Lords Sitting of 8 May 1956

Preamble
The House met at half past two of the clock, The LORD CHANCELLOR On the Woolsack.
Prayers
  CROYDON CORPORATION BILL
  Read 2a, and committed; the Committee to be proposed by the Committee of Selection.
LIVERPOOL OVERHEAD RAILWAY BILL [H.L.]
Read 3a, and passed, and sent to the Commons.

OVERSEAS INFORMATION SERVICES
2.35 p.m.
LORD REA: My Lords, I beg to ask the Question which stands in my name on the Order Paper.
[The Question was as follows:
To ask Her Majesty's Government what approximate proportion of the £10,500,000 estimated expenditure (1955–1956) on the maintenance of all overseas information services to the Commonwealth and to foreign territories is being spent upon broadcasts or other vehicles for enlightenment directed specifically by Her Majesty's Government to foreign nationals who are known to be recipients from other sources of highly damaging and continuous misrepresentations of British policy and aims.]
THE MINISTER OF STATE FOR FOREIGN AFFAIRS (THE MARQUESS OF READING): My Lords, the inhabitants of many foreign territories may be said to be exposed in some degree to misrepresentations of the kind referred to in the noble Lord's question. These chiefly emanate at present from certain regions.
As the noble Lord is aware, the £10·5 million estimated expenditure on overseas information services is mainly divided between expenditure in foreign territories of £2¼ million, in Commonwealth territories
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of £500,000, in Colonial territories of £250,000, on the work of the British Council of £2·6 million and on the B.B.C. of £4·8 million. Apart from these figures, no analysis of the total cost of the overseas information services which would show how much was spent in the various areas and for the various purposes is possible, since the production of material for use by the information services is centralised in the United Kingdom. Moreover, a great deal of the effort is devoted not to rebutting misrepresentations after they have been made but to taking the initiative in informing people overseas of the aims and achievements of this country.
The only guide I could give would be to take the proportion of the total cost of staff overseas spent in certain areas like the Middle East and South-East Asia; but this would be misleading because the scale of costs and the methods used vary substantially from country to country. Her Majesty's Government are fully aware of the pernicious effect of these misrepresentations and within the limit of what is financially possible, they are doing their best to counter it.
LORD REA: My Lords, I thank the noble Marquess for his long and helpful explanation and particularly for the assurance contained in his last sentence.
LORD TREFGARNE: My Lords, as the noble Marquess himself knows so well, what is really important is not what is broadcast but what is heard; and will he convey to the B.B.C. the suggestion that they inform themselves more fully about the high proportion of many of these broadcasts which, for various reasons to which I need not refer, are quite inaudible to the audience to whom they are addressed?
THE MARQUESS OF READING: My Lords, I would think that if that inaudibility is deliberately provoked, the B.B.C. are fully alive to the situation.
LORD TREFGARNE: My Lords, I have in mind not mere jamming but other reception factors of which the B.B.C. may not be so fully informed.
LORD BARNBY: My Lords, arising out of his reply, may I ask the noble Marquess whether, since he lumped under one heading the expenditure from all sources, it is to be understood that the total expenditure which is under the

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British Council, as he has just described, is directed wholly by the officer in the Foreign Office who, in a recent reply, he indicated directed all foreign public promotion activities? And would he also care to say whether further consideration is likely to be given to so large an expenditure rightfully occupying a whole-time officer?
THE MARQUESS OF READING: My Lords, I am bound to say, with all respect to the noble Lord, that I am not very clear on the substance of that question; and in so far as he quoted, or alleged that he was quoting, an earlier reply of mine, I am afraid that, there again, did not recognise the reply. I can only say that the British Council works in very close association with the Foreign Office, of course, but it is an independent body and, as the noble Lord knows, pursues its activities in many countries of the world. Unfortunately, there again, the question of finance has to be taken into account in limiting its activities to a greater extent than we should like to do if we had inexhaustible resources.
LORD BARNBY: I thank the noble Marquess for his reply and I make my apology to him for not making my question clear. Perhaps I can confine it to one sentence: Is it to be understood that the direction of the expenditure by the British Council is directly under the responsibility of the Foreign Office?
THE MARQUESS OF READING: My Lords, that supplementary does not really arise from the main Question, but I think the question of where the emphasis is to be laid in the work of the British Council must to a considerable extent be a Foreign Office responsibility; and that is so. The British Council also carries on its activities as a separate organisation.

ALDERSHOT TATTOO
VISCOUNT BRIDGEMAN: My Lords, I beg to ask the Question which stands in my name on the Order Paper.
[The Question was as follows:
To ask Her Majesty's Government whether their attention has been drawn to a report in the Press of 2nd May to the effect that a rehearsal of the White City Tattoo was to be held at Rush-moor, Aldershot; and whether it is the
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policy of Her Majesty's Government to reintroduce the Aldershot Tattoo in the near future.]
LORD FAIRFAX OF CAMERON: My Lords, the report referred to was not official, and it is not the policy of Her Majesty's Government to reintroduce the Aldershot Tattoo.
VISCOUNT BRIDGEMAN: My Lords, is my noble friend aware that his Answer will give great satisfaction to those of us who think that modern soldiers should be trained for modern war and not for the battles of the past? And is he also aware that the use of National Service men on tattoos or events of the same kind should be approached with the greatest caution?
LORD FAIRFAX OF CAMERON: My Lords, I can assure my noble friend that my right honourable friend the Secretary of State for War has no intention of allowing training to be endangered by the devotion of excessive time to this kind of display.
VISCOUNT BRIDGEMAN: I thank my noble friend for his reply.

UNIVERSITY COLLEGE OF RHODESIA
2.43 p.m.
THE EARL OF LUCAN: My Lords, I beg to ask the Question which stands in my name on the Order Paper.
[The Question was as follows:
To ask Her Majesty's Government whether, in view of the financial contribution they are making towards the setting up of the University College of Rhodesia and Nyasaland in Salisbury, they are satisfied that the proposed residential arrangements are consistent with the principle of a multi-racial university.]
THE SECRETARY OF STATE FOR COMMONWEALTH RELATIONS (THE EARL OF HOME): Yes, my Lords. When Her Majesty's Government agreed to make a financial contribution to the University College of Rhodesia and Nyasaland, it had already been announced that the College was to be open to students of all races. The College has since been constituted by Royal Charter. It is governed by a Council, which is autonomous. The Council is responsible

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for the residential arrangements, and I am sure that your Lordships will agree that it is right to leave them to make the arrangements which are most likely to attract both Africans and Europeans to the University.
THE EARL OF LUCAN: My Lords, I thank the noble Earl for his reply. May I ask him whether he recollects that the noble Earl, Lord Swinton, in 1953 said that the essential principle of a multiracial university is completely accepted? Does the noble Earl also remember that that statement was an important factor in gaining wide support for the principle of federation at the time it was being passed through?
THE EARL OF HOME: Yes, my Lords, I recollect the statement of my noble friend Lord Swinton. I would remind the noble Earl that the Carr-Saunders Report on Higher Education for Africans in Central Africa considered that separate hostels would be in accordance with the multi-racial principle. I think that the University should concentrate on those conditions which will attract both Europeans and Africans to the University: that is the first thing to do. When that is established, I think that as the years go by many other developments will take place which we cannot as yet foresee.
THE EARL OF LISTOWEL: May I ask the noble Earl this question in order to elicit information on a point which I think still needs to be cleared up? Can the noble Earl tell us whether Asians will have access to both European and African hostels or only to one or the other?
THE EARL OF HOME: My Lords, I think I should require notice of that question.
LORD WINSTER: My Lords, may I ask whether any consideration has been given to the question of providing multiracial hostels for either sex in addition to the segregated hostels? Is it not likely that if that were done many European students might like to go into the multiracial hostels, and that might be the beginning of a movement which might make these segregated hostels ultimately unnecessary?
THE EARL OF HOME: I have no doubt that the Principal of the University
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who, as the noble Lord knows, is a most enlightened and progressive man—he has very progressive ideas indeed—will see the noble Lord's question. I am not prepared here from Whitehall to interfere with people who really know their business. As I said in answer to the noble Earl, Lord Lucan, I am sure that we must begin by trying to attract both African and European students to the, University. Incidentally, I believe there is going to be a restaurant which will be available to both Africans and Europeans. I have no doubt that there will be many changes as a result of commonsense practice and that we shall see many developments in future years.

BUSINESS OF THE HOUSE
2.46 p.m.
THE EARL OF HOME: My Lords, with reference to the Business of the House to-day, may I say that, as your Lordships know, as a matter of convenience we arranged that we should proceed with the debate on the economic situation and thereafter deal with the Committee stage of the Clean Air Bill. The economic situation has proved a rather more popular subject than the Government, and perhaps anyone else, thought likely. To-day we are to have eleven speeches upon it. I do not know whether the noble Viscount, Lord. Alexander of Hillsborough, will agree, but I think we should finish the debate on the economic situation and then see how far we can get with the Committee stage of the Clean Air Bill, without any desire to sit late or any wish on the Government's part to finish it. I understand that the right reverend Prelate the Lord Bishop of Sheffield will be unable to get here on another day, so I think it would be convenient if we could manage to get as far as Clause 8 to-day.
VISCOUNT ALEXANDER OF HILLSBOROUGH: My Lords, I have only just been notified of this matter and therefore have not had much time to think about it. I think it is quite right that we should see how long we take over the debate on the economic situation. We do not want to sit too late, but if it is at all possible we should like to get through all the Amendments to the Clean Air Bill. It would be a convenience to one or two of my noble friends who

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are interested in the Amendments and who would find it difficult to be here on another occasion if we could do that—that is unless we can come to some agreement about the next occasion on which to continue the consideration of this Bill. I have not heard yet of any such agreement.
THE EARL OF HOME: Perhaps we can see how we go on, and then, through the usual channels, make arrangements.

LICENSING (AIRPORTS) BILL [H.L.]
Returned from the Commons, agreed to, with Amendments: the said Amendments to be printed.

THE ECONOMIC SITUATION
2.49 p.m.
Debate resumed (according to Order) on the Motion moved last Wednesday by Lord Pethick-Lawrence, That there be laid before the House Papers relating to the economic situation.
LORD WINSTER: My Lords, I have noticed two phrases which constantly recur in the course of our debates. The first is "Speaking at this late hour", which becomes operative at about five o'clock. The second is that used sometimes by a speaker when he rises, "I will not follow the noble Lord who has just sat down in his remarks." It is very natural, of course, to wish to make a speech which one has prepared, but the persistent practice of never following a previous speaker rather kills the spirit of debate. I was so interested in the speeches on Wednesday last that I hurriedly scrapped nearly all I intended to say had I spoken that day. I should like, with your Lordships' permission, to refer to one or two of the speeches that were made.
I thought Lord Rea's speech was most interesting. He raised a question which I feel will have to be faced in the future. I could not entirely agreed with his view [OFFICIAL REPORT, VOL 197 (No. 87), col. 53] that
"warnings and exhortations … have successfully induced in us all a willingness to face some … form of self-sacrifice."
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I am afraid that that is far from literally true, as in fact in the latter part of his speech the noble Lord amply demonstrated. I notice that he spoke (Col. 55) about modern developments having
"… brought the workers into a position of power which they ought to have."
I am far from entirely disagreeing, but I think that that statement requires some analysis.
LORD REA: My Lords, it is a question of how my remark is interpreted. My intention was to imply to that degree of power to which they are entitled.
LORD WINSTER: I would agree with the noble Lord, but as the phrase was used, and as I have read it and checked it from Hansard, I say that I think it would require some analysis. Certainly they have power now, and certainly they deserve to have it; but on occasion that power is abused. I think we have seen that in the dock strikes; in that preposterous strike at Cammell-Laird about boring holes; certainly in the current difficulties in B.O.A.C., and in regard to the Amalgamated Engineering Union and automation. I think that all these examples show that that power requires perhaps to be rather more carefully used than it sometimes is, and that if it is used too much in these ways it will land us in very considerable trouble. I think that a remark made by the noble Lord, Lord Pethick-Lawrence, in the course of his speech, bears on the point. He said (col. 51) that inflation cannot be cured
"… by the false doctrine that everyone should pursue his own personal advantage to the community at large."
I entirely agree, but I regret to say that there have been too many instances in the past of people pursuing their personal advantage without regard to the welfare of the community.
The noble Lord spoke about wicked men who dodge income tax and "cook" expense accounts. That is very wrong, but practices such as these have their parallels in some of the strikes to which I have referred, which have disregarded the good of the community. I was interested in what the noble Lord said about tax evasion and expenses, remembering how I was pursued by the income tax authorities on the question of my income tax return and expenses. I could not help feeling that there must be one law for the rich and another for the poor,

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if those people are able to get away with such practices as the noble Lord revealed to us. I know that I certainly cannot get away with a ha'penny. Therefore, it puzzles me very much that these things can go on. I have little doubt that expense accounts are "wangled". I was staying recently at a very luxurious hotel on the South Coast and happened to remark to the maître d'hotel that they seemed to have a very good business. "Oh yes," he replied, "but it is all expense accounts of course." I said, "Really?" He replied, "Yes, and you see all these ladies here. Half of them are secretaries posing as wives, and the other half are wives posing as secretaries. That gets then on to the expense account."
Going back for one moment to what the noble Lord, Lord Rea, said on the question of trade unionism, I think we can perhaps agree with him that
"anomalies … must have arisen in a movement founded ninety years ago,"
but to my way of thinking they are anomalies which should not have developed and which to-day the trade union leaders are perfectly capable of correcting themselves. There is truth in the saying that the unions have perhaps largely exhausted the function which called them into existence, in the days of which the noble Lord, Lord Pethick-Lawrence, spoke, when, to use his words (col. 49):
"the manual worker was treated with savage inhumanity."
That is quite true, and it was that inhumanity which called the trade unions into existence. But to-day the law would not permit of such abuses as existed in those days, and the question to-day is rather whether the trade union leaders can control the machine they have created. They are, unfortunately, very often defeated when advising moderation and restraint or when refusing to recognise a strike as official. Most unfortunately, the level-headed trade unionists, who I am sure are in the majority, take little or no interest in their own organisation, so that there is always the danger of the organisation being captured by an active minority of Communists and hotheads who no doubt plan for a "Workers' Republic" or something similar. But the trade unions were not
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created, nor have they been supported by public opinion, which has reacted upon and affected the actions of all political Parties, in order that their control should be wrested from the hands of men who have regard for tie community by extremists who really wish to erect a tyranny of labour. In this country we have dealt with a great many tyrannies, one after the other. If one looks back through our history, one sees a constant struggle of our people against one tyranny or another, and those who think that they can erect yet another tyranny will duly find out their mistake, as did those who tried to do the same thing in the past.
The noble Viscount, Lord Hailsham, is not here this afternoon. He used the debate as a stick with which to beat the most reverend Primate the Lord Archbishop of Canterbury and gave us a very spirited and lively exhibition of argumentum ad baculinum, which we all enjoyed, and nobody more than the noble Viscount himself. But dangers lurk in such wit. It was an American Senator, Thomas Corwin, who had been Governor of Ohio and Secretary of the American Treasury, who used to say that he might have gone higher and been President of the United States had his enemies not given him the reputation of being a funny man. His advice to General Garfield was:
"Never make people laugh. If you want success in life, you must be solemn, solemn as an ass. All the great monuments are built over solemn asses."
Obviously, General Garfield took his advice, because he did become President—and noble Lords have only to step across the road to the Abbey to see how right Senator Corwin was about monuments.
However, I agree with the noble Viscount, Lord Hailsham, that the most reverend Primate made rather heavy weather of this question of premium bonds by denouncing them as a gamble, which of course they are not. For myself I dislike the idea very much, not on the moral grounds advanced by the most reverend Primate, but because to me there is something rather Latin-American about such bonds. I think it is beneath our dignity to resort to such methods in our Budget. But the most reverend Primate really must not tell us all that gambling is inherently wrong, because it is an instinct which is inherent in human

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nature. My reading of the New Testament has always been that it is very tolerant indeed towards manifestations of deep-seated human instincts. I do not know that it has anything to say about gambling, but I notice that on the question of alcohol it does not tell us to abstain entirely. It is wrong to get drunk and beat your wife, or to drive your car and run over somebody. But the New Testament preaches moderation and says:
"Take a little wine for your stomach's sake."
I think that moderation might well prevail in this matter of premium bonds.
There is one question that I should like to address to the most reverend Primate, in case he should read the Report of this debate. If he is so opposed to all indulging in chance, I do not follow why he presented a mascot to the captain of the Australian cricket team. Surely, the whole idea of a mascot is that it is given as something which will interfere with the laws of chance and influence them in favour of the person who holds the mascot. I feel that there was something a little inconsistent in that action of the most reverend Primate. I must also say that I have noticed that in the halls of the most respectable clubs at this time of year one sees going up notices about Derby sweeps. I wonder if all Bishops and lesser ecclesiastical fry could give their word that they have never taken a ticket in a Derby sweep.
We are all glad to see the noble Lord, Lord Lucas of Chilworth, back amongst us. He has returned to our climate from the sun of California, and it seems to have led him to take rather a gloomy view of our national prospects. There was great force in much of what the noble Lord said, but I do not know that our prospects are quite so desperate as he pictured them. I have a little more hope about them than he appears to have. On the question of defence expenditure, I believe that we all share his sorrow that we have to budget for such enormous sums on defence, but I feel that his views on that subject might be put to the test by his taking part in the coming debates on the Navy Estimates and the Air Estimates.
What does the noble Lord suggest giving up? Are we to abandon the struggle to arm in proportion to our position and our responsibilities in the world?
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Or does the noble Lord suggest neutralism—a policy which rests entirely upon the good will of other countries? Or does he suggest our being for ever dependent upon America? As I say, neutralism is a policy which depends on the forbearance of strong nations, and I do not want to live "by kind permission of the United States of America." The more one examines this question, the more one is brought down to the hard fact that, things being as they are, and people in other countries being as they are, we have no alternative but to pursue our existing policy on armaments, while, of course, endeavouring to pursue that path as economically as possible. I do not deny that there is room for great economics: but I wish the noble Lord, Lord Lucas of Chilworth, were going to take part in those two forthcoming debates, when he could elaborate a little more fully his views on this question.
In the last economic debate I ventured to give my opinion that what causes our economic troubles, and inflation, especially, is the fact that we are not getting full value for the hundreds of millions of pounds paid out during the year in wages; and that if we do not get full value for that money, it is certain that we shall have inflation and find ourselves in great difficulties. Wages rise, but productivity does not always rise in proportion. Promises of better work in return for higher wages are given, but they are not fulfilled. In far too many cases those who grant the higher wages do so with the comforting thought that it will be possible to "stick it on the price"; and, not unnaturally, the workers' view of wages is, "all that the traffic will bear". But what happens when it is no longer possible to "stick it on the price"—when the price has reached a point where the consumer will not pay any more—and when the traffic will not bear any more? Will the worker then realise that to maintain even current wages, let alone raise them still further, will be impossible unless there is a corresponding proportional rise in productivity? The noble Lord, Lord Cherwell, has written to say that he is unable to be present to-day, but in his interesting speech this passage occurred: [OFFICIAL REPORT, Vol. 197, (No. 87) col. 81]:
"Only a change of heart of the population can save the situation."

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He went on to say that the mentality of trying to get as much as possible for doing as little as possible must eventually lead to unemployment. Those are not, perhaps, very comforting words, but I believe it to be perfectly true that wages cannot be maintained at their present level, let alone raised still higher, unless productivity rises in proportion.
I would venture to call the attention of the noble Earl, Lord Munster, who I understand is to reply on behalf of the Government to-day, to what I think is a most important feature in our economy. I see that leading shipowners have referred to the possibility of registering their ships in Commonwealth countries, where taxation is low, to enable them to compete with what are called "flags of convenience". I want to make it quite clear that the shipowners have not spoken about this in the sense that they are actively considering it, or have any immediate intention of doing so; but they have pointed out benefits that would accrue to them if they were to take such a step. For instance, taxation in Bermuda is negligible. Why should not our shipowners operate from there? There are certain legal difficulties in the way, but they could be overcome. At present they have to compete with tax-free fleets, registered in Liberia or Panama, where the growth of the fleets is quite phenomenal. What blame could attach to our shipowners for taking such a step, when they see themselves threatened with being put out of business by such ships?
In 1939, Panama, Liberia, Honduras and Costa Rica registered between them 750 gross tons of shipping. To-day, the figure of those four countries is over 9 million gross tons. That is the situation with which our shipowners are confronted. The owners of that 9 million gross tons of shipping can add to their fleets out of untaxed profits. Suppose the Cunard Company decided to follow their example. I see that the Chairman of the Cunard Company said the other day that, had they done so in the past, they could have saved £14 million over the past six years, which would have been a very great help towards replacements, which are such a problem to-day, when with the present cost of building a ship, it really is not possible to provide for her replacement out of her earnings during her life.
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Are British owners expected to turn their backs indefinitely upon comparable sums? The Government have been fully warned upon this point, and the matter has been raised more than once in debates in this House. One gets only a very perfunctory reply when one raises it. Here is an industry contributing enormous sums to the total of our invisible exports. Are the Government willing to let it be "done down" by competitors running what I can only call the "Fancy Flag" racket? I hope the Government will be moved to give more consideration to the question of the difficulties of our shipowners to-day, and, if they do, I hope they will take some practical steps to ease the difficulties of one of the greatest of our industries. I mention only one other source of grievance to the shipowners and I will mention it in two words. They ask, and not unnaturally: Why is civil aviation treated like a rare orchid and given the hot house treatment, while another mode of transport, shipping, gets put in the deep-freeze?
The last point I wish to mention is the treatment handed out to the middle classes of this country by successive Chancellors of the Exchequer. The middle classes are by tradition an inarticulate section of the community. Nowadays it is rather difficult to say where they begin and where they end. However, there is something which is still very distinctly the middle class. It is a solid national element, displaying highly admirable virtues and qualities, particularly in the sphere of family life. Their distinctive characteristic, to my mind, is that they make great sacrifices, not "to keep up with the Joneses" but to keep up certain traditional virtues and standards, especially as regards the education of their children and the training of their children in honesty and reliability. It always seems to me that the middle classes have a sense of duty to society and the nation—a sense of duty which has no truck with clock-watching or work-dodging. The professional man does not think of his duty to society in terms of a forty-hour week—he is usually working much longer hours than that.
I would put it in this way: just as the red strand runs through an Alpine rope telling you that you can trust your life to it, so I feel the middle class runs through our national life, dependable amid rather

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weak strands. Too many of these estimable people are having a very hard time. Taxation bears too heavily upon them, and no Chancellor seems to heed their plight. The husband who works with his brain to keep his household going mostly has his mind full of financial preoccupations, uncertainties and anxieties which are certainly not conducive to good brainwork. There are no longer any wolves in England; it is now the tax-gatherers who have to be kept from the door. Whereas in the old days you could shoot a wolf, tax-gatherers now enjoy an all-the-year-round close season, with the result that to-day the middle-class man is having the life squeezed out of him by the boa-constrictor of inflation.
What specially hits the middle-class man is the fact of surtax beginning at £2,000. That is the pre-war equivalent of £800, and it really is absurd to apply such an opulent sounding tax—misleadingly opulent sounding—to such a small income. Imagine treating a man who has the equivalent of £800 a year to spend as a rich man! Apart from what I regard as the iniquity of starting surtax at £2,000, there are other anomalies about it of which I do not think everybody is always aware. The allowances which are granted for income tax purposes may bring a taxable income below surtax level, but they are not deductible when calculating liability for surtax.
It works out in this way, if I may give one instance. A married man with two children earning £2,100 a year may, for income tax purposes, deduct £890, making his income for income tax purposes £1,210, which is worth about £485 pre-war. Nevertheless, he is liable for surtax. If the allowances which are granted him in respect of income tax were also granted in respect of surtax the man would be free of surtax until his income reached £2,890 a year. It seems to me an extraordinary anomaly to allow a man certain income tax allowances which bring his income well below the £2,000 at which surtax begins, but when you are considering surtax to disregard that deduction entirely and to say: "No, you are also liable for surtax in spite of the fact that your income tax allowances bring your income below the £2,000 level." It seems to me the antithesis of statesmanship to do damage to and
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harass the middle class, people who constitute a vital element in our society. Taxing them at present rates really endangers our prosperity, because it is not an exaggeration to say that taxation is really taking the heart out of those to whom the country should be looking at this juncture for leadership and initiative. To ease their burdens would really help the whole nation as well as helping people who, I think, deserve help in their personal capacities.
I think the matter was well put recently in a letter to The Times which, speaking of the middle classes, says:
"They are no longer able to command the goods and services which make life something more than alternating periods of work, either at home or the office, and sleep. Papering the bedrooms can be a pleasant change but other things in life seem more worth while. Promotion is a diminishing reward and so incentive diminishes. It is more profitable to send one's wife to work or take evening work oneself than to aspire to greater responsibility. This is certainly the situation among clerks in the Civil Service and will extend into higher grades."
I have no reason to think that there is anything overstated or inaccurate in that letter, and it does reveal a state of affairs which must be an unfortunate reaction upon the nation at large. When the noble Earl, Lord Munster, replies to this debate, I hope he will be able to say something about the possibility in future Budgets of giving some relief also in the matter of allowances for children's education.
The middle classes deserve a much better advocate than myself. I have tried to put a part, though a very small part, of their case to the best of my ability whilst emphasising that what is at issue is more than their hardships; it is the harm which is being done to the nation and, as I believe, the trouble lying up in store for the nation by this neglect of an all-important body of people. If the noble Earl will be referring to this point in his reply, may I remind him that the President of the Board of Trade has acknowledged that the middle classes have not shared in the general prosperity of the country. He used these words: "rather the reverse". A Conservative speaker said that his greatest regret about the Budget was that
"nothing is to be done about the middle class. It is upon the skill and technical knowledge of the middle class that we depend. These men are leaving the country in large numbers."

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I would remind the noble Earl of these two statements. I hope that he will interest himself in the matter and represent to the Chancellor of the Exchequer the fact that strong feeling exists about past neglect of the middle classes.
3.22 p.m.
LORD GRANTCHESTER: My Lords, since the last debate in your Lordships' House in March credit is due to Her Majesty's Government for the manner in which they have highlighted the value and importance of savings and given some encouragement to the small saver. We have also had, I think, two welcome admissions from Her Majesty's Government. The first is that their expenditure must be reduced, and the second that to achieve this some changes of policy will be necessary, to which thought is being given. We shall be impatient to hear more on this subject at an early date. I would suggest that in their search for possible economies, the feasibility of a common defence budget for the N.A.T.O. countries might be explored with advantage. But, I still feel that there is no real sense of the urgency of the task of cutting expenditure, or that no real sense of the urgency of cutting expenditure has penetrated as far as our great spending Departments. Nor has the magnitude of the task which is necessary been grasped. The noble Lord, Lord Coleraine, mentioned it, but I should like to keep on saying that the excess of expenditure over what is safe is something like 10 per cent. of the national income. That is the measure of the target for cutting expenditure. It is a truly formidable figure.
Nearly a year ago Her Majesty's Government asked the banks to cut their advances by 10 per cent. as a start. This has almost been achieved. Why do they set themselves a target of only 2 per cent. and then allow themselves to get a year behind in making a start? This matter of cutting expenditure is vital for our survival as a great Power. More than that, it is vital for our survival as any sort of Power at all. It is not possible to bottle up enterprise indefinitely. It will inevitably be drawn where it is less fettered and where reward is more commensurate with effort. I should like to reinforce what the noble Lord, Lord Winster, has just said about the shipping industry. They have put their case clearly
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and given a plain warning that—and these are the words they used:
"Decline and slow extinction is inevitable if taxation continues at a level which prohibits the replacement of ships out of profits."
The shipping industry is a favoured industry, for it still has the benefit of investment allowances. This same replacement difficulty and fear haunts every industry which has to compete with nations where taxation is less than it is here. Vitality is being sapped from our industries by the burden of taxation.
I have referred previously to the method of the taxation of overseas sub-sidiaries which here bear both distributed, and undistributed profits tax. I have also drawn attention on more than one occasion to the provisions of the Finance Act, 1951, which forbids the transfer of control of a company abroad without prior permission from the Treasury. There are no clear rules as to what will be permitted. Discretionary powers are usually undesirable, and they always create uncertainty. I want to go further than the noble Lord, Lord Winster, and ask Her Majesty's Government whether they do not consider that the time has come when this Act should be modified to permit the free movement of the control of British companies at least within the Commonwealth and British territories. The consequence of these restrictions under the Finance Act of 1951 is that many new businesses have been registered overseas on the initiative of British citizens without any formal ties or associations with this country, which would be preferable.
If I may refer to the topical question of premium bonds, some have suggested that the introduction of these premium bonds will undermine the morale of the country. I am not nearly so frightened of the effects of the bonds as of the demoralising effect of the discriminatory taxation which is directed against the most enterprising and against those who carry the greatest burdens of responsibility in industry. Dependence on premium bonds, I agree with the noble Lord, Lord Winster, may not be very dignified for the British Government—but that is another matter.
I recall a scheme which I was asked to consider for a company which was anxious to issue some debenture bonds for the purpose of encouraging members

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of its staff to invest in the company in which they were working. By holding debenture bonds, they would have a secured financial interest in the company. It was proposed that these debenture bonds should carry a low rate of interest. Drawings were to take place periodically, and they were to be redeemed at a substantial premium, not of course comparable in size with the prizes offered by the new premium bonds. However, the company were legally advised that such a scheme contravened the Lotteries Acts. I believe that there was quite as good a motive behind this scheme and that it would have served just as good an economic purpose as the Government scheme—perhaps better. This particular item in the Budget would have been, I suggest, better dealt with in a separate Bill, when matters like this should have been raised. I do not like the idea of the Government setting themselves above the law which is applicable to private citizens in a matter like this. While on the subject of the bonds, I should like to ask what the administrative costs are likely to be. I suppose the scheme will require an expensive building. Is commission to be paid on the sale of the bonds? Are the costs to be deducted from the prizes?
When we come to a question of undermining morale, I think one of the worst factors is the feeling which most enterprising individuals have and which those who direct our most "go-ahead" corporations feel to-day—namely, that the State is their enemy and not their protector. Her Majesty's Government have introduced tax-free benefit as prizes for the premium bonds. Whether they introduce tax-free benefits on premium bonds or have to make a tax-free offer to get a chairman for a public service, they realise clearly that what matters to the individual is his net reward for his work. It was right first to raise the net incomes of the small income group, but to leave those on whom industry depends—those people to whom the noble Lord, Lord Winster, has just referred—still surcharged at a pre-war level of value is overstraining their patience. Attempts to derive some kind of benefit, even if it is not of a very desirable nature, are undermining the character and the privacy of the home. There is no more
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absurd result than a state of affairs in which those who direct our great industries live in straitened circumstances in their homes, compared with their prewar method of living, and in comparative luxury when they are on business or attending conferences. This evil has spread now to Government Departments, all of whom expect a free conference arranged for them in lieu of a holiday for which they would normally have paid.
My Lords, it would be churlish not to acknowledge that the Government have done something in the relief given to the self-employed in the matter of deferred annuities, but I should like to ask the noble Earl, Lord Munster, to consider one point in connection with this matter and to elucidate another. Many in this category of self-employed persons have already taken out endowment assurances, some with the intention of converting the sum assured on maturity into an annuity. It is serving no useful purpose to tempt these policy-holders to discontinue their existing policies in favour of a new type of contract on which greater tax concessions are offered. I suggest that this risk might be obviated if the margin between the concession allowed on existing policies and on the new contracts were narrowed slightly. I should like to ask the noble Earl to consider whether he would lend his support to making the allowance on life and endowment insurance premiums, one half the rate of tax payable and not to distinguish between income tax and surtax—to allow it for both, as is intended in the new form of contract for a deferred annuity. Incidentally, this used to be the rate that was allowed, and it is rather less than the rate suggested by some of the members of the Tucker Committee.
As a director of an insurance company I should, as is customary, declare my interest, as well as my concern, in this matter. The point which I should like elucidated is this. The incomes of the self-employed are apt to vary very considerably from year to year. Where the premium is fixed on the basis of one year's current income, which may be followed by a fall in a subsequent year, can the part of the premium upon which no allowance can be claimed in the year when the income falls be carried forward to a subsequent year when the income may rise again? In other words, can

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claims be made on the basis of an average income over a period of years? This concession is limited to the self-employed and to a premium of £500 a year. I am afraid that in this matter I feel, as I did when I listened to the Chancellor of the Exchequer expressing his determination to continue to chase a surtax payer for tax on £15 of interest in a savings bank, that Her Majesty's Government show regrettable class consciousness. I should like to see the principle of equality before the law maintained whatever the income of an individual. Cannot Ministers make an effort to rid the minds of the officials who advise them of the antipathy which they always seem to show to profits and to the higher earnings upon which the welfare of this country depends? I cannot credit Conservative Ministers with a desire to kill the goose that lays the golden egg, or to drive it out of the country; but that will be the inevitable result of the maintenance of the existing level of taxation.
Nor, as the noble Lord, Lord Winster, has just said, can Ministers afford to go on ignoring the vast and increasing body of middle-class workers. They dislike the regimentation involved in having benefits, so-called, planned for them. They are too cramped and burdened to be able to arrange their lives for themselves and their families with the reasonable freedom of choice which their gross earnings entitle them to expect.
3.37 p.m.
LORD TEVIOT: My Lords, in view of the increased number of your Lordships who wish to address the House on this subject I have done my best to show consideration for the noble Earl who is going to reply and to curtail my remarks as far as possible. I am lucky, in a way, in that although I was going to speak on the first day, owing to the long list of speakers then I agreed to speak to-day, and so far no speaker has touched materially on the subjects I wish to put before your Lordships. First, I should like to congratulate the noble Lord, Lord Pethick-Lawrence, on the success of this, the third debate on this subject which he has raised in, I think, the last six months. I feel that this debate has been the most important because of the character of the speeches to which I have listened—I have been here the whole time. I think that noble Lords have
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really got down to brass tacks and have made some most material and constructive suggestions. In his reply to the debate on the first day my noble friend Lord Selkirk seemed to paint a brighter picture than have some of your Lordships, but then he proceeded to paint a picture which was not nearly so bright and which, I thought, countered what he had already said.
It is no use saying that the position is not serious. We have heard quite definitely on more than one occasion from the Prime Minister and from the Chancellor of the Exchequer that the situation is serious—I mentioned this point, I think, the other day when I was discussing the coal situation. I thought that Lord Lucas of Chilworth was "hauled over the coals" for being gloomy. He had every reason to be gloomy; anybody who faces up to the situation is gloomy, particularly noble Lords who are connected with business. Yesterday afternoon I sat on a Board for three hours, and what was worrying us was the appalling price that we have to pay to produce goods. We cannot produce them now at a price at which we can sell them in the markets of the world—and 66 per cent. of our business is export business. If we are in that position—and we are in that position, and noble Lords are perfectly well aware of it why should we not paint the picture as it really is, and not try to make things appear better than they really are? We must drive into the minds of everybody, in all walks of life in the country, the seriousness of the position. Unless we are able to do that, I am afraid our situation will go from bad to worse.
I was in agreement with what the noble Lord, Lord Cherwell, said; and although I am not going to follow the noble Lord, Lord Winster, on the subject of the most reverend Primate and premium bonds, I agree with what he said on that particular subject. I was particularly interested in the very able speech of my noble friend Lord Coleraine. I thought he was going to get "bang-on" to the subject which I was saving up for your Lordships to-day; he nearly got there but not quite, for which I am most grateful to him.
As I have said, in this debate we really have got down to brass tacks and there have been some interesting and constructive suggestions. I, like your Lordships,

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have noticed that it seems to have become the habit in this country to think that the Budget can cure almost all our economic troubles. I do not think that is the case and I cannot see that it ever could be the case. Therefore I propose to discuss the pros and cons of that idea. What we do know is that since the Budget has been used to determine the economic policy of this country, the total Budget figure goes up year by year. Noble Lords are aware that in the last ten years it has gone up £1,000 million. It went up £200 million last year and £200 million the year before, so that whereas ten years ago it was £4,000 million it is now over £5,000 million, which the Chancellor expects to collect from various revenues. We have got to stop this. If we do not stop it, in my view we are finished. I am going to make suggestions as to how, by explaining the situation most clearly to everyone, we may be able to prevent the continuance of this rise every year in the Budget.
My noble friend Lord Coleraine rather suggested that public expenditure amounted to about 30 per cent. of the total national income. I cannot quite agree with that; I make it out to be 40 to 45 per cent., and I base my calculation on the fact that we have this figure of over £5,000 million and the total national income is £12,500 million. I make that roughly 40 per cent. to 50 per cent. That cannot be disputed by anybody. Mr. Colin Clark, the well-known economist, is of the opinion that it is dangerous that public expenditure should rise in peace time above 25 per cent. of the national income. The noble Lord, Lord Coleraine, agrees that it is a good deal higher than that, and I think it is higher than he said it was. If this is true, are we not working in the wrong direction in that we are spending more and more instead of spending less and less? Surely this must be the logical conclusion to which one has to come. I am afraid there is nothing in this Budget which tends to correct this tendency.
Here I come to the main point, and it is this: should not the determining factor in regard to our economic policy be simply our prices in the world's markets? That is all; that should be the determining factor in the whole of our economic policy. In fact, I go so far as
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to say that economic needs must be geared to these world prices. There must be a cutting back on all wages which tend to raise prices. We are now in some cases cutting back labour to four days. We have a warning in the motor trade, and I can see plenty of warnings all over the country that the same thing is likely to happen. This has been forced upon us because the present wages and taxation policies mean inflation. We are faced with the need to build up our export trade in a buyers' market. That is what we are trying to do to-day. Organised labour, on the other hand, is fixing wage rates by exploiting conditions of a sellers' market for labour, which is a completely contradictory policy. So far as I can make out, those are facts that we cannot ignore, and I hope that what I have said will sink into the minds of the powers that be and that something will be done about this matter—because it has to be done, and soon. Falling sales at too high prices must inevitably result in unemployment. It is bound to. If this occurs, the sellers' market for labour will end, wages will begin to fall and we shall be facing an era of industrial strife, which none of us wants to see. There is enough of it already. That is the danger that I see ahead.
If these consequences are to be avoided definite steps must be taken—and now. Not long ago I raised the question of coal and of the manpower in our coal industry. Your Lordships will no doubt remember that debate. The position has become far worse since I raised that question. The noble Lord who is going to reply to this debate agreed that if my suggestion could be carried out, we should save £100 million a year; and that is so. Let us get on with doing something, instead of saying these things and then doing nothing. I should like to see far greater energy on the part of those who have our affairs in hand. We must realise that, with the present high taxation, the cost is bound to go on to the overheads of our industries and to raise prices. It seems to me that what is needed is a national wages policy, which ought to be hammered out by Her Majesty's Government, the T.U.C., representatives of employers, the Association of Chambers of Commerce and the F.B.I. The terms of reference should be nothing less than the question of world prices. The basis of our present prices

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is wages, taxation, cost of materials, coal, electricity, gas and transport. I do not know what one would call such an organisation, but no doubt some noble Lords opposite will remember that many years ago (I was then in the other place) Mr. Ramsay MacDonald suggested that there should be a national council to assist the Government when the Government were in distress of any kind. I believe that a council such as I suggest would to-day be able to carry the whole nation, eliminating Party feeling altogether.
There is just one other matter which we must consider, I am told—and I believe there is no doubt whatever about it—that we are not ploughing back sufficient to replace capital machinery and development. I understand that in Russia they are ploughing back 25 per cent. of their national income; in Germany, 15 per cent. of the national income is being ploughed back; and in the United States of America, 10 per cent. But our figure is only 6 per cent. Somehow or other we have to rectify that situation. I, and no doubt many of your Lordships, know that a very large number of our industries are a long way short of efficient, up-to-date machinery to compete with other nations in the markets of the world. The sooner we get at this problem the better. To compete successfully in world markets, and to lower production costs to enable us to do so, there must be either a substantial increase in the volume of production without increased cost or a reduction in personal incomes all round. While effective demand in the home market exceeds available supply, prices must continue to rise and inflationary pressure to increase. This is not the fault of the Chancellor of the Exchequer, for the problem, so far as I can see, is one which cannot be solved by budgetary policy. It must be done in the kind of way that I suggest——by studying prices in the markets of the world so that we can work and produce at prices that will enable us to compete in those markets as we always have done.
We have been told by successive Chancellors of the Exchequer that we are losing our trade position in world markets. That is a serious enough statement coming from that source, and I beg that these matters to which I have referred should be carefully considered and that some such body as I suggest should immediately be set up. We must get prices
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lower here, and we must be able to explain to all those working in factories and everywhere else that, although wages, taxation and so on, may appear to be dealt with detrimentally, in the end lower prices will mean that the money in the pay packet will be worth more and that nobody will be worse off. I have rather exceeded the time which I intended to take, but I strongly urge Her Majesty's Government to do something on the lines I have suggested, and to do it now.
3.56 p.m.
THE EARL OF SELBORNE: My Lords, I do not propose to delay your Lordships long. We have had three very interesting speeches this afternoon and I find a general consensus of opinion throughout this debate, as indeed there is from every part of the country, on both the gravity of the problem and its nature. There is really little difference of opinion anywhere as to the nature of the problem and the remedy; but it is because every Government have lacked courage to implement what they are ready to agree to in conversation that we are in our present impasse. Everybody agrees that the only way to correct inflation is by increasing output, reducing consumption, and achieving greater saving.
Now I reflect that mankind is divided into two categories: those who know how to save money and those who do not; and for The sake of brevity we call the former category "the rich" and the latter category "the poor." During the last twenty years and more, all previous Chancellors of the Exchequer and all Governments have been doing everything they can to weight the scales of legislation in favour of "the poor." This policy is advocated and defended on the ground of what is called social justice. I have never understood where the word "justice" comes in. Any Government can take money from Peter and give it to Paul, but the idea that that should be just seems to me a non sequitur. It can only emanate from the hypothesis that by this means we can correct the grave error which was made by the Almighty when he created some men much more capable than others.
I want, for a moment, to examine that diminishing and almost extinct category, the so-called "rich." The rich are divided into two sub-categories, one of whom inherit their wealth, and the other

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of whom have been endowed with the gift of creating wealth and making money. I should like to ask my noble friends on the Front Bench what inducement they find in this Budget to save. I do not expect them to give me a reply because the question is a very tactless one. But I venture to say that neither they nor any other Minister in this House can save. It is not physically possible for a man who has inherited property to save, if that property is to be properly maintained. And if he does save any money it is merely taken off his heirs at his death in death duties. The effect in practice of death duties is one gigantic process of dissipation of the savings of past generations. I suggest that the Chancellor of the Exchequer has no moral right to urge people to save when he, himself, is spending the savings of past generations as if they were income.
The whole emphasis of legislation over many years now has been in favour of the dissipation of savings. Income from investments is officially described as "unearned income", as if there were something disreputable about it. This question-begging phrase which was invented by the late Earl Lloyd-George is symptomatic of the modern attitude towards saving. I suggest to the Chancellor of the Exchequer that the official description of income from investments might be changed to "savings income". That, at any rate, would show that the practice of saving was no longer frowned upon officially. If the Chancellor of the Exchequer really wishes to increase saving the first step he should take is to reduce death duties, a system of taxation which is spending capital as if it were income.
The second sub-category of the so-called "rich" people are those whose natural gifts enable them to earn big incomes. But what inducement have they to do so? Our legislation seems to be framed in defiance of the fact that some men are a great deal cleverer than others. There are a good many men in this country who earn more than £5,000 a year, but the law does not allow them to do so. Directly a man's income reaches £5,000, the amount of taxation becomes so heavy that he has every discouragement against adding to it. Therefore it is a fact that many of our ablest business men are not pulling their full weight because they feel it is
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unjust that they should exert themselves and take risks if the Government are going to take eighteen shillings out of every pound they succeed in making. It is this sense of injustice, this sense of resentment, that, as noble Lords have said this afternoon, is a great drag on the output of this country.
The noble Lord, Lord Pethick-Lawrence, in his interesting speech on Wednesday, accused businessmen in the City of London of tax evasion, or rather tax avoidance, though he did not give chapter and verse or, indeed, any evidence in favour of that assertion. I can tell him how a great deal of tax is avoided in the City of London, and that is by people declining to work. It is becoming increasingly difficult to get first-class men to join fresh boards or take on further responsibilities. I have had much personal experience of that myself and I can testify that the reply one is too often met with is: "My dear fellow, why should I take on this extra work in order to earn one shilling in the pound of the income you are willing to pay me?" Such taxation is obvious insanity from a national point of view.
I notice that, in this Budget, the Chancellor of the Exchequer is making a special attack on those men who are in a position to find markets for British exports. There is no class of company which has assisted exports more than those companies which have factories or railways or mines overseas; and in the properties of those companies, if you go there, you will find British machinery. if you go to neighbouring railways or mines or other properties which are run by other nations you will find foreign machinery. The two go together. The Chancellor of the Exchequer, I suppose in worship of the goddess of social justice, is apparently going out of his way, in this Budget, to increase the taxation of those who are in that particular form of business. I suggest that it is no good trying to correct inequalities of nature or of opportunity by penal legislation. You will only damage the national interest if you do so.
I think the noble Lord, Lord Teviot, and other noble Lords this afternoon, have rather criticised trade unions for their wage claims, and charged them with being responsible for inflation. I cannot follow my noble friends there. It appears

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to me that the right of the trade unionist to ask for better wages or better terms for his labour is an absolutely inherent right in a free economy. And what we have seen happening during the last few years, to my mind, is not so much a cause of inflation as an effect of inflation. But we must, of course, recognise the grave national dislocation that results from the activities of nation-wide organisations. A strike in a particular factory is one matter, a quarrel between an employer and his employees—that is part, as it were, of the everyday life in the bargaining process of a free economy. But when you have a dispute in one factory which leads to a national stoppage because the network of organisation is spread all over the island, then it seems to me that a new situation has arisen. I just drop this thought—and it is not in the least original—that if the State, as the State is now doing, is seeking to prevent nation-wide organisations of employers on the ground that they constitute a monopoly, does it not follow that the State must also have regard to the effects on the national economy of nation-wide organisations of employees?
The real fundamental cause of our troubles, as everybody agrees, is excessive Government expenditure and, therefore, excessive taxation. Our present scale of taxation is incompatible with the maintenance of a free economy, and the fence at which we are all boggling is where to cut it down. Everybody has his own particular enthusiasm, which must not be touched. There are also certain flags which must not be hauled down. But we shall have to tackle this problem resolutely. The noble Lord, Lord Lucas of Chilworth, wants to cut down on national defence. To my mind, that is the last thing on which we ought to cut clown, because unless we can be safe, we cannot be prosperous. Of course I entirely agree with the noble Lord that there is a great deal of extravagance and waste in all the Fighting Services, and certainly that ought to be cut down. But I find this extravagance and waste of money in all State services, whether they are Fighting Services or nationalised industries. I recall how, when the railways were nationalised, in our little wayside stations, which used to be manned by one stationmaster-cum-ticket collector-cum-porter—a staff of one, who had been there for "donkey's years"—we immediately had a stationmaster
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and two porters. The inevitable result happened after a few years the transport authority declared that that station or line was no longer economic, and it was shut down. That is typical of what has been happening in several of the nationalised industries. It is not a vice particular to the Navy, the Army and the Air Force; it is a vice common to every organisation where those who spend the money are spending not their own money but the taxpayers' money.
I know that I shall be unpopular in every quarter of the House, and particularly with my next-door-neighbour, in doing so, but I would suggest that we cut down on education. It seems to me that we arc spending far more money on education than we are getting value for. I have not added up the figures, but noble Lords know that during this century we have spent thousands and thousands of millions on our educational system, and I ask myself: can any advance in national culture be seen? Whether we look at the newspapers, at the theatres or at the crime statistics, there seems to be no appreciable advance. I do not see what we have got for our money. It is also the case, surely, that we are now educating a large number of people whose gifts are in their hands, rather than in their heads, and we are injuring the potential craftsmanship of many boys and girls by keeping them at school when they would be much happier and much more useful citizens apprenticed in an industry. Craftsmanship can be learned only when comparatively young, and in keeping boys whose gifts appear, as I have said, to be in their hands, rather than in their heads, compulsorily at school up to the age of sixteen, I believe that we are inflicting injury on them and on the nation.
I know that all this is heresy, but one of the privileges of being a Member of your Lordships' House is that of being allowed to talk heresy. It has often been the case that a so-called "heresy" preached in this House has afterwards been accepted as not so heretical after all. The noble Earl, Lord Attlee, when he was Prime Minister, admitted, when speaking of his own Party and his own Government (I hope that I am not misrepresenting him), that perhaps they had been trying to do too much too quickly. I think that that is true. I also think that they had been trying to do things we simply could not afford. The root of

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the trouble is that we have been trying to build houses, schools, hospitals and other things, all of which are in themselves desirable, when we could not afford them to that extent. In addition, we have made education into a fetish. We are giving many boys and girls education for which their gifts are not suited. We arc injuring their future craftsmanship. We are trying to turn out a nation of third-rate bank clerks instead of continuing to turn out what we have had in the past, the finest craftsmen in the world. I hope that the Chancellor of the Exchequer will look at all these matters afresh and that, when he has decided what requires to be done, he will have the courage to come forward and tell the people. If politicians had always done that we should have fewer problems to-day than now face us.
4.18 p.m.
LORD CHORLEY: My Lords, I hope the noble Earl will forgive me if I do not follow him. I have some difficulty in restraining my indignation because, even coming from him, I think his was one of the most reactionary speeches I have listened to since I had the honour of becoming a Member of your Lordships' House. I feel that if ever, by some mischance, the noble Earl had charge of the destinies of this country, the Communist revolution would be only just round the corner. Even the good points he made were made in such an extreme way that he destroyed his purpose. He suggested, for example, that the rich were as dead as the dodo, whereas only in the last few weeks in The Times we have seen case after case of wills of over £100,000 up to £1 million. There are more rich men in this country now than there were in the years before the war.
Like other noble Lords who have spoken this afternoon, I was unable to be present at the beginning of this debate last Wednesday. There was some misunderstanding about my name being on the list of speakers, and I must apologise to your Lordships. On that day I had an old-standing engagement connected with Civil Defence which kept me longer than I expected and prevented me from reaching your Lordships' House until the concluding stages of the first part of the debate. I have, however, read what was said on that occasion and, like the noble
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Lord, Lord Teviot, I found that by no means all the points that I wished to put before your Lordships were taken then, and I should like to put them forward this afternoon.
As I say, I read the debate with a great deal of care, and the matter that struck me more than anything else was a remark by the noble Lord, Lord Coleraine (col. 97), who considered that we are
"in greater danger to-day than we have ever been since the war."
What a confession to come from a leading Conservative politician after five years of Conservative government! Whether or not that note of extreme pessimism is justified—and, for my part, I think it goes too far—I agree entirely with the noble Lord that the situation is a difficult one and one of some danger. I wish that he could persuade his political friend the Chancellor of the Exchequer to strike a rather less facile rote of optimism than appeared to me to characterise his Budget speech—a note which was echoed, though perhaps not at the same level of enthusiasm, by the noble Earl who wound up the first day's debate in your Lordships' House. It is true that he agreed that the time had not yet come, as he said, for a "let up" on the measures against inflation, but he did not seem to be at all dissatisfied with them, such as they are, and, indeed, suggested that they are working excellently. It appears to me that few of your Lordships who have taken part in the debate agree with that view.
If those measures are working excellently, it certainly is not very obvious to the ordinary man. Indeed, the present Government and their predecessors, in my submission, have the unique record in the economic history of this country of having produced a serious inflationary situation in times of peace. I do not believe that that has ever occurred before, certainly since our economy took its present shape. Serious inflation has, in my reading of history, occurred only in time of war or during a period immediately succeeding war, which is almost as difficult a period. The inflationary difficulties which followed the Napoleonic Wars have been a locus classicus for the economic historian and the economist himself—and, incidentally, that was another period of predominantly Tory Government. But I venture to think that

