HL Deb 06 November 1957 vol 206 cc29-122

2.35 p.m.

Debate resumed (according to Order) on the Motion moved yesterday by Earl Waldegrave—namely, That an humble Address be presented to Her Majesty as followeth:

"Most Gracious Sovereign—We, Your Majesty's most dutiful and loyal subjects, the Lords Spiritual and Temporal, in Parliament assembled, beg leave to thank Your Majesty for the most gracious Speech which Your Majesty has addressed to both Houses of Parliament."


My Lords, we had a debate on July 30 on the economic situation which took the form of a discussion on the Second Reading of the Finance Bