruptcy of this country. We could, of course, quite easily control the situation: we could control prices; we could control labour, and we could control materials. But I do not think anyone wants to pay that price, because it would be almost indistinguishable from Communism. We could put 2s. 6d. on the income tax and have a Budget surplus of £1,000 million. But our object is to control the home market, while maintaining the vigour of the industrial machine in the export market.

The noble Lord, Lord Rochdale, asked how far we can encourage export. It is, of course, difficult. We have resigned ourselves completely to an attitude against subsidies for exports. The Board of Trade Intelligence Service is reasonably good, and I think the rates of the Export Credit Guarantee Department are of some help. But the main thing is to restrict home demand so that goods are not drawn away from export. I feel I can say that our economy has a great deal of vigour. When we are feeling as gloomy as we are—I thought that the noble Lord, Lord Lucas of Chilworth, was particularly gloomy on the export side—it is worth remembering that we are the greatest exporters of textiles, of tyres for motor cars and aeroplanes, of bicycles, of pottery. and, indeed, of electrical machinery; and though the Germans are coming up, I think we can still claim to be the greatest exporters of motor cars. That is apart from our invisible exports, such as shipping, insurance and banking. I mention this because I feel that in our discussions we sometimes get excessively gloomy.

The main purpose of the Budget, whether the noble Lord, Lord Rea, regards it as uninspiring or not—and I think the significance of the Budget has been a little understated in this debate —is the emphasis on strengthening the capital structure of this country and finding new ways and means of providing capital investment. The first method is a substantial Budget surplus. A figure of £500 million is a considerable one, and it is a powerful disinflationary weapon. That surplus is secured by maintaining revenue, which will equal expenditure both above and below the line if we leave out the new arrangements for nationalised industries; and by reducing expenditure on existing Supply Votes by £100 million —a point which the Chancellor of the Exchequer emphasised—excluding Supplementary Votes, on the one hand, and over and above any windfalls in the form of underspending on the other. So, in fact, it is a genuine reduction of expenditure of some kind.

I think it is desirable to give an impetus to economy these days; but while I find it refreshing to hear the noble Lord, Lord Coleraine, speak as he does, when it comes to practice, as the Chancellor of the Exchequer said, the old idea that it was expenditure that needed justification, and not economy, just does not exist to-day. Anybody knows that any Bill requiring additional expenditure which comes before this House gets a ready reception, but that the reception of any Bill which requires economy is likely to meet with much more difficulty. Those are the facts on which Parliamentary democracy is working out at the present time. It is for that reason that such a speech as that made by the noble Lord, Lord Coleraine, emphasising the need for reducing taxation, if there is any means of doing so, is of real signi ficance. We should be in considerable difficulty to follow the line he has suggested, because we are pledged to maintain in our structure of life an element of security which I do not think any of us would be without. I am sure that we can only maintain that with a strong economy, by ensuring that anything unnecessary is cut out and by seeing that what is retained is designed for the purpose for which it is intended.

The noble Lord, Lord Lucas of Chilworth, made an attack on defence expenditure. I think the noble Lord might, at least, have acknowledged the fact that. Service rates of pay have gone up £70 million this year, and the level of Service expenditure has virtually remained static. That, I feel, represents a great measure of careful pruning by the particular Departments concerned. With respect to the noble Lord, I feel that, even in an economic debate, it is proper to say that we as a country cannot contract out of the problems of defence; it just is not practical to view them in that way. After all, it is widely recognised that the strength of N.A.T.O. to-day has added stability to international affairs, and that, in itself, has a great importance on economic affairs. I believe that the Budget surplus of over £500 million, if the Chancellor of the Exchequer is successful, will have a great disinflationary effect.

The other side of the question is savings, and it is appropriate that forty years after the savings campaign was opened by Mr. Reginald McKenna we should now be putting a tremendous emphasis on savings in this Budget. Your Lordships will no doubt remember that it was Lord Keynes who made the point that if investment exceeded savings there was an inflationary tendency, whereas if savings exceeded investment there was a deflationary tendency. Keynes's great principle was to try and persuade people to cut the cake up, whereas our purpose is to try and persuade the country to bake a bigger cake. Everybody is anxious to spend capital. Hardly a day goes by without someone asking for more roads, railways, ships, or atomic energy, or increased expenditure on the Commonwealth and under-developed countries. But there are not so many people anxious to go through the laborious process of saving money by which this alone is possible. I think it right to pay our tribute to Lord Mackintosh and all those who work with him, because savings are of tremendous importance.