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the present years will in due course provide the economic historian with an even more fruitful field of study.
It is fair to say that the cold war involves the continued withdrawal of a substantial part of the keenest and most energetic part of our young men from the labour forces of the country, and I agree with what my noble friend Lord Lucas of Chilworth said about the importance of getting a large part of these young men back into the industrial army. I am sure that it would pay us, even if it cost a little more in cash—which I very much doubt—to go back to our old, pre-war professional Army, a comparatively small force, if in that way we could get back these hundreds of thousands of young men into our industrial army to provide workers at the machines, which we need for the increase of our productivity, the importance of which has been emphasised by so many speakers both this afternoon and last week.
In addition to our being deprived of manpower, we have had this extremely heavy expenditure on rearmament, and that undoubtedly has been one of the most fruitful causes of inflation. But that situation was perfectly well known—it had developed as a result of the cold war—before the Conservative Government came into office, and it was well known to the Conservative leadership when they embarked on their electoral campaign in 1951. The promises which were then made, for the purpose of what I think can be described only as vote-catching, were definitely inflationary in character, and they were followed by an actively inflationary policy by the Government when they came into power. I am thinking particularly of the way the planning arrangements and the methods of financial and economic control and direction which had been laboriously built up by the preceding Government were all scrapped and thrown overboard. In parenthesis, I might say that the 1955 pre-Election Budget was even more inflationary. The diminution in income tax, much as we all appreciated it, put large sums of money at the disposal of people who were only too ready to spend it, and it was followed by an outburst of spending which was a large factor in the crisis which followed in the autumn.
I believe that the leading example of this short-sighted policy is provided by
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the building industry. Not only was local authority housing stepped up to a point which, considering the precarious balance of the overall situation at the time when the Government came into power in 1951, was definitely dangerous, but controls over luxury building and over private building generally were quickly abandoned. I do not think there can be any doubt that this has been one of the most important causes of the present inflation, and it has not received anything like the amount of attention which it deserves. Wages increases, which have been referred to constantly through out this debate, are, of course, more spectacular and much better copy for the newspapers. But with over 1 million men employed in the building industry, it is—if one puts retailing on one side, and that, after all, is not an industry in the ordinary sense—the most heavily staffed of all the industries in the country, and throughout 1955 it was still expanding. In my view, this shows a thoroughly unhealthy situation. The industry over the last years has been competing for labour with the export industries; its wage structure is not at all satisfactory; and, generally speaking, it is a focal point of inflation for which the Government, in the light of their 1951 Election policy, must accept full responsibility. This is only one result of the abandonment of planning.
I am surprised that there has been so little reference to planning during the course of this debate. The noble Lord, Lord Coleraine, referred to it in a short sentence of disparagement, and the noble Lord, Lord Cherwell, praised it—but, of course, quite unintentionally. I entirely agree with what the noble Lord said about the nation being like a family and having to live within its means. That is an old but still, I believe, apposite analogy. And the noble Lord went on to describe how this is done in a typical family by planning expenditure as against resources. The implication, of course, was that planning is equally necessary on. the national level, although, in fact, he never got to the stage when he made that point explicit in his argument; indeed, it seemed to me that he went off shortly afterwards and contradicted the earlier thesis of his speech when he contended that those occupied with industry ought to be left completely free to conduct their business in whatever way appeared to them to be right. It is my view that for

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a country like ours, if we are to keep our heads above water in the modern world, the old laissez faire policy which appealed so intently to the noble Lord who has just left the Chamber is completely out-dated.
In the old days a very rich man did not have to plan his family expenditure; he had such a lot of money that he could buy anything, objects or services, that appealed to him. While we were the leaders of the Industrial Revolution and the whole world was open to us for our export trade as a market for our industries, we were no doubt in the same sort of position. But the situation now, as everyone appreciates, is completely different. We are a small country with comparatively straitened resources, contending against many larger and stronger countries. The raw materials which we need become scarcer; finance for our industry becomes more difficult; labour, as the noble Earl, Lord Selkirk, said in his speech, is also more and more difficult to get—indeed, the conditions under which we carry on business are tighter everywhere.
This country is like a garden which has to be cultivated up to something like 100 per cent. of its capacity. Not only have the plots under the different crops to be carefully calculated out and planned in advance, but the ranker and coarser crops have to be prevented from crowding out the less strong ones which may be of equal, or even greater, value. Yet that is emphatically what we have not been doing over these last years. Referring to what was said by the noble Viscount, Lord Hailsham, we have, for example, allowed an enormous gambling industry to grow up in this country making substantial demands on the manpower which should be available for industry. That is just one example of the sort of thing which happens under this "come-as-you-please" type of laissez faire policy. If the Chancellor of the Exchequer will leave his own garden alone for twelve months, he will find that by the end of that time the coarse weeds will have crowded out everything of value in his garden. It is exactly the same, in my submission, with the national economy, when all are left to work for their own private advantage without any sort of oversight or direction on behalf of the community.
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It would be possible to elaborate this point at substantial length, but I will content myself with one illustration, typical. I think, of the sort of thing that happens under this absence of planning. This illustration again, appositely enough, is taken from the building industry. During the last few weeks there have appeared in The Times—and your Lordships will have seen them—letters from important industrialists in the heavy industries complaining of the shortage, or an imminent shortage, of steel which is going to be a serious thing. Other correspondents referred to the heavy demands made for structural steel in the building industry, and pointed out that, because of the absence of planning (which is what it comes to), something like 25 per cent. of steel is being wasted in our present constructional methods because we are not up to date and are not using the measures adopted by the United States and Russia. That, I suggest, is typical of what happens under this absence of planning.
I ought perhaps to give the Government some credit for what is called the "credit squeeze," which is, of course, a form of control and can be usefully employed for the purposes of enforcing planning policies. It was used a great deal by the Labour Government, and I had the interest to look up the debate on the Address in your Lordships' House in November, 1951, in which, in effect, the Government of the time announced that they proposed to make use of the old-fashioned methods of increasing the bank rate arid that sort of thing, and to give up the methods of credit control which had been used by the previous Government. I remember the noble Lord, Lord Balfour of Burleigh, saying that we were "oiling up the old machinery." I took the opportunity then of saying that perhaps this would not work so well as was expected; and, of course, it has not. It is a hit-and-miss method which hits the most useful project just as much as it hits the extravagant private individual who wishes to build himself a large house, or whatever it may be. That is exactly what has happened. The Government have found it necessary to introduce this credit squeeze, which is really just a return to the method of relying on the sense of the banks to control the output of credit. I only wish that the Government could have gone further and been rather more

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explicit in the directions which they issued to the bankers telling them what ought to be encouraged and what ought to be discouraged.
I have taken rather longer than I had intended in bringing home to the Government the basic responsibility, as I see it, for the inflation under which we suffer. I should now like to turn, just for a minute or two, to an examination of some of the remedies which are proposed, and I shall just make two points. The first is saving, which is the main plank in the present Budget platform. My noble friend Lord Pethick-Lawrence welcomed this step—as, of course, we all do; but it is not a very realistic policy without a much stronger guarantee against inflation than is provided by anything contained in the present Budget. Anybody who has been saving during these last years (and I speak with a great deal of knowledge in this matter as a university teacher who has just reached the point of receiving back, so to speak, the premiums on his life insurances) has lost more than half of his savings, and there is no sort of guarantee in the present Budget that that situation will not continue. I listened to the Chancellor of the Exchequer's Budget speech, which as a piece of oratory was admirable, and I listened with growing hope as he developed his argument that savings must be encouraged by providing a security which would not melt away under the hot sun of inflation. But when the acid test came, and he unfolded his proposals, they came to nothing more than a proposal to increase the interest rate. He provided no sort of guarantee that the new Savings Certificates will not lose their value, in terms of the cost of living over the next years, just as the old ones have done.
I endorse the tribute which was paid by the noble Earl, Lord Selkirk, to the noble Lord, Lord Mackintosh of Halifax, for the enormous amount of work which he puts into the Savings Movement, but I must say that he has my commiseration in having to fight continually against the inflation which does so much to prevent his success. A few clays after the Budget speech I heard two men in conversation in the Tube. What they said, I think, expresses this point very appositely. One of them was telling the other that he had just received his £100
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bonus. The other man said, "What are you going to do with it, Bill?" He said, "I think my television is a bit out of date so I shall buy a new one." The first man said, "Your daughter Mildred is going to be married quite soon. Do you not think it would be better to put it into these new Savings Certificates, so that you will be ready to give her something when the marriage takes place?" "No," was the answer, "By the time she is married they will be worth only about 70 per cent. of what they are worth now." That is a view which is prevalent all over the country; and until the Government can provide a security which is proof against inflation, I think they will find that the saving plan will not go as well as they hope.
The other point concerns exports, and this, of course, should be the obverse of the medal. Its importance has been emphasised by many speakers who have taken part in the debate. What is the Government's policy here? There was a singular lack of any sort of constructive policy, so far as I could find, in the Budget speech. We are apparently to live on in the hope that the shrinkage of home demand under the policy adopted will eventually result in an expansion of our export trade. I suggest that something more dynamic than that is needed—a constructive policy to foster trade with those parts of the world where there are real possibilities of development. We should all, of course, like to increase our trade with the United States of America, but I am inclined to agree with what the noble Lord, Lord Lucas of Chilworth, said: that we cannot push expansion very much further there. The Americans can manufacture all strong and big lines as cheaply and efficiently as we can. It is only the small odd lines, like the Rolls Royce (if one dare call it so), or the M.G., which can get an opening there. The amount of trade in those sorts of lines is obviously limited.
So it seems to me that we must look elsewhere. If we study the map we shall see that by far the biggest area where we could get a great deal of trade is, the enormous area behind the Iron Curtain, stretching from the Elbe to the China Seas. One of the most encouraging and satisfactory aspects of the recent visit of the leaders of the U.S.S.R. to this country was the proposals which they brought with them for a notable increase

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in trade between our country and theirs. I was sorry that in his speech the noble Lord, Lord Cherwell, rather sneered at this, and suggested that it was a mere 2 per cent. anyway and hardly worth bothering about. Actually, 2 per cent. of our total trade is a very substantial amount. I took the trouble to look at the figures of our export trade to the United States of America about which there has been so much discussion. That is only some 2 per cent. of our export trade. It was pointed out by the noble Lord, Lord Rochdale, that that is more than our exports to Canada, so that 2 per cent. is a substantial amount and certainly ought not to be sneered at. A good business man does not neglect a customer, even if his business is very small. I would congratulate the Prime Minister on the progressive attitude he adopted to this offer. I hope that every effort will be made to secure the 2 per cent. and to build it up into a larger amount still.
Let us also extend our effort to China, which is still a good customer of ours and, of course, in the past, has been a very much better one. It seems to me that here lies the most promising road leading out of the difficulties which have been emphasised so much during this debate—in establishing betterrelations with the Communist countries. A more peaceful world would undoubtedly reduce one of the worst sources of inflation, and a substantial increase in our exports to those countries would, undoubtedly and obviously, greatly improve our balance of trade. Therefore I trust that the Prime Minister will continue to work upon the lines of his recent policy of a rapprochement with the U.S.S.R. If that is done, it may well prove of very much greater value in our struggle for economic survival than all the Budgets of recent Chancellors of the Exchequer.
4.44 p.m.
VISCOUNT BRIDGEMAN: My Lords, I have seldom heard two speeches more poles apart than the speeches by the noble Earl, Lord Selborne, and the noble Lord, Lord Chorley, who has just sat down. It would be quite beyond my powers to debate them so I will merely say this: that I think the speech of my noble friend Lord Selborne, which was described by the last speaker as being completely reactionary, will not prove to
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be so when it is read in Hansard. If there is a point of disagreement in that the noble Lord, Lord Chorley, suggested that there was vice in being rich and it was wrong to provide incentives for the creation of wealth, then I would agree with my noble friend Lord Selborne. But the noble Lord, Lord Chorley, made some other points to which I will come back in a moment or two, if I may.
A little earlier in the year most of us had the experience of being asked by our friends outside Westminster what we thought the Chancellor of the Exchequer was going to do; then, a little later on, they asked what we thought of what the Chancellor had done. The interesting result of those conversations, to my mind, is the ideas we glean from our friends outside Westminster of what the Budget means to them or what they think are the powers which the Government can exercise through the Budget. This year it struck me that there was rather more misunderstanding than usual among the public on these matters.
In the first place, it seemed that a great many people saw the Budget itself quite out of context with the other measures which the Government had taken to deal with the present economic situation. The Budget itself, apart from the Budget Statement, deals only with taxation, and it is wrong, to my mind, to think of the Budget measures unless in the same context as things like the raising of the bank rate (which is never a matter for the Budget), or measures to deal with local authorities' borrowing (which are just as important as any of the things in the Budget but are quite separate from it, from a legislating point of view), or the credit squeeze (which officially is entirely unofficial), and the alteration in the rating structure. Perhaps later on we shall have a Bill to deal with rents. The Budget must be looked at, as I do not think it is looked at in the country, as part of a general plan which includes those other features.
The other point which struck me was the idea, which seemed to be far too prevalent, that the evils, if evils they are, in the present economic situation could all be put right by something which the Government could do or refrain from doing without any need for co-operation on the part of the unofficial world. I rather thought for one moment that the

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noble Lord, Lord Chorley, had that idea too. If so, I must respectfully disagree with him. As I see it, the fact of the matter is that only a national effort can put matters right. This idea, as expressed just now by the noble Lord, Lord Chorley, that it was for the Government to do these things, as if they were players in a football match while the rest of the population has grandstand seats and watched to see whether or not they succeeded, is, I think, in a way a legacy from Socialism.
LORD CHORLEY: But surely we agree that the Government should provide the leadership and the technical methods to be adopted?
VISCOUNT BRIDGEMAN: I quite agree that the Government should do what the noble Lord has just said; but what I said just now was that we could not succeed unaided by the national effort of people outside, which is not the same thing as the noble Lord attempted to put into my mouth. In one way that idea is a legacy from Socialist policies. It is a legacy in this way: that very often one felt—certainly we did on this side of the House—that Socialist Budgets, especially those introduced by the late Sir Stafford Cripps, were used not only for raising the correct amount of taxation but for making social changes which in themselves were not related to the need or otherwise for taxation. But I will not follow my noble friend Lord Selborne into the realms of a discussion on social justice.
Another factor which causes people outside to take that view is the use of phrases such as "The Government are committed to a policy of full employment." Of course, that is true. Both Governments have been committed to a policy of full employment, and I hope they will remain so. But that does not mean that the Government, because they are committed that policy, can therefore produce a state of full employment without assistance from the world outside, the world of employers and employed. So I think it most important that in the Budget speech my right honourable friend emphasised the degree of individual cooperation which was necessary. He expressed it chiefly by referring to the part which the saver has to play—and we are now glad to be able to record that the saver includes the self-employed man who can save enough money to get tax relief
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on his pension. This kind of free co-operation by the individual must be forthcoming unless one envisages a corporate State where everything that needs to be done is done by Government control, and a state of affairs in which we can isolate our national economy from the world economy. That might conceivably be the case if this were a country where that could be done; but everybody knows quite well that this is, the last country in the world where the national economy can be arranged without regard to what is happening outside.
By the same token, that is one of the reasons why we are going through a crisis now; it is one of the reasons why we are going through inflation, because inflation is not a thing peculiar to this country at the present time but is common in greater or less degree to all the countries in the world, or almost all of them, although it might be said that in this country we have had a larger dose of inflation than many countries. But unless the State takes over the responsibility for all our economic and commercial affairs, to make the policies work we are bound to rely, whatever Government is in power, on the co-operation of the people outside who are at work. I saw this point very well put in the magazine of an Australian bank, in an article referring to the Australian economic situation, which in many ways is not greatly different from the one we are experiencing here. It said:
"The government has tied its colours to the mast of 'voluntary restraint', and although it may have to impose some degree of persuasion or compulsion, there must be a large degree of 'voluntariness' if such a policy is to succeed."
I believe that is quite true here.
It is equally true, as Lord Chorley himself stated, that there must be proper and selective consideration by the Government of the expenditure which is to be undertaken, to make quite sure that in difficult times only the worthwhile expenditure is undertaken. I am bound to say that I cannot go the whole way with Lord Selborne in what he said about education. I would go so far as to say that at this time we ought to take more care that we are building up the technical requirements of industry in our educational establishments and that perhaps we might do that a little faster than we build up the places in the secondary modern schools. But it is perfectly true that at

