THE ECONOMIC SITUATION

HL Deb 08 May 1956 vol 197 cc231-69

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 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, 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 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 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 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 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 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 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 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 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.

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 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 [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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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.

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 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 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 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 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, 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.