It is true to say that, during this century, there have been many attacks on the ownership of property. Savings inevitably involve the ownership of property, and it may well be that these attacks have discouraged people to save in that respect. But where are the savings to come from? I am sorry that the noble Lord, Lord Lucas of Chilworth, has gone, because I think he was wrong in saying that the question was not important. I think it is of the greatest importance. Savings cannot come from capital; they have to come from income. There are only two sources of income: one is companies and the other is individuals. The nationalised industries and, indeed, local governments, are all large borrowers and not savers at all. If I take the figures for 1954, which are the latest I have, I find that the total gross trading by companies and public corporations came to about £2,800 million, of which half went in savings, including depreciation. Personal income was about £12,000 million, of which only about £900 million, as a rough figure, went into savings.

It is clearly in this field that the greatest opportunity lies. When we look at it more closely, we find that 80 per cent. of gross income comes from people with less than £1,000 a year. It is clear that it is from these ranges that the great body of saving must come. It is for that reason that the Chancellor of the Exchequer has taken certain actions, which I am quite sure are widely welcomed. The first is that of improving the rate of return on National Savings Certificates and Defence Bonds, which have been described as the best tools yet for that purpose. The second is by allowing the first £15 of income accrued at Post Office savings banks and Trustee savings banks to be free of income tax. Thirdly, there is the allowance for relief from income tax for premiums paid by a wide range of professional people. That is an improvement for that particular section of the community which is long overdue, and I think it is one which is warmly welcomed to-day, particularly in view of the emphasis which a number of noble Lords have laid on the heavy demands of taxation which fall on that particular section. There is also the reduction of stamp duty on the purchase of smaller houses, which, after all, is probably the best way of saving.

Finally, there is the subject of premium bonds. I do not think I need say any more about premium bonds, though I am sorry that the noble Earl, Lord Perth, is not here. About three years ago he spoke strongly on the subject, and I am sorry he is not here to express what I am sure would be his appreciation. This subject has been so adequately dealt with by my noble friend Lord Hailsham that I need say only this. I recognise that some people find its acceptance difficult, but I would ask them to look at the scheme. It seems to me that one is not putting blind chance against hard work; one is putting sound savings against hard spending. That is really the alternative, and as such it is so unquestionably to the advantage both of the individual and the State that I feel that those who are worried about it should look rather more carefully at it. I am afraid it is the case that politicians must take human nature as it is and not as they would like it. I think it would be only right that the State should make some bid to persuade people to save something of the £2,000 million which is now spent on gambling, tobacco and alcohol. That is the emphasis which the Chancellor of the Exchequer is laying upon savings, voluntary and involuntary. I think that goes to the root of the problems which we have to-day.

VISCOUNT ALEXANDER OF HILLSBOROUGH

I do not rise in any sense to criticise what the noble Earl is saying about savings, but perhaps on Tuesday the noble Earl, Lord Munster, who is to speak for the Government, might answer this question. If it is to be so helpful to give relief to those who invest in the Post Office and Trustee savings banks, why is it that inducement is not offered to those investing in thrift organisations other than in these two particular channels? You are going to get a change from one investment to the other and no net increase in saving.

THE EARL OF SELKIRK

I see the noble Viscount's point. I think the answer is because the rate of interest on Post Office savings and Trustee bank savings is different from that on Defence Bonds. I am not quite clear as to the whole answer, but I think that is one factor which comes into it.

VISCOUNT ALEXANDER OF HILLSBOROUGH

With respect, perhaps the noble Earl will make a note of it for Tuesday, because we will raise the question of industrial provident societies and friendly societies.

THE EARL OF SELKIRK

I will do that. The noble Lord, Lord Pethick-Lawrence, raised his favourite subject of money rates. There is a good deal of difference of opinion on this point. There are the classical theorists and the practical operators, who take different views. One of the difficulties is that banking is not an exact science but an art. That is why some of the precise calculations of the classical theorists do not necessarily work out to-day. For this reason the actions of bankers are influenced by what they expect the future to hold. Deposits or advances are not of the same character; they may be different types of deposits or different types of advances.

The noble Lord referred to Lloyds Bank Review, which questioned the high bank rate as being disinflationary and emphasised the importance of reduction in short-term borrowing, particularly on Treasury Bills. I do not think the Government have ever been under any illusion about this matter. They know that to exercise a disinflationary pressure two things are necessary: first, a high rate of interest, which, of course, on the other side encourages saving; secondly, a relative shortage of cash, which, of course, in turn means funding or replacing Government borrowing by long-term borrowing of some character. That is a course the Government are pursuing now. The Budget surplus is a form of funding. The action of the local authorities in going into the market is another form of funding, and the Government's own long-term issue which is now on the market is also a form of funding. In this sense we agree with Mr. Dacey that excessive short-term borrowing is a decrease of liquid assets, which should be avoided. It is interesting to note that last year the volume of advances did not follow the volume of Bills —that is to say, in the first half of the year, when Treasury Bills were falling, advances increased, whereas in the second half of the year, when the opposite was happening, advances were reduced.

I realise that there is another force in the second half of the Chancellor's request. He had made a request to banks to check advances, but I do not think it is fair to suggest that the money supply is entirely dominated by the volume of Treasury Bills for sale.

The noble Lord, Lord Rea, raised the far-reaching question of an inquiry into trade union practices. I think that what the noble Lord was suggesting goes very much too far, but he may be interested in a statement which was made by my right honourable friend the Minister of Labour yesterday in another place. He said that he had raised the subject of what are generally called restrictive labour practices, or what might, I think, be referred to as the best or most efficient use of labour, at the National Joint Advisory Council. The discussions were characterised, he said, by "a constructive and co-operative approach" to this problem, and, if I may quote his words. (OFFICIAL REPORT, Commons, Vol. 552 (No. 144), col. 197): There was general agreement that this is one aspect of the wider problem of increasing productive efficiency…It was also recognised, however, that this is not a subject which can usefully be dealt with by broad generalisations but is one to be examined by each individual industry. Accordingly, it was agreed to draw the attention of employers and trade unions concerned in individual industries to the need for a new and positive examination of the practices which impede the efficient use of manpower. The matter has been referred to the Joint Consultative Committee which should be meeting in a few days, and it is hoped that they will carry the discussion a good deal further.

The noble Lord, Lord Conesford, raised again the question of profits. Here one must emphasise that certain concessions were given in this Budget. There was, for instance, the concession of relief of tax for professional people's savings, and there was the 2s. extra family allowance given for the third child. The Chancellor of the Exchequer felt that he must keep up the surplus at least to the level of over £450 million, and it was therefore with very real regret that he found it necessary to impose some extra taxation. However, I know that that is not really the point that the noble Lord, Lord Conesford, had in mind, which is that he objects to this taxation. He is quite right. He objects to the form which it has taken. I would, however, say this to him: that if that form had not been adopted the situation would have involved drawing together the rates of tax on both distributed and undistributed profits of companies.

At the present time, when we are trying to answer the rather difficult question that Lord Rochdale put to us, about how we are to encourage people to invest and not to consume, we felt, quite frankly, that it would have been misleading to put what is, in fact, a higher tax on undistributed profits. That is the difficulty. I am quite aware that the Royal Commission on taxation took the opposite view. I do not think we have ever attempted to hide our indebtedness to the work which the Royal Commission have done, or indeed our appreciation of their tremendous labours; but in the present problem of trying to put the emphasis on capital investment the Chancellor of the Exchequer finds it very difficult to take any other line. I was glad that the noble Lord, Lord Rochdale, emphasised the great part which investment allowances played last year. He will, of course, note that we have only suspended them, indicating that we hope that it will be possible in due course to reintroduce them.

I am also very glad that the noble Lord, Lord Rochdale, referred to the new system of investment for nationalised industries; I think it is an improved system, as the capital of nationalised industries necessarily carries the Government's pledge or the pledge of the community. I am sure it is not the intention of the Chancellor of the Exchequer that all savings should be drawn away from private industries to nationalised industries—I think that is the point the noble Lord was making. I do not know quite how the Chancellor of the Exchequer would do it if he wanted to. But of course, by far the most important thing is that there should be enough savings to provide capital fully and easily for both.

I am afraid that I did not consider the latter part of Lord Pethick-Lawrence's speech as of quite such value as the first part. I tend to look on the second part of his speech as being rather misleading. He started by saying that he would deal with the cure and cause of inflation. I immediately sat up, and thought, "Here is something which we have all been looking for." But what did the noble Lord say? He said, so far as I could under- stand, that the increase in wages had nothing to do with inflation—he did not use those words, but he implied that one had very little to do with the other. Perhaps the noble Lord will tell us they have something to do with each other. I do not know whether he would like to do that, but I think it would be helpful, because he certainly gave that rather curious impression by the sequence of the words he used.

LORD PETHICK-LAWRENCE

What I was trying to point out was that one could not expect the working man to forgo his economic advantage unless other people were prevented from taking advantage of their economic position to gain things for themselves.

THE EARL OF SELKIRK

I take it from that that the noble Lord does acknowledge the situation quite frankly, as he must do; but he started by saying "cure and cause", which rather led rue "up the garden path." The second part of his speech suggested that the real cause of inflation was tax evasion and heavy expenses. I do not really think that the noble Lord meant that, but the sequence in which he put the things left me with the impression that that was the idea he was indirectly trying to convey. I think he knows perfectly well that there is not a shred of truth in that at all. It does not bear a moment's examination.