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the moment there is a great deal of Government and local government expenditure which should be pruned a good deal if we are to avoid having to prune the expenditure which is going to create wealth. We are still suffering from that "starry-eyed" period after the war when the Socialists were in power—I am not sure that it would not have happened just the same if they had not been—when we all worked on a doctrine which I might describe shortly as "Nothing but the best is good enough for baby." This is an admirable time to call a halt all down the line in Government and local government expenditure.
Now we come to a third point which I have noticed in listening to people who talk to me about these things—namely, what the nature of the crisis really is; whether it is because we have too much money going about, or too little money, or not enough foreign money. The position seems to be slightly obscured, because the moment the credit squeeze was announced Government Departments and people of that sort hurried to get into their familiar fancy dress of Gladstonian Liberalism and to say, "We are spending far too much money now; we must spend a little less, and everything will at once be all right." And at intervals they have tried to dress up the Chancellor of the Exchequer, who is not a Gladstonian Liberal, in that fancy dress.
But any effort to put the situation right certainly cannot succeed if it becomes anything in the nature of a restrictive practice. After all, cutting spending just for the sake of cutting spending is not much more than a restrictive practice. Cutting unnecessary spending is quite a different thing, and should be looked upon as such. So we must be careful that we do not allow ourselves to mistake the cause of the crisis, which was not in itself that we had too much money and did not know what to do with it but rather, to my mind, that we did not create enough foreign exchange to buy from abroad those things which were necessary to support the amount of currency in circulation in this country. That is where the trouble lies; and that is where it will continue to lie unless the public themselves realise that it is only by their efforts that we can pull
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ourselves out of this danger. It will go on lying in that bed, whether we keep on with the present Government and present policies, or whether we have a Socialist Government and Lord Chorley's policies. Lord Winster mentioned—and I agree with a great deal that he said—that it will go on lying there as long as the people in this country think they can go on increasing the cost of production and still find foreign buyers to buy the things that they are producing. That is absolutely basic, and one cannot repeat it too often.
However much the Government have a policy for export, it will be no good unless there is some reason to suppose that the things which are produced for export sale can, in fact, be sold in foreign markets at a competitive price. All those who have connections with industry will agree with me when I say that for the last five years we have seen our profit margin soaked up by these increases in price. And it has now come to the point where our cost of labour and materials—which are largely the same thing—is so much greater than in other countries that it is no longer possible for us to quote a competitive price to the people who would have bought our goods four or five years ago, and who, indeed, would like to buy them now, if it were not that the goods were not value for money as compared with those obtainable from the Continent, from the United States, from behind the Iron Curtain, or even from the Japanese—though I am not suggesting that everything that the Japanese produce for export is value for money.
My Lords, that brings me, as it brought the noble Lord, Lord Chorley, to the question of exports. I am bound to say that I am just a little in agreement with Lord Chorley when he said, as I understood, that he wished something more dynamic had been said in the Budget speech about exports. I should have liked to hear a few more practical and constructive words said about this problem, which does not appear the same in practice as it does in theory. Some industries in this country have a stable home market which they can carry on in order to make a profit and cover their overheads. Believe me, those people who do what the country wants and go out for exports very often find, however

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shrewd their calculations, that in order to get into the market they have to do without their profits there and have to be content with the profits to be made from the "bread and butter" lines of home business.
Moreover, it is not as if exporters nowadays, as was once the case, can count on prompt payment in sterling in London. Any amount of export business can be had, as noble Lords beside me know quite well, if one is prepared to wait "until the cows come home" to be paid, or to take terms of payment which are not insurable under export credits and would not form the basis of an advance from any ordinary bank. I am sorry that my noble friend Lord Selkirk is not here. I do not think that, when he replied on the first day of this debate, he quite covered that point; but there comes a time when no exporter, if he is a man of ordinary sanity and common sense, can continue to export unless he feels reasonably certain of being paid at the proper time. I know that the Export Credits Guarantee Department have loosened their terms, and I know how greatly that has been appreciated by all those with whom I have come into contact. Even so, I very much doubt whether the present arrangements for credit insurance and advances to cover the cost of exports will meet the very difficult payment terms that exporters have to meet now. I feel that is a matter to which the Government must pay constant attention.
I do not want it to be thought that, in saying this, I am suggesting that exporters, who are there to do their job for this country, want "feather-bedding" or protection of that sort. But I am suggesting that in certain industries, particularly the heavy type of industry, conditions are now getting to such a point that it is not possible for exporters to finance exports on long-term credit to foreign Governments, especially in those cases (and there are so many of them now) where diplomacy, as well as commerce, enters into the payment terms. Sometimes an exporter is successful—or lucky—and obtains finance from the World Bank, though I cannot recall a case where a British exporter has obtained finance from the American Export-Import Bank, or from the new Finance Corporation. Neither the Export-
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Import Bank nor the World Bank, however, is domiciled in this country. Our contribution under the Colombo Plan is made not to finance goods but only for technical assistance. That, I think, has prevented a number of worthwhile exports from being sent to India and Ceylon, and it pained me rather to read, about a year ago, on one page of a financial paper the position as I have just explained it, and then to turn to the back and find that our export for the day to Ceylon was a highly skilled inspector of taxes who was going out to help the people of Ceylon to revise their tax system. Much good may it have done them!
The problem is not a simple one. Exporters do their best to compete against "phoney" prices, and here, in parenthesis, I would say that recently the German export prices seem to have come a good deal more into line with our own than they did at one time. We cannot compete against over-generous finance; still less can we compete against the constant rise of prices in basic materials, such as steel, which has just risen by 5 per cent. We in this country can compete in efficiency, and in service, but we can go on doing that only if we make the fullest use of the modern aids, now termed "automation" In this matter I entirely agree with what I understood the noble Lord, Lord Winster, to say: that the interests of employers and workers in this matter are almost entirely coincidental. I was reading the other day a paragraph out of the works magazine of a works with which I am connected. I know the man who wrote it: he is not a big man; he is a man who has worked for his living all his life. Speaking of the cost of living he wrote:
"Yet we know it can be brought down. It seems to us that we are reaching the stage when we must decide for one of two ways of doing it. Shall it be through two or three million unemployed idling about redundant factories? Or can we do it as free men, with worker, employer, shopkeeper and civil servant pulling their weight together?"
The man who wrote that in a works magazine deserves well of his country.
There is one step that I hope will result front the visit of our two Russian friends whom we recently entertained, and that is the disappearance of "Cocom". Lord Elibank is not here this afternoon, but I know that he will agree with me. If we can get the embargoes lifted there is

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a good deal of worthwhile trade that can be done with the Iron Curtain countries and China, with no real detriment to our defence affairs. I would remind the noble Lord, Lord Chorley, that, despite all the promises made, none of the Russian inquiries, so far as I know, has yet turned into an order, though I agree entirely with him in hoping that they may. But, my Lords, if we want to go forward, as we all do, on both sides of the House, with the plans for the Welfare State laid down at the end of the last war, and to go forward with them at the same pace, we must remember that we shall stand or fall in that effort according to the success we have in dealing with our foreign exchange position—in other words, our exports. There is no way round that, and no way round the proposition that our export policy cannot be successful unless we have a "new look" at home by all concerned with it. When we have done that, the rest, I think, will come right in its own time, always provided that matters are so arranged that private individuals can really save, and that public, nationalised and local government bodies really try to confine their expenditure to essentials.

BUSINESS OF THE HOUSE
THE CHANCELLOR OF THE DUCHY OF LANCASTER (THE EARL OF SELKIRK): My Lords, may I intervene to say that I understand it has been agreed that the Committee stage of the Clean Air Bill will be taken on May 30 instead of to-night. I think that is agreeable to your Lordships.

THE ECONOMIC SITUATION
5.6 p.m.
Debate resumed.
THE EARL OF HUNTINGDON: My Lords, as the noble Lord, Lord Winster, said, most of us are apt to begin our speeches with "At this late hour"; and at this late hour I will not keep your Lordships much longer. I have, however, a few remarks that I should like to make on this very important subject, and I should like to say that I am speaking for myself in supporting the Government in their scheme of premium bonds. I was very surprised to read the speech of the
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noble Viscount, Lord Hailsham, which might almost be called an attack on the most reverend Primate, the Lord Archbishop of Canterbury, because it seemed to be that the Archbishop was following a true Conservative line. He was wishing for the vast profits of the gambling industry to go to private enterprise. I, speaking from these Benches, would much rather that those profits went to the State to benefit us all; and for that reason I support what I regard as one of the most imaginative steps in the Budget, these premium bonds.
Like many other speakers, I do not look on gambling as necessarily evil, unless it is done in excess; in excess, yes, but not otherwise. My only fear about the scheme is that the prizes are not large enough. There is the very big competition of the football pools, the attractions of dog racing, horse racing and the different forms of gambling which are allowed and practised, and I am wondering whether these not very big prizes (which one is very unlikely to win) will be sufficient to attract the money for which the Government hope. However, I wish them well in their scheme.
What worries us all this afternoon is this problem of inflation. The noble Lord, Lord Cherwell, in his speech drew attention to what had happened in Germany after the 1914 war. I myself was in Germany, in Bavaria and in the Rhineland, just after that war, and I can assure your Lordships that the misery and the suffering of those people at that time were indescribable. The noble Lord, Lord Cherwell, said that some of them thought the situation worse than the war; and that is no exaggeration. I remember having to keep my English money in ten-shilling notes, cashing it as the time went on, otherwise I should have lost too much. On one occasion, having lost my felt hat, I remember going to buy a new one. The shopkeeper wanted to charge me something like 150,000 marks, and when I said, "I have not the money with me; I shall have to come back this afternoon," he told me, "I advise you not to do that, for the price will certainly be over 200,000 marks by then—the mark is going down at such a rate." I have heard it said that one could let inflation run and so pay off the internal debt. But I submit that the suffering which that would involve to people of fixed incomes, pensioners, and people with fixed salaries,

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or people who have not got strong unions, would be so dreadful that we ought not even to contemplate such a measure. What we in this country should suffer would be far worse than Germany ever suffered, because we are so dependent on our credit; on the value of the pound; on being the centre of the sterling bloc; on our invisible exports and banking. Once our currency was regarded as valueless, we should indeed be bankrupt and completely "down and out."
I always find the essence of all this financial business extremely complicated in detail, but I believe that the principles which lie behind it are simple. If I am wrong in my ideas I shall be grateful if any noble Lord will put me right. We find that people are not satisfied with what they can buy. Because they find living expensive, they push their wage claims, asking higher wages to meet the high prices. The manufacturer can meet those claims and put up wages because he can raise his prices; and so the circle goes on. What is happening is simple. Inevitably those with fixed salaries and fixed incomes, and pensioners, suffer; but the real danger, which has been emphasised by the noble Lord, Lord Teviot, and others, is of our losing our foreign exchange and not being able to sell our goods abroad. Already we are coming near to the point where we shall not be able to sell because our prices will be too high. We shall be unable to get foreign exchange and we shall be unable to compete in world markets. We must remember that to-day we, more than I suppose any country in the world, depend on selling abroad. It has always puzzled me why Germany, with roughly an equivalent population and equivalent land to ourselves, produces something like 80 per cent. of her food, while we produce something under 50 per cent. It is true that we import some of our food a little more cheaply, but that puts us at the mercy of exporters in other countries. One of the main things which we should do is to try to build up our own agricultural industry and food production.
Will the credit squeeze work? That is really the question before us. I do not think it will, and I do not think the Stock Exchange thinks it will. I do not find many noble Lords in this House who are confident that it will. I believe that
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it will not work because this spiral can be stopped only by means already suggested—that is, if considerable unemployment arises. And I do not believe that Her Majesty's Government contemplate (quite rightly) allowing this to happen, or of pushing things to such an extent that unemployment will be the factor bringing down wages. What else can the Government do? I feel that it would be an absolute waste of my time and of your Lordships' patience if I were to try to persuade Her Majesty's Government to adopt a policy of planning or controls. I do not see how a Conservative Government, elected, as they were, on a basis of "Set the people free," can possibly go in for a policy of thorough-going controls; so we shall have to leave that out. What is left? I am going to make only two suggestions.
One which might be of some benefit, would be for the Chancellor of the Exchequer to tax advertising. It seems to me perfectly ridiculous that, if we are suffering from inflation, from too few goods and too many people with too much money wanting to buy them in the home market, we should have this huge industry of advertising which is non-productive, producing nothing, and which puts up the cost of production and at the same time encourages people to do the one thing which we do not want them to do. Yet not only is advertising allowed as a trading expense but it is absolutely tax-free. I should like Her Majesty's Government to consider whether it is not possible to put a quite big tax on advertising. It is done in other countries. The French have the taxe d'affiche, or poster tax, and I do not see why there should not be an equivalent system worked here. I believe that it would be extremely beneficial. I admit this is a minor, though important, feature.
Then I should like to support the noble Lord, Lord Lucas of Chilworth, in that I believe a great deal could be done by looking into the expense of the Armed Forces. Fundamentally, by far the greatest economic waste is the bill for the Armed Forces—something like £1,500 million a year. Unpalatable and unpopular though the suggestion may be, I believe that this figure is very much on the high side. I know that it will be objected that we must have our defence against possible attack. It will be objected that we have big commitments abroad, in

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Malaya, Kenya, Cyprus, Germany and many other places; that we must have defences to look after our interests in order that this country may play in the world the part that it should. Knowing all that, I still believe that we have to review our policy in the light of our economy and consider whether we can afford not only to spend all this money but to waste these materials, very often materials going into new weapons which are obsolete before men can be trained to use them. Can we afford National Servicemen in the present quantity? Can we afford the labour and brains of those young men, at the moment when they are just maturing, when they are training to be useful people, taken on that scale into the Armed Forces?
I suggest that there are two ways of looking at this problem. One may go to the Service chiefs and say: "These are our commitments. We wish to fulfil them. This is the danger against which we must be defended. What will be needed, in money, men and materials, to meet these demands?" But there is a completely different and reverse way of looking at it. One can ask: What can this country economically spend? What can we afford in men, materials and money? Then let us work out our policy of defence and consider our foreign policy and commitments on that basis. I believe that we could cut down the expense bill very considerably, without necessarily allowing our position to deteriorate. We cannot really compete with the giants, with the U.S.A. and the U.S.S.R. We can play our part, but it is no good thinking that we can dominate the world as we did in the nineteenth century. These are unpalatable facts, but unless we face them I am afraid that we shall not cure this disease of inflation which, if it is allowed to continue, will lead to ruin. And I belive that we shall be more valuable as a world Power if we are solvent with fewer divisions, than if we have many divisions and are, in the end, bankrupt.
5.20 p.m.
LORD BARNBY: My Lords, the noble Earl who has just sat down has shown that he has no fear of risking unpopularity with the Press and with I.T.A. in suggesting that advertisements should be taxed. Those Members of your Lordships' House who, like myself, had the
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misfortune to be out of London last Wednesday, so that they could not attend the debate, will have had plenty of opportunity to read the speeches which were made on that occasion. For my part, I took great pleasure in reading the admirable speech of the noble Earl, Lord Selkirk, which I thought was a most illuminating and helpful survey of the debate as it had appeared to him.
I must admit that I, no doubt like others of your Lordships who for a couple of months in the early part of the year were at a distance from this country (I happened to be in North America), had expected that the situation as presented first by Mr. Butler and then by the present Chancellor of the Exchequer would require some more drastic measures than have appeared to the Chancellor to be adequate. It would have seemed, from that distance, from the analysis put before us, that it would have required something in the nature of a Geddes Axe. Then, again, one recalled the deflation of the 'thirties and one asked oneself what good would millions of unemployed and the tremendous decrease in the value of capital assets in the country have contributed. So one came to understand the remark of the noble Earl, Lord Selkirk, that the economy was actually in such a delicate balance that the Chancellor was compelled to be very reserved in the action he took. From that distance, however, it seemed that the anxiety of drastic action was quickly being deflated. The buoyancy of the retail trade and the analysis of the stock market gave encouragement to people to believe that things were less bad than, as Lord Teviot has said, they had been thought to be by many.
I would not suggest for a moment that I underestimate the gravity of the matters of which the noble Lord reminded us. During this debate some noble Lords have made speeches in the nature of a general reflection on the situation. Others have attacked the question of imports from the angle of the balance, and yet others have dealt with this subject with a special reference to exports. The noble Viscount, Lord Bridgeman, following Lord Chorley, put great emphasis on the difficulties and outlined various angles of export business. In the case of imports there is indeed much ground for perplexity. For instance, why should there be such generous allowances for films and tobacco while yet there is apparently great difficulty in

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assisting re-equipment by getting machinery from dollar-origin countries when it is based on a prototype not made in this country?
The noble Viscount, Lord Bridgeman, gave us a good indication of the problems which he feels beset the export trade. Others have laid emphasis on the expectation of the Government doing what is the obvious thing to do in the present difficult circumstances—that is, lessening expenditure. Now all those matters are matters in our own control, but there are others which are not in our own control, and I shall presume here to follow Lord Bridgeman and deal with one particular aspect of industry as it is affected by the General Agreement on Tariffs and Trade, or the contemplated I.T.C. This multilateral liberalisation of tariffs certainly is a desirable ideal, but there is a risk in their effect being uneven.
Also the effects of devaluation of currencies can make a heavy cut in effective tariff rates in hard-currency countries. Indeed, they can, as has happened in Canada, substantially annihilate modest rates previously in operation. These dislocations are intensified by the Ottawa Agreements. Illustrations similar in character are low-wage-cost Asiatic textiles coming into Britain and low-wage-cost textiles going into Canada. In both cases, the wage rates of the producing country are far below the wage rates of the receiving countries. Emphasis is being given to this in the depositions before the Ways and Means Committee of the House of Representatives by Mr. Roger Millikin and Mr. Spencer Love, who testified to the danger to United States industry, despite tariffs, arising from merchandise from low-wage-cost countries like Japan. Indeed this is recognised by the United Kingdom Government in its treatment of manufactured jute imports from India, where there is complete prohibition for entry into this country except by British Government agency. Thus the consuming public in the United Kingdom pays the necessary toll to maintain in business the highest cost producer in this country.
There is no such mercy for the Lancashire cotton manufacturers. It means that textiles call for special treatment. Ultimately it looks as though this will have to be recognised. After all, the
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textile industries, measured both by employment and by the value of the product, are very important to the economy. At some point wage rates between East and West will have to be related by special co-efficients. It would seem meanwhile that it is thought by Western Governments that the textile industry in this country is expendable and that it may be to the national advantage that employees in that industry should be diverted to other forms of export production. Indeed some 30,000 workers have gone out of the industry in the last twelve months. That is a substantial drain away from one industry.
The noble Earl, Lord Selborne, made a most interesting speech, and although Lord Chorley described it as very reactionary It would say that if noble Lords opposite or people anywhere in the country will take the trouble to read Lord Selborne's speech they will, if they are honest with themselves, admit that there was in it a considerable amount of sound logic which justifies contemplation. He made this particular point: that those British adventurers who go overseas and establish plants there do a great service to their country. I think there should be some more guidance as to the relative advantages of contributions to balance of payments from the earnings of British factories established overseas, as against a possible loss of exports from this country. Actually it would appear that a million dollars in repatriated dollars are equivalent to 5 per cent. profit on 20 million dollars' worth of exports. Mutiply that by several instances, and so it goes on. I cannot expect my noble friend who is to reply for the Government to make any comment on this matter, but I hope that he will take notice of the point and feel that there is some justification for our asking for more guidance from the Government on this subject. My noble friend Lord Selkirk has emphasised that the Government adhere to their policy of giving no assistance by way of subsidies. It is to be hoped that they will use their influence to stop the French from continuing to give export subsidies in their country, to the disadvantage of British industry and in disregard of their engagements under G.A.T.T.
I would ask your Lordships' indulgence to refer to two other points. The financing of nationalised industries from

