THE ECONOMIC SITUATION

HL Deb 08 May 1956 vol 197 cc191-231

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. 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, 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 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 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? 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. 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.

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 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 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. 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 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 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 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 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 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, 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 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 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 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 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 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 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 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 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 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 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 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 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.

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 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 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 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 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 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 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 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 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 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- 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 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.