We have in this country, I suppose, far and away the most efficient system of tax collection in the world. I do not think there is much doubt about that. Year after year we have brought in new additions to the income tax law which have established beyond peradventure that matters which previously might have been regarded as tax avoidance would in future be regarded as tax evasion. if one looks at the Finance Acts for 1953, 1954, 1955 and 1956, one finds in each of those Acts that various measures have been put forward for the express purpose of stopping what we have regarded as violations of the spirit of the income tax law, though they may well have been matters within the letter of the law as such.

The noble Lord also said that he thinks expense allowances are unreasonably granted by the income tax people. 1 have never found that people who have tried to explain their claims for expenses allowances on the basis that they were incurred "wholly, exclusively and necessarily for the performance of the duties" say that they thought the Inland Revenue officials were unduly lighthearted about that. I think most people have found that the Inland Revenue people are pretty "tough" in their interpretation of expenses. I am not, of course, prepared to say that unscrupulous statements are not made which it is difficult to disprove. There may be some from time to time, but I do not think that is at all a widespread practice. I would say that expenses for entertainment, in the sense in which the noble Lord uses the word, are part of the economic structure of this country, and that in the ordinary way of business entertainment should play a part. I have very little reason to question that this is reasonably or fairly taken. It would be absurd to be unnecessarily extravagant or, on the other hand, parsimonious to the point where relations and proper contacts could not take place; but examining individual cases I think the noble Lord would find that the present arrangement is far from being unreasonable and unfair. I cannot help wondering whether the noble Lord is not thinking of some words of the Royal Commission who went so far as to say that In times of high taxation they are apt to produce on an individual the impression that every advantage in which he does not share is itself an abuse. I do not think that is necessarily the case here at all.

The noble Lord, Lord Rea, mentioned travel allowances. I can only say that that matter is answered by the statement that the time has not yet come when they can be dealt with. I do not want the noble Lord to think for one moment that we do not regard with the utmost sympathy the importance, culturally and educationally, in the widest sense, of the points which he has made. Speaking quite personally, and without any authority, I always feel particularly that is so of North America and our great Commonwealth relation, Canada, which it is so difficult for people to visit.

LORD PETHICK-LAWRENCE

Before the noble Earl passes from this subject, with regard to my question about whether the Treasury were looking into this very considerable avoidance of surtax with a view to taking some steps, do I understand him to say that he considers that no further action is required?

THE EARL OF SELKIRK

The noble Lord speaks of "these facts", but he never gave one single fact on this aspect of the matter. I can assure him that this matter is being constantly looked at at the present time, and facts given in every way are always looked at. There were some facts given about other subjects, but, if I may relieve the noble Lord's mind, when I asked for an explanation of the facts they were shown to be without any foundation whatsoever. The noble Lord may rest assured that this is a matter which is gone into continually; it has been examined, and reexamined, from the statement made on facts. I cannot see that there is any particular reason for going into it on a wider or broader basis than that which exists at the present time.

I am afraid I have not answered all the questions which have been raised. I will end simply by saying this. I believe that this Budget is based on a sound foundation from which we can proceed to renewed strength in our economy. It is a complicated arid difficult subject. It is very hard for the great body of the people of this country to understand the narrowness of the margin by which we are living when they see all around them outward and visible signs of prosperity. It is difficult for them to understand it. It is difficult for them to appreciate the essential causation between better capital investment and a higher standard of living, while individually, perhaps, they may be losing their own jobs or moving from one employment to another.

We all believe that we must make ourselves masters of our own economic circumstances. That fact has often been emphasised, particularly by Socialist speakers. But I do not think any of us wants to do it by putting the exclusive responsibility in the hands of the Government. If that is done, then the Government must ask for power. It is therefore especially necessary to-day that the broad issues should be understood as widely as possible. Everyone welcomes the steps which the Prime Minister is taking in meeting the leading members of the big trade unions and industry to try to see that these problems are as widely and fully understood as possible. But, of course, it is not only on the Prime Minister that the responsibility of making the position clear falls, because whether we succeed now, with all the immense potentialities which that involves, will depend on whether or not the great body of people accept the nature of the problems confronting them and are prepared to make their contribution.

THE EARL OF LUCAN

My Lords, on behalf of my noble friend, Lord Winster, I beg to move that the debate be now adjourned.

Moved, That the debate be now adjourned.—(The Earl of Lucan.)

On Question, Motion agreed to, and debate adjourned accordingly to Tuesday, May 8.