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surpluses arising from taxation has been referred to several times in the debate and has been the subject of some interesting letters recently in The Times. I have a copy of one in my hand, written by Mr. Laurence Robson, who, like a good Liberal, expresses dismay at the proposal that the Government should so apply the money raised by taxation without the taxpayer having power to indicate his feelings about it. I suppose that this is a matter on which eminent economic authorities alone are justified in being heard. To the average lay taxpayer, like myself, that seems to be a dangerous precedent. There seems to be much that is applicable in the letter's suggestion that the taxpayer should have the privilege of subscribing his own name to the capital requirements of nationalised industry rather than having it done for him by the Government. I suppose they would want a Government guarantee. The Central Electricity Authority, of which I had the honour to be a member for twenty years, raised money without a Government guarantee, but, once nationalised, they had to have a Government guarantee, and I do not think the service is any better than it was.
I cannot sit down without referring to a point which has already been mentioned often. There is overwhelming support for the decision of the Chancellor of the Exchequer to issue premium bonds. Surely it is nonsense to deny the fact that everybody in Britain likes a "flutter." I consider that the suggestion that the Chancellor's proposal is going to do harm to the moral fibre of the nation is hypocrisy. For myself, I welcome this decision wholeheartedly. Like the noble Earl, Lord Huntingdon, I could wish that the State benefits or prizes, or whatever you like to call them, had been set much higher, and that the Chancellor of the Exchequer had with courage stated more emphatically that he was going to use civilian agencies for their distribution.
5.35 p.m.
LORD SALTER: My Lords, I propose to put such views as I have to put before your Lordships in the form of candid comments on points made in the debate. It is sometimes said that in this House candour is unduly subordinated to courtesy, but the noble Viscount, Lord Hailsham, has already shown in this
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debate that that is neither invariable nor inevitable. I think that in some respects we are less inhibited here than the Ministers and Members in another place, particularly in regard to such delicate, almost unmentionable, subjects as the future of the currency or over-full employment. Sometimes in another place there has been almost complete silence on such questions because of a consciousness of possible reactions of sensitive constituents or sensitive financiers. I shall try to benefit by these advantages. I shall follow the noble Viscount, Lord Hailsham, though in this as in other respects a long way behind; and on occasion I may even mention some unmentionables.
Once more the House is greatly indebted to the noble Lord, Lord Pethick-Lawrence, both for his initiative and for his interesting and constructive speech. There are, however, one or two comments that I should like to make. I do not think he was quite fair in speaking of the Budget as a "thing of bits and pieces". That is to ignore the importance of what seemed to me the dominating feature of the Chancellor of the Exchequer's Budget—whether or not we agree with it—namely, the decision to retain the large surplus for the purpose of disinflation instead of giving it away in tax concessions.
The other point made by the noble Lord to which I wish to refer relates to tax avoidance, using the phrase, as he did, to distinguish it from tax evasion, which is illegal. It is by no means confined to the avoidance of taxation by the avoidance of work, to which the noble Earl, Lord Selborne, referred. We have to contemplate the fact that there will be a perennial conflict between the Inland Revenue and the taxpayer, between the gamekeeper and the poacher, reflected every year in the annual Finance Bill. Like the noble Lord, on the whole my good wishes are with the gamekeepers, but they sometimes overdo it. I think, for example, that the provision in the present Finance Bill to tax that part of the salaries of employees of a foreign country which is not brought to this country is a mistake, for reasons given in what I felt was a conclusive letter by Mr. Graham in The Times of last Friday. But, in general, I am on the side of the gamekeeper.
The point I want to make (and here I hope that I shall have the support of the

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noble Lord, Lord Pethick-Lawrence) is that, as a corollary, the Government should refrain from tax exactions which are exactly like tax avoidance, in that they are legal but unintended—exactions that are due to the destruction of the real structure of the income tax system through inflation. Consider what happens—and if I took actual figures, my argument would be strengthened, not weakened—if, in a given period, incomes and output alike, as measured in terms of pounds sterling, both double. People are neither better nor worse off. What has really happened is that what was called 10s. is then called £1. That does not affect the ordinary standard income tax or other forms of taxation, because tax and income go up together, and the proportion remains the same. But it makes complete nonsense of income tax limits set down in the tax system for the purpose of giving special relief to people at one end of the scale and an extra tax on people at the other end.
At the lower end, on the whole, although not exactly or completely, that anomaly has been corrected, by what are always, though unsuitably, called concessions—I say "unsuitably" because they are only inexact and partial and belated returns of improper gains of the Inland Revenue. But the £2,000 limit has remained all the time. In the case I have taken, what is now called the "£2,000 a year" man is really a "£1,000 a year" man; but nothing has been done to correct that. That, in my view, is really filching extra taxes from one particular unfortunate class of taxpayers. It is legal, but it was unintended; and it ought to be corrected. It is particularly unfortunate, because it applies with particular severity to the people who have gross earnings from, let me say, £2,000 to £5,000 a year, who are at the very core of the efficiency of our industrial economy. Their money is taken away by an act that is very much like that of a salesman who uses weights and measures that have become completely defective. The Government may say: "We did not indeed create inflation for this purpose." That is true, of course; but it would be no answer for a salesman who consciously went on using defective weights and measures after he knew perfectly well what was wrong and kept the profits for himself. That is what the Government are doing at this moment.
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I turn now to the noble Lord, Lord Rea, the Leader of the Liberal Party in your Lordships' House, who started with, I thought, rather undue modesty, at least so far as he was speaking for the whole human race, when he said that this problem was beyond the human mind to grasp. He then went on to call for an abolition of the travel allowance control. I have great sympathy with that appeal, but not because I agree with his initial and rather curious argument that it is hard luck on the £45 allowance man to fill up a form. The real fact is that the man who is inconvenienced by being limited to the £100 allowance is the man who wants to spend more than £100—so let us say so quite frankly. The reason why I am in support of the noble Lord's appeal is that I think at this stage the direct saving of that travelling allowance to our foreign exchange is negligible; and if we allow for the indirect results I believe that it is nil or negative. Against what I believe to be really no advantage at all, there are the great disadvantages referred to both by the noble Lord, Lord Rea, and by my noble friend Lord Conesford. I believe there is only one real reason for a restriction of this kind, and that is to prevent undesirable capital movements. But if it is possible to have the rules that apply to travelling to Scandinavia without incurring that unfortunate consequence, why cannot those rules be extended to other countries which are at present covered by the £100 allowance?
I now come to what the noble Lord, Lord Lucas of Chilworth, said. He tackled the problem of our deficit. However, I do not think he either stated quite correctly the nature of our real and dangerous problem or prescribed the appropriate method of dealing with it. He started by asking: Why do the Government think that they can get a balance between our imports and our exports which we have never had in living memory? That last phrase shows clearly that the noble Lord was thinking only of physical exports and imports, because in living memory we have certainly had a positive balance of £200 million a year, equivalent at present prices to £600 million a year. But what reason has the noble Lord for thinking that the Government ever contemplated that that was the goal of our effort? What the Government are trying to do, and must do, is to secure a balance between our exports, visible and

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invisible together, which will enable us to pay for our imports and to meet our foreign commitments and such foreign investment as we have to make abroad. That is a difficult enough task: the penalty of failure is severe enough, and the obstacles in the way are high enough. The weaknesses in our system include, of course, a great dependence for such income as we have from abroad on rubber from Malaya, on cocoa from West Africa and on oil from the fringes of the sterling area. And we have many other difficulties, to some of which I will refer in a moment.
What happens if we fail to get that balance? Here, I think, the real and crucial danger of this country has never been stated quite starkly enough by any responsible Minister. The real fact is that if, for reasons which have been mentioned, we go on failing to earn sufficient to pay for our essential food and raw materials, we face the prospect of both destitution and mass unemployment. I said that Ministers never state this quite starkly enough. The Chancellor of the Exchequer said the other day, in describing our problem, that the trouble was that we had not a large enough reserve to meet the fluctuations in our fortunes. That is true, so far as it goes; but it is not the real trouble. If we had, by the gift of the gods, or the modern gods, the dei ex machina, the Americans, let us say, double our reserves at this moment, that would only postpone disaster; it would not avert it if we continued to have, as we have had over past years, a long-term downward curve round which the fluctuations have taken place, due to long-term causes which so far are not being corrected or removed. That is the deadly danger that confronts us, and it ought to be stated clearly by responsible Ministers, because it is that danger, I think, that we should take as the touchstone by which to judge all measures of policy and to assess the alternative various issues that confront us.
I come now to the remarks of my noble friend Lord Cherwell. He did, I think, accurately diagnose the fundamental underlying cause as wage inflation. As I shall explain in a moment, I do not think that his prescription of the remedy was equally satisfactory. He said—and here I should like to quote his words
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[OFFICIAL REPORT, Vol. 197 (No. 87), col. 77]:
"… 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."
He went on to say that output in the United Kingdom in the last five years had gone up by only 9 per cent., whereas earnings had gone up by 45 per cent.; while in West Germany output had gone up by 40 per cent. and earnings only by almost exactly the same amount, 42 per cent. In my view, the noble Lord, Lord Cherwell, has rightly diagnosed our inflation as predominantly, though not wholly, wage inflation—in this sense: not that wages have gone up, as of course they ought to go up with increased output, but that they have gone up so much more than any increase of output, while no such excess is found in the countries which compete with us in foreign markets.
I do not think, however, that the remedy of the noble Lord, Lord Cherwell, was equally satisfactory. He said that a 10 per cent. rise in wages was likely to mean a 10 per cent. rise in prices, so that the worker had no real interest in demanding such increases. The trade union leaders, he said, who really understand the position, might prevent the inflationary spiral. That might be true if wages were negotiated collectively by one single organisation, the T.U.C., but they are not. They are negotiated through separate unions, and it is no use to say to a particular union: "Do not ask for a 10 per cent. increase in wages; it will only put up the price of things you buy by an equal amount." The answer is conclusive: "Oh! no. If we get an extra 10 per cent. in wages, that does not necessarily mean that all the people who are making the things that we want to buy will also get 10 per cent. And, equally, if we refrain from making this demand, that will not prevent other industries from getting the increase which we do not have."
The T.U.C. could not, and perhaps should not, negotiate on wages as a whole in one great settlement. The right line of settlement, in my view, is that the Government, by its general financial policy, should not only make it less possible for employers to give those illegitimate and unearned increases in wages but, as an

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essential counterpart to that, should insist that the national monopolies, where the ordinary process of wage negotiation does not work, should pay their way, as Parliament intended them to do but as they have failed to do because of the action of successive Governments. The last notorious example is the pronouncement of the present Minister about railways, which I will not further discuss at this moment.
The appropriate rôle of the T.U.C., in my opinion, is quite different. It is not to prevent the separate unions' demands for wages. It is to deal with what is clearly within the proper rôle and responsibility of the trade union movement itself; that is, to prevent unofficial strikes and settle disputes between unions. The great bulk of the strikes last year, with the enormous losses they entailed, were not the old, orthodox strikes as a last resort after proper official negotiations about wages between employers and employed had broken down. The great bulk of them were either unofficial strikes or resulted from quarrels between unions. The actual amount in wages claimed or in wages lost to the men was comparatively small—it was a matter of millions in total—but for the industries concerned, the loss was to be measured in tens of millions; for the country in hundreds of millions. The noble Lord, Lord Cherwell, said—I do not know the authority for his figure—that the dock strike alone caused a loss of £200 million. That seems to me the proper rôle for the trade union movement: to achieve an organisation to deal with the trouble that specially concerns them, leaving the normal wage problems to be dealt with as I have just suggested.
I am speaking rather longer than I intended, but I should like to refer to the speech of the noble Lord, Lord Cones-ford, who tackled the almost unmentionable and most delicate question of over-full employment. As has been said several times during this debate, all Parties subscribe to full employment. They are careful, however, not to say exactly what they mean by it. Does it mean a policy rimed at having not more than 3 per cent. unemployment at the worst, which was the way the Labour Government defined their policy as late as their last year of office in 1951? Or does it mean the 1·2 per cent. we have at this moment, or the 1 per cent. we have
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had on the whole for the last six months? I do not think the best definition is in terms of a precise percentage. I think we all want as much full employment as we can get without stopping the essential remedial processes. The Government must now apply themselves to what will be the really fatal disease if it is not cured (the appropriate methods I have already referred to) in our foreign balance of payments. The Government must, I suggest, go on with their policy designed to secure adequate mobility from industries that do not need men to our export industries that do. They must press on with their policy until they stop the fatal Influence of inflation (of an order of magnitude which I have already illustrated by the case of Germany), and they must not—this, I suggest, is the right answer to the question—in pressing on with that proper policy, stop short because it may have the effect of raising the present 1 per cent. of unemployment to something nearer the figures that were regarded as the objective only a year or two ago.
Among the desirable objects of the Government's policy, I referred to securing the necessary mobility. That is not happening at present. It is notorious, I think, that the credit squeeze is not securing sufficient mobility. It may have to be pressed further. Incidentally, here I suggest an analogy to the tax avoidance question mentioned before. The process of encouraging mobility has just been impeded by a decision, the legality of which I do not question—namely, to give unemployment benefit in respect of part-time working. This was, I think, never intended by the Legislature, and merits attention as much as the stoppage in a Finance Bill of tax avoidance.
I will not delay your Lordships further beyond making one concluding remark. The future of this country will depend more than on anything else, apart from the hazard of war, on one fundamental factor, and that is, the mental attitude of all those concerned with the processes of production—employers, workers, and potential investors—to work and its rewards, to enterprise and its risks, to consumption and saving. This mental attitude has been profoundly affected by the post-war environment created by the Welfare State, by full employment, by the national monopolies and by inflation. Some of these have brought great and

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obvious benefits. Some have brought disillusion and injustice. Taken as a whole, whatever their benefits, they have undoubtedly impaired the old incentives required for a dynamic society, and at present no alternative incentives of equal potency have been discovered. If, which God forbid! a future historian has to write on the decline and fall of Britain—it will not be the one who has just given his account of the birth of Britain and who many centuries later led our country to the height of its greatness—he will, I believe, find the fundamental cause since the war in the psychology to which I have just referred, and in our failure, if, indeed, we should fail, to restore and revive again the dynamic energy on which the greatness and power of this country have in the past been founded.
6.0 p.m.
VISCOUNT ALEXANDER OF HILLSBOROUGH: My Lords, one is always impressed with the presentation of the case to your Lordships' House by the noble Lord who has just sat down. He is an old friend, a well-known economist, a man of great knowledge and capacity in regard to international affairs; but I must say that, when he begins to talk of history, as he did in his peroration, which was so moving, he will, in my view, have to be a little more adequate. It may be that, in the historian's eyes, the present situation will have to be related to the psychology of the people of to-day, and their part in the Welfare State and what it means to them. But it will have to be remembered that much also depends on the circumstances that led up to the last war, as well as on those that followed it. That will be a part of the historian's record of their effect upon the economic life and general economic prospects of the world and this country, and upon the future status of States. The future record will also have to include something about the post-war period, quite apart from the points mentioned by the noble Lord.
There was the bankruptcy with which we in the Labour Government were faced when we came into power in 1945. In this present state, as the noble Lord has had to admit in the course of his speech, the old-time methods of mere credit squeeze and the money method cannot
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fulfil the task of dealing with the threatened inflation. He himself said that other things would have to be put in—for example, something to secure mobility, a general control of some kind or other. A real historian, when he comes to write about it, will see that much—I agree not all—of the present situation has arisen as a result of the Election in 1951, after which the Party which came into office determined to put political dogma before the immediate task of dealing with the general situation. And they had the great advantage of coming in at a time when the terms of trade began to go in this country's favour. They thought that they were going to show the country that they were continuing prosperity because of some special thing they had done in "setting the people free." But directly the terms of trade go against them in the country, they are up against it. Thus, hardly one of the Election pledges made in 1951 has been fulfilled.
They should talk about wages being one of the principal causes leading to inflation! We have to look at what comprises the increased cost of living and the percentages. It is when one comes to deal with the result of Government policy, and sees how the increased cost of living has become more or less centred not upon luxuries but upon the cost of food, which has always been admitted to be a proper basis for wage negotiations, that one can begin to give proper weight to the part that wages themselves play in dealing with this situation. So, whilst I have enjoyed a great deal of the speech made by the noble Lord, Lord Salter, and was most interested in what he had to say by way of comment upon the speech of the Leader of the Liberal Party in regard to the Trades Union Congress and trade unionism in general, he will have to revise his history considerably, from my point of view, before I can accept all his statements this evening.
LORD SALTER: The noble Viscount will realise that I did not deprecate an increase in wages. I referred entirely to an increase in wages which anticipated, and ran ahead of, any increase in output.
VISCOUNT ALEXANDER OF HILLSBOROUGH: Strangely enough, I am glad that the noble Lord dealt with the

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speech made by the noble Lord, Lord Cherwell, last week. I had marked that very passage which he quoted from Lord Cherwell's speech in Hansard. Of course, there is no doubt that increased wage rates have had a good deal to do with the rise in costs and general inflationary tendencies, but it has not always been because of an increase in the basic rates. Very often it has been competition between the various trades, as well as between those within a given trade, that has made such a vast difference and has also increased largely the cost of the output by overtime rates. Those things have to be taken into account.
There are other factors. A few days ago I was reading an interesting document, Interest and Dividends upon Securities Quoted on the Stock Exchange, issued by the Stock Exchange people themselves. There has also been the question of how the position is affected by the increase in profits. There are profits distributed. How much easier it is to check them than profits which are actually put back into the business! But it is a by-word amongst those who really follow, from the ordinary economic point of view, the Financial Times, the Economist and others, that, whilst no doubt wages have been a larger global figure than profits have been during the inflationary tendency, one cannot say it is practically all wages and no profits.
I have here this document issued by the Stock Exchange, and of the very large proportion of the loans and ordinary equities, both preference and ordinary, they give a picture from 1947. Taking the three classes and adding them together, they show that the total of interest and dividends in 1947 was £859 million, and in 1955 it was £1,224 million—a rise in those years of getting on for £400 million. Of course, there are other securities as well which are not dealt with in that particular list. I cite those only to show that, when one comes to consider all the factors contributing to the tendency to inflation, one must not put all the charge upon labour. One of the great faults of this debate, in my view, speaking as a Labour man, has been the tendency to try to put the blame upon the workers in the country. I listened with great interest to the speech of the noble Earl, Lord Selborne, which
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was described by my noble friend Lord Chorley as "reactionary". The noble Earl is an old political friend on the opposite Benches, as it were. As I listened to him to-day, I would not say that his speech was what the noble Lord, Lord Chorley, called "reactionary": it was just a reversion to type of fifty or sixty years ago. What a story the noble Earl was telling us about the position of the worker!
My noble friend Lord Pethick-Lawrence, to whom all of us on these Benches are so grateful for his constant leadership in opening debates of this kind, described what happened to the workers in those days as being "savage inhumanity". When language like that comes from my noble friend Lord Pethick-Lawrence, one of the most tender-hearted persons in the world, one knows that he would not be inclined to describe actions of opponents like that—we know him too well from his nature—but for the fact that it was historical and proved fact. When we come to deal now with the question of inflation and try to put all the blame upon labour, do not let us think, as the noble Lord, Lord Rea, does, that all this could be put right by having a special outside inquiry, as I think he advocated, into the trade unions; the trade unions who had to fight first in order to beat the anti-combination laws before they could even exist; the trade unions who have just purchased the cottages at Tolpuddle as a national memorial to those who were sent to gaol and some who were sent overseas for asking for a rise from 7s. a week on which to bring up a family in a Christian country. Those are the people who formed the trade unions—and not by any special grace at that time on the part of even Liberal Governments. Let that not be forgotten. If the negotiation difficulties, which the noble Lord, Lord Salter, quite rightly mentioned, need to be tackled, they can be tackled by the trade unions themselves. They are capable enough to do their own job. I think they are steadily increasing their efficiency in equipment, in education, in literature and in science, and I am sure that they will be able to do their job satisfactorily.
Now I want to take up one of the points made tonight by my noble friend Lord Huntingdon—namely, the subject of advertisements. We have discussed this

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matter since the war and so far as income tax is concerned it was dealt with, for a time, I think in one of Mr. Dalton's Budgets, by establishing a practice period. Sir Stafford Cripps, who altered those arrangements to what they were previously, made the alteration in the hope that those who had been engaging in the practices which had been brought to the notice of Mr. Dalton would be good boys in future. In fact, however, there has since been an orgy of expenditure on advertising. I do not know how many Members of your Lordships' House take the trouble, as I do sometimes when I am not able to sleep very well, to read the company reports in the newspapers. I read one last night. It was a report by Messrs. Bibby and Sons, the soap and cattle feed people. The directors in their report refer to their poorer results as being largely due to the gigantic advertising programme of their opponents in business, especially on the soap side. The word used was "gigantic". One has only to look at the soap industry to see what is happening. There is a great battle between, for instance, Hedley's, representing the American combine, and Lever's. The poor housewife is wooed with all kinds of things. She buys a packet of detergent for 1s. 9d. or 2s. and the actual product inside costs about 2d. It may have a cardboard packet around it. In the margin which is charged to the consumer there is an enormous bill for advertising. Is that not inflationary? I should like an answer from the Government.
LORD TEVIOT: I was wondering whether, in speaking of the enormous amount of money that is spent on advertising, the noble Viscount has forgotten the Co-operative Societies. The noble Viscount is talking about other people; I must bring that point in.
VISCOUNT ALEXANDER OF HILLSBOROUGH: I do not forget them at all. I should think that on the wholesale side we probably spend 2d. in the £, which is about half the usual amount spent elsewhere. All the time the taxpayer is paying while general advertising, obviously for a capital purpose and not for a revenue purpose, is allowed as tax-free expenditure. When great firms go out to capture the whole business and goodwill of an opponent, that expenditure should
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be treated by the Government, in dealing with taxation, as a capital expenditure—a purchase of the goodwill which was not theirs before. If it is a question of salesmanship, then one certainly needs to keep one's goods before the public. I certainly should not want to see a tax change made in respect of advertisements overseas. I think that in order to maintain our export markets that is quite reasonable expenditure. I do say, however, that the extent to which advertising has gone up now, whereby we are spending, I believe, nearly £300 million per annum, all of which is allowable as a trade expenditure, is leading to an inflation in price and, in many cases, to a "make-believe" as to what is the best thing for the consumer to get. It is time that the Government examined the matter from beginning to end.
I hope I have said enough on the other side not to lead noble Lords into thinking that I am against all advertising; I am not. I am in favour of reasonable advertising for home sales. I am in favour of all the advertising necessary for the overseas market. But I am totally against our subsidising gigantic wars between great organisations in this country at the expense of the taxpayer and the consumer who ultimately buys the article. All the history that I have been accustomed to study in this matter of distribution for the past fifty years would enable me, if I had time, to prove my case over and over again.
Now I come to the question of how we are going to do one of the things to which Lord Salter and previous noble Lords before him referred. How are we going to increase our production? At the present time, I quite see the difficulty of having the kind of increase in investment that would be necessary to bring about the expansion that we desire. But I am bound to repeat the plea I made some weeks ago, that the Government should look afresh at their agricultural policy before giving up the idea of being able to produce an expansion of output to reduce the imports which are so crippling in our balance of payments and trade. With a more favourable policy to the farmer, there is no reason why we should not greatly expand our output. Instead of that, the present Minister of Agriculture, Fisheries and Food seems to be determined, whether it is because he has lost his fight with the Treasury or for whatever reason it may be, just to let things

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take their course. The Government had to give lip-service to the terms of the 1947 Act; but in general their policy is to proceed ultimately to laissez-faire.
I was astonished to read in the Farmers' Weekly an extract from a speech by the Minister which I think shows fairly plainly what I mean. This is the report in the Farmers' Weekly of May 4:
"Farming bankruptcies are at an extremely low level. The latest figure I have seen is about 150 to 170 for last year"—
not a very firm figure; the Minister did not give the figure exactly—
"and this year the number is running rather less. Out of a total of 300,000 farms that figure is really insignificant. An industry that has no bankruptcies at all cannot be in a healthy state."
I think that is a most outstanding contribution—that an industry that has no bankruptcies at all cannot be in a healthy state. When this statement was greeted with exclamations of surprise, the Minister added:
"Yes, I stick to that absolutely; it is the price of efficiency. If Members want a system in which nobody is ever squeezed out of business they will not have efficient industry."
Those were the words of the Minister of Agriculture speaking in another place. I hope the farmers will duly note that. It really comes back to the old philosophy that Lord Selborne put to us this afternoon. He showed his views quite plainly: that you can never deal with inequalities of nature or lack of opportunity by any legislation. I am quoting the words the noble Earl used; we can look in the OFFICIAL REPORT to-morrow.
THE EARL OF SELBORNE: If I may correct the noble Viscount, I did not go so far as that. I said it was no good trying to correct the inequalities of nature or of opportunity. That is different from not dealing with them.
VISCOUNT ALEXANDER OF HILLSBOROUGH: There may be a difference in the words but not in the meaning—at any rate, I shall be delighted to refer to it again. It is the old Tory philosophy. It is what my colleagues and my party have been fighting against all our lives: the survival of the fittest and the weakest to the wall. That is what we have been fighting against. We get it expressed tonight: "Why should these people"—the people among whom I was brought up—"have such education? We are
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spending far too much on education for them." Are we? All the facts of education prove differently. The old greybeards of the Admiralty were seventy-seven years ahead of Mr. Herbert Fisher and his day continuation schools. They took the lads into the dockyard schools from 1841 onwards, and what did they produce?—naval architects of the next century, out of workmen's apprentices. By education they produce heads of technical colleges—and to think that, when we are dealing with these great and serious facts facing us to-day, the noble Earl says: "We must not have so much education. Reduce expenditure on it," whereas his former leader, Sir Winston Churchill, says: "For heaven's sake! let us have a let more technical education of all classes. We shall need every bit of it in the future." There seems to be a division of counsel there as to how we are to deal with this situation.
I have heard nothing in the course of this debate that would take me away from the basic principles which led me into politics. I have found no real explanation from any members of the Government, either in this debate or in any previous one, as to what they have gained for the country in dealing with the postwar problems by reverting to a system of "Every man for himself, and the devil take the hindmost." What have they gained? They had a sort of mesmerism over the people for a year or two, while the terms of international trade were going in their favour; but when the terms of trade turn against them they have nothing to say but the old saws that we found used right through 1921 and 1922. If the people are foolish enough to give the Government a long enough rope we shall have the same sort of thing which we had in years gone by; what was prophesied by Lord Salter just now—unemployment and mass despair. I am not quite sure of the word, but it was a pretty bad word that he had to use about it. That is what we shall get, whereas what is needed in a modern world is courage to face economic planning.
The Government are not prepared to do it. Why are they not prepared to do it? Because, apparently, they want to keep certain divisions in society. That is

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why they are not prepared to do it. During all the period of unemployment, in 1920, 1921, 1923 and 1924, when every morning in my political office in Sheffield I had queues and queues of unemployed, begging for help of any kind, as a result of the deflationary policy of a Tory Government—during all those years what was going on? Just the same kind of stuff that we are having talked to us to-day, just the same sort of thing. If it had not been for the manner in which the situation was dealt with when the country was bankrupt in 1945, I say advisedly that the country would have been very near that situation then. Both the country and the workers were saved from it by the people's Government of 1945–51.
THE MINISTER WITHOUT PORTFOLIO (THE EARL OF MUNSTER): By what Government?
VISCOUNT ALEXANDER OF HILLSBOROUGH: By the people's Government, I said. I am not ashamed of it. Call it what you like. Call it the Labour Government or the Socialist Government, it will still be the people's Government. I do not see why your Lordships should not allow me to speak in a proper fashion in this House, according to what I think. I am sure that I should be allowed to do that. That is the situation.
LORD TEVIOT: I do not want to interrupt the noble Viscount, but is it not true that the highest figure of unemployment this country has ever had was during the term of office of the Labour Government?
VISCOUNT ALEXANDER OF HILLSBOROUGH: When? It certainly happened after the great Wall Street smash of 1929 and when there was no Labour majority in another place. We were completely prevented, both on that issue and upon the problem of coal and the like, from being able to exercise a Labour policy. Please do not count that. It would be quite wrong, in any assessment of the situation, to try to take that into account.
I say that there is no possibility of doing what is just and right for the workers of the country, the poorer classes of the country, other than by having properly controlled economic planning. The Government are afraid of it. When I listened to the noble Earl, Lord Selborne, this afternoon and his (shall I
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call them?) expositions of the rich and the poor, and when I think of what a good churchman he is—because I know he is—I remember that as a boy I used to sing the Magnificat in the choir:
"He hath put down the mighty from their seat; and hath exalted the humble and meek.
He hath filled the hungry with good things; and the rich He bath sent empty away."
Does the noble Earl think I am bothered about his definition of rich and poor?—not likely, because we have a gospel and a mission. We have also a sound technical basis for our case, and I say to the Government: "If it had not been for the unfortunate imposition upon our work (and I myself had a lot of responsibility for this) of having to agree to an enormous defence programme you would never have had the chance to come in and do the damage you have done. I think it is about time you made up your minds to get back to planning in the interests of stability and success."
6.28 p.m.
THE EARL OF MUNSTER: My Lords, at the end of a two-day debate it now falls to my lot to wind up on behalf of Her Majesty's Government. I think noble Lords, on whatever side of the House they sit, will have been impressed by the speeches that have been delivered during these two days by noble Lords who are so competent and capable of discussing almost every aspect of our economic position. The debate has indeed roamed far and wide. I think my best course this evening would be to try to reply to some of the questions which have been addressed to the Government during the two-day discussion and not to travel over any of the ground which was so admirably covered by my noble friend Lord Selkirk, who spoke at the end of the first day's debate.
Let me say at once that I was disappointed with the speech which we have just heard delivered by the noble Viscount who leads the Opposition. It struck me that he conveniently forgot that in 1951 his own Party left this great British nation on the verge of bankruptcy. He still seems to forget that to-day we have a higher standard of living in this country under a Conservative Administration than has ever been known before. Indeed, when your Lordships think of the words that he used this afternoon it is obvious that he was living in the 19th century and

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that he had no constructive ideas whatsoever to present to your Lordships or to the nation for consideration.
VISCOUNT ALEXANDER OF HILLSBOROUGH: My Lords, that is not true. It is sheer nonsense—eyewash.
THE EARL of MUNSTER: It is perfectly true.
VISCOUNT ALEXANDER OF HILLSBOROUGH: If you want to talk about 1951, I may say that you got in on a false cry. You told the whole country that we were running away, whereas you knew that, with a majority of five, we had to get a mandate to put this very type of planning into operation. You beat us at that and, by gum! you are beating the workers now.
THE EARL OF MUNSTER: My Lords, I think it would be better to get on to constructive ideas in this debate rather than have a discussion now on the benefits of Socialism and Conservatism. I want to deal first with exports and trade. At the beginning I should like to remind noble Lords that my noble friend pointed out last week that our reserves had increased by 50 million dollars during the month of April and not by £50 million, which is mentioned in the OFFICIAL REPORT, and which was obviously a slip of the tongue. Recently our exports have shown an appreciable improvement. None the less, it is quite clear that we are not holding our own compared with our competitors in the overseas markets. It must be remembered that no Government can obtain export orders; those orders can only be won by individual firms going out to sell their goods at competitive prices with an assurance of good delivery dates. But what the Government can do, and have done, is to create the conditions whereby our exporters are stimulated to sell abroad rather than in the easier home market. Surely, to curb inflation and to reduce the excessive demand at home is far and away the most important task facing Her Majesty's Government to-day.
At the same time, our overseas commercial policy must be aimed at establishing external conditions whereby our trade can flourish. We have done a good deal. The Government's services of direct assistance to exporters are being increasingly used, and, as my noble friend, Lord Bridgeman, said, the Export
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Credits Guarantee Department has recently announced improvements in the range of its services and a reduction in its premium rates on trade with no fewer than 100 markets. I repeat that it is not the Government's job to sell exports but it is their responsibility to create conditions in which the exporters can get on with the job.
I pass now to deal with the matter raised by the noble Lords, Lord Pethick-Lawrence, Lord Salter and Lord Selborne—the question of tax avoidance or evasion. Much has recently been said and written about both these practices. Tax avoidance is not illegal but tax evasion is, of course, a punishable offence. I believe that all noble Lords, and certainly those who, in the course of their political time, have been engaged at the Treasury, will be very familiar with the fact that on publication of a Finance Bill acute minds throughout the country settle down at once to find ways and means of legally circumventing its provisions. It follows that the Government must always be one stage behind these acute-minded people. But successive Governments (the "people's Government" also) have tackled this matter on more than one occasion, and seriously disturbed, as we have done, the misplaced ingenuity of these individuals. In this very Finance Bill the door is closed to two defects of the law relating to profits tax which have recently become apparent; and although there is no direct evidence to show that avoidance of this tax has been practised to a large degree, nevertheless, the law is being amended before trouble really starts.
We all know that Finance Acts have for many years contained provisions to stop the loopholes through which tax can be avoided. I have heard it said on many occasions, and the noble Lord, Lord Winster, mentioned it in the course of his speech this afternoon, that expense accounts are "wangled". I expect we have all used that observation from time to time, but I suggest that when any noble Lord makes that observation in future (quite apart from the noble Lord who made the observation to-day) he should give us concrete facts upon which we can go, so that we can find out whether they are correct or false.
I come now to evasion, which is quite a different matter. To dodge tax by

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illegal methods is, as we all know, a punishable offence. Under Clause 16 of the Finance Bill additional powers are being taken to enable information to be obtained about fees and commissions which have been paid to individuals, but which the recipients might be tempted not to declare. With the best will in the world, I could not give the House any indication whatever of the cost to the Exchequer of tax evasion. Suggestions of very large sums have been bandied about but I have no idea of the facts and know of no method whatsoever whereby we could secure an accurate estimate. Noble Lords' guesses would be just as good as mine. Nevertheless, the closest watch is kept on these matters by the Inland Revenue, and from inquiries which I have made I understand that it is quite clear in their minds that no further powers than those which now exist can stop people breaking the law. The thing to do, of course, is to catch the individual who is breaking the law.
I come now to a question which was raised on the first day of this discussion and has been raised this afternoon by the noble Lord, Lord Grantchester. In the Budget proposals of my right honourable friend it was indicated that he intended to give some relief to the self-employed in respect of provision for retirement. I need not go into any details for they are all embodied in the Finance Bill; but suggestions have been made during this two days' discussion that we should go further and implement a recommendation of both the second Millard Tucker Committee and the Royal Commission on Taxation of Profits and Income—namely, that part of the permitted benefits should, subject to a maximum limit, be a lump sum payment. I hardly think it would be right for my right honourable friend to make this concession, as it is wrong in principle for any part of the benefits to be paid free of tax when the whole of the contributions are deductable for tax purposes. To allow such lump sum payments to the self-employed, with full tax relief on contributions, would put them in a better position than some other classes who do not get full tax relief on their contributions. It was also the noble Lord, Lord Grantchester, who wanted to know whether it would be possible to carry forward for relief against the earnings of
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a future year the amount of a contribution made under a "self-employed" policy which cannot be allowed in the year of payment because of the rule limiting relief to 10 per cent. of earnings. That answer also will be found in Clause 19 of the new Finance Bill. The excess of payments over 10 per cent. of earnings, but not any excess over £500, can be carried forward to a future year, as the noble Lord suggested.
My noble friend Lord Bridgeman emphasised—and how right he was!—the need for the public to realise the part they must play in helping our economic recovery. My noble friend is perfectly correct in saying that the Budget is only a small part of the total plan, but the proposals to encourage savings will, I hope, provide one really good incentive for the public to play their full and ample part. We all know, as has been said by the noble Earl, Lord Selborne, that during the last few years far too much has been spent and far too little saved; and in the existing state of our economy it is vitally necessary to reverse this trend. The Government can lead the way through their proposals in the Budget, but they must have the willing co-operation of everyone if they are to achieve the objective which we all have in mind.
Assistance will also be forthcoming if we can secure, as we are trying to do, the help of industry and trade unions in bringing about a period of stability in prices and wages, and a substantial increase in output per man. This particular question was mentioned, I think, by every noble Lord who has taken part in our debate to-day. As Lord Cherwell said on the previous occasion—and his words have been quoted also in our debate to-day—earnings per man in industry increased last year twice as fast as output per man. If we are to keep our heads above water, our first aim must surely be to increase output per man more quickly than earnings. The only method by which this can be done is to secure a period of stability of wages and prices and to step up production so as to enable us to become more and more competitive in foreign markets.
Reference has also been made by noble Lords, in the course of the discussion to-day, to the present monetary position. I think it was my noble friend behind me who said he thought that there was

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too much sterling about to-day. I would not quite agree with that view, but I would agree that there is too little foreign exchange, which, in point of fact, means our gold reserves. The position is by no means as good as we should like it to be. Some improvement has certainly materialised during the first four months of this year, when our reserves have risen by 208 million dollars, compared with a loss of 75 million dollars incurred during the same period last year. If the reserves continue to increase at the present rate, they should by the end of the year be back at their December, 1954, level. But, as my noble friend beside me pointed out last week, the first half of the year is always more favourable to our reserves, partly because of the seasonal swing in the trade of the rest of the sterling area and partly because we have to make an annual payment of some 200 million dollars to the United States and Canada at the end of the year.
The noble Earl, Lord Selborne, and the noble Lord, Lord Grantchester, asked about the intention of Her Majesty's Government to reduce expenditure by at least £100 million in the current year. As I think the House knows, my right honourable friend the Chancellor of the Exchequer has expressed his intention of making an announcement at the proper moment as to how and where this reduction will operate. I am not in a position to-day to add anything to the announcement which has already been made.
VISCOUNT ALEXANDER or HILLSBOROUGH: May I raise a question upon that?
THE EARL OF MUNSTER: Certainly.
VISCOUNT ALEXANDER OF HILLSBOROUGH: I can understand that, of course, we shall not be able to learn for some time of any major proposals. As my noble friend Lord Pethick-Lawrence said last week, we shall have to wait for the details before we can judge of this £100 million proposal. But I should like to ask now whether it is true that the Government have already sent out a circular suggesting the halving of the amount of milk provided for children in nursery schools to save £100,000? Is that so? I understand that a circular has been sent out by the Ministry of Education intimating a reduction of from two-thirds of a pint to one-third of a pint in the milk provided for children under five
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years of age in nursery schools. If that is the kind of economy that is suggested it will not be very popular.
THE EARL OF MUNSTER: I do not know if it is. The noble Viscount is perhaps judging a little too quickly. I cannot give him an answer now on the point which he has raised.
VISCOUNT ALEXANDER OF HILLSBOROUGH: Perhaps the noble Earl will let me know what the answer is.
THE EARL OF MUNSTER: I think the noble Lord, Lord Grantchester, went on to ask why expenditure by the Government was not to be reduced by 10 per cent., like the reduction in the figure of bank advances. Here I think there is some mistake in the minds of many people. The Government have never set the banks a target figure at all; all they did was to ask the banks to make a "positive and significant" reduction in bank advances. That, indeed, the banks have done, and my right honourable friend sincerely hopes that the pressure will continue. I think it would certainly be unrealistic to compare the reduction in Government expenditure with the reduction in bank advances. The two things are really poles apart and in my view they are in no way comparable.
The Government have had addressed to them various questions about premium bonds—a method of saving which seems to have been widely welcomed in your Lordships' House, as it has been throughout the country. The issue of these bonds as an aid to saving will rightly find its place in the Finance Bill. I cannot at the moment give the House any further information about them, as the details are being worked out; nor can I give the House any indication of the administrative costs. Nevertheless, an announcement will be made in good time to enable noble Lords to purchase these bonds.
I leave those matters and turn to deal with other questions which were addressed to me. Lord Salter said—I think I understood him correctly—that the time had now arrived when Her Majesty's Government should lift some existing restrictions on the annual sum of money which may be taken by individuals as travelling allowance overseas. He quoted the case of Scandinavia. The allowance in the case of Scandinavia is always put at "any reasonable amount", and it has been

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pretty liberal in practice. Up to £250 a year has been allowed, with no questions asked. Allowances above that figure would be granted for any reasonable purpose, but it would have to be understood, I think, quite clearly what the purpose was. With regard to the £100 limit, my right honourable friend is of the very firm opinion that at the present time our resources could not be considered good enough to warrant an extension to other countries of the world of the Scandinavian arrangement.
THE EARL OF SELBORNE: May I ask the noble Lord whether he can explain to the House what is the difference, in this respect, between Scandinavia and the rest of Europe?
THE EARL OF MUNSTER: It has been worked out under an agreement which I should not like to define to my noble friend to-day—an agreement called the "Uniscan" Agreement. I will certainly see that the noble Lord has full particulars of the agreement, which no doubt he will read at his leisure.
LORD SALTER: My Lords, the noble Earl will agree, will he not, that so far as the purpose of retaining this travel allowance restriction is the prevention of capital movements, the danger, whatever it may be, applies equally to the Scandinavian countries. I did not suggest the complete abolition of the travel allowance, nor would I suggest freedom in regard to countries to which the allowance does not now apply, such as America. What I suggested was an extension of the Scandinavian arrangement to countries to which the £100 allowance now applies.
THE EARL OF MUNSTER: I see the noble Lord's point. I do not think that my right honourable friend would be prepared to go to that length at the present time, but I will convey the noble Lord's views to him.
LORD REA: My Lords, is the noble Earl maintaining that the cost of the administration of this regulation is worth it and that we save more than we spend in putting it into effect?
THE EARL OF MUNSTER: My Lords, I do not say that for a moment, but at the present time our reserves do not stand at a sufficient height for my right honourable friend to lift this restriction.
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May I pass on to deal with the point raised by the noble Lord, Lord Barnby, on export subsidies? He knows full well that for a long period of time Her Majesty's Government have made all possible efforts to secure the abolition of export subsidies which are used in other countries. He also knows that, following discussions between my right honourable friend and the German Minister of Economic Affairs, agreement was reached about the removal of artificial aids to exports; and when the law providing for the relief of German exporters from profits tax expired last year, it was not renewed by the German Government. Her Majesty's Government are also helping to promote a decision, taken last year in 0.E.E.C., which calls on members, with one or two exceptions, to discontinue as from the beginning of this year the use of artificial aids to exports. In the International Monetary Fund, when multiple currency practices and other uses of exchange restrictions are under revision, the possibility that these may be operated to give unfair advantage to particular exports is one consideration which we have particularly in mind in instructing the United Kingdom Director. In G.A.T.T., in O.E.E.C., in the Fund and in all other ways we can, we shall continue to press for an effective limitation of the use of export subsidies.
I pass from that to deal with the question asked to-day by my noble friend Lord Winster about shipping. He implied that the Government had placed shipping in a "deep-freeze" and that they had no desire to resuscitate the industry. The shipping industry, as the noble Lord, Lord Grantchester, mentioned, has been given a specially favourable assessment in the matter of depreciation allowances. The investment allowance is to be maintained for shipping, notwithstanding its withdrawal from industry in general. I am advised that the very fact of maintaining this allowance gives an initial relief from tax of 20 per cent. of the cost of a new ship when brought into service, while still allowing other depreciation allowances to be deducted over the years up to 100 per cent. of the original cost. The effect of the extra 20 per cent. has been to give additional tax relief equivalent to about 9 per cent. of the cost of a new ship at current rates of income tax and profits tax. So I think your Lordships will see that we are doing

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something useful and beneficial to the vast shipping industry, upon which so much of our prosperity relies.
VISCOUNT ALEXANDER OF HILLSBOROUGH: Give it to farmers, too!
THE EARL OF MUNSTER: I wish the noble Viscount would not make these interruptions. I did not interrupt him while he was speaking, and I have heard a ceaseless chatter coming from opposite. I was going to refer to the noble Viscount's speech in a moment, so perhaps he will wait until I have finished this part of my speech, and then I will turn to the question he raised. The noble Viscount raised the question of the relief from income tax of interest on savings bank deposits and asked if that could be extended. The noble Viscount will remember that in his Budget speech my right honourable friend proposed to exempt from income tax, but not from surtax, the first £15 of interest on deposits with the Post Office Savings Bank and the Ordinary Department of the Trustee Savings Bank. This means that an individual will be able to deposit up to an aggregate of £600 in one or both of these banks without having to pay any income tax on the interest; and in the case of a married couple, each will be able to have £15 tax-free.
This concession which my right honourable friend has made is part of the Budget scheme for encouraging saving and lending to the State. The Post Office and the Ordinary Department of Trustee Savings Banks, which are limited by Statute to a rate of interest of 2½ per cent., do just that, whereas other savings agencies lend to local authorities and individuals or buy market securities. These other agencies use their initiative to obtain good rates of interest for their depositors by judicious investment on terms which take full advantage of market yields. I hope that the noble Viscount will observe that if this concession were extended, it would depart from the Budget's intention of providing a special encouragement for lending to the State, as distinct from lending to outside organisations.
VISCOUNT ALEXANDER OF HILLSBOROUGH: My Lords, I knew about that before, but the whole point is that industrial and provident societies do not go on to the general market to obtain
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their capital. They work upon me thrift of their own members, and they are limited by law to a shareholding of £500 a member. What will happen is that the institutions that do not go on to the public market for money will be greatly handicapped through savings being transferred from their low-rate interest share capital into the Post Office and Trustee Savings banks up to £600, when they are limited to £500. They will be compelled to go to other places for their capital when for the last hundred odd years they have been getting it from their own members. These are great thrift institutions.
THE EARL OF MUNSTER: I see the noble Lord's point plainly, but I think he will agree that that is a matter which probably will come up in another place on the Finance Bill which is going through at present. I cannot give the noble Viscount a reply to-day, but I will certainly convey the view he has expressed to my right honourable friend the Chancellor of the Exchequer.
My noble friend Lord Winster raised the question of surtax and personal allowances, a matter of some importance. The Royal Commission on Income Tax considered this point and came to the conclusion that it was not unfair to ignore the personal allowance in assessing surtax because to do so would not affect the principle of the graduation of tax according to the size of income. However, they went on to suggest changes in the methods of charging surtax which would take into account the circumstances of the individual family. My right honourable friend has not yet reached a final decision on these recommendations. I think that a similar point was raised by my noble friend Lord Salter.
I think I have now replied to almost every one of the important questions which were addressed to me to-day. All I need do, in conclusion, is to emphasise to the House, as was done by my noble friend when winding up the debate last week, that there is no justification at the present time for letting up in any way whatever on the attack against inflation. Although, as we all know, the problem still remains, there are undoubtedly certain signs which indicate that the country has been responding to the measures which we have introduced. In the first place, there has been a continuing rise in

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exports and a slackening in the rise of imports: the trade gap has, therefore, narrowed. In particular, we are doing well in dollar markets, where our exports are now running at £40 million a month, which is one-third higher than a year ago. This improvement in trade has helped to increase confidence in sterling, and as a result our reserves are rising. At home, the credit squeeze is beginning to bite, and bank advances are £277 million below their peak of last June. All this is to the good but, as my noble friend Lord Salter said, pressure is still severe; hence the necessity for a large surplus in the Budget, the encouragement of savings and the need to balance such tax reliefs as were given by corresponding increases elsewhere.
I believe that the financial proposals which my right honourable friend recently presented in another place have been well received throughout the country and, indeed, in financial circles throughout the world. To encourage savings will do more than anything else to end inflation, and in turn increase the value of the purchasing power of sterling. I can well remember that, in my younger days, when I was working in Manchester, saving was always believed to be one of the foundations upon which the credit of this country and her vast Empire was securely based. I believe that what I learned then is true to-day; and if we return to that belief and encourage thrift amongst all members of the community we may well recover our financial equilibrium far more quickly than will otherwise be the case. My right honourable friend has issued a clarion call, and I believe that it will find response up and down the land.
7.3 p.m.
LORD PETHICK-LAWRENCE: My Lords, in rising to withdraw my Motion for Papers, I want first of all to thank all noble Lords who have taken part in the debate, and I especially wish to thank my noble friend Lord Huntingdon for what I think was at one and the same time the shortest and one of the best speeches this afternoon. Noble Lords will realise that it is not my habit to take up the time of the House with any final remarks, but I have been challenged by the noble Lord, Lord Salter, to reply to two points, and, though I see that for some reason he has had to leave the Chamber, I will just
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answer those two points. The first relates to what I said about tax avoidance. The noble Lord said that he was prepared to agree with me over that, but did I not also agree that there should not be any unfair attack on the taxpayer on the other side. I fully agree with that—and when saying that, I thought he meant some Revenue procedure which was very unjust. However, as the noble Lord developed the argument I found that he meant a change of tax law. I am quite prepared to agree that it is a reasonable thing that if, as a result of inflation, injury is inflicted upon certain taxpayers, some relief should be given by the Government. But a large number of people of all kinds and classes are affected by inflation, and the real nigger in the wood pile is not the action of the Government but inflation, which on more than one occasion I have strongly pronounced against. I am prepared to agree that every person who is injured by inflation is entitled to such consideration as the Chancellor of the Exchequer can give.
The other matter with which the noble Lord dealt was this. He asked whether I would not praise the Chancellor of the Exchequer for retaining in the Budget surplus the whole amount instead of giving it away. I did praise him for that in my opening speech, and I stand by what I said. I do not give him extravagant praise, because for him to give away the surplus at this juncture would, in my opinion, have been most unwise policy. In reference to that, I should like to make one remark to the noble Lord, Lord Barnby, who, I think, spoke about the mistake of the Government and the Chancellor of the Exchequer in paying capital to the nationalised industries out of the money provided in the Exchequer. I really think he is barking up the wrong tree there, and it is a pure mare's nest. Once you grant the desirability of having a big surplus in order to deal with inflation—which is pure Keynes doctrine, with which I agree—exactly how you raise the money to be provided to the nationalised industries is purely a financial matter. The difference between what the Chancellor is doing and what was done before is a small matter; and if it comes to controlling the extent of the nationalised industries, the country, as a whole, under the Chancellor's proposals, is, if anything, having a greater control than it had before. If the noble Lord, Lord Barnby,

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asks his financial friends, he will find out that it is a pure mare's nest on that point.
I have only one more thing to say—because my noble leader has dealt with the noble Earl, Lord Selborne, fairly faithfully, I think—and it is with regard to education. I want to tell the noble Earl two things. Some twenty years ago, when I was sitting next to Lord Rutherford in my colleague's dining room, he said to me that the whole scientific world was watching Russia to see whether she would not, through her system of education, produce such a large number of scientists that she would make greater economic progress than we were making in this country. Only a few weeks ago I was sitting next to a great living scientist, and he made the same remark to me. He said that this country must do everything it can to produce scientists at least to the same proportion of our population as they are being produced in Russia. We shall not do that by the kind of suggestion which the noble Earl, Lord Selborne, made: that we are spending too much on education and should cut it down. I do net propose to take up any more of your Lordships' time, and I ask leave to withdraw my Motion.
Motion for Papers, by leave, withdrawn.

AGRICULTURAL MORTGAGE CORPORATION BILL
7.10 p.m.
House in Committee on recommitment of the Bill (according to Order): Bill reported without amendment

PENSIONS (INCREASE) BILL
Read 3a (according to Order), with the Amendments, and passed, and returned to the Commons.
FELIXSTOWE DOCK AND RAILWAY BILL [H.L.]
The CHAIRMAN OF COMMITTEESinformed the House that the opposition to the Bill was withdrawn: the Orders made on March 6 and April 19 last discharged, and Bill committed.

CITY OF LONDON (VARIOUS POWERS) BILL [H.L.]
Commons Amendments considered, and agreed to.
House adjourned at eleven minutes past seven o'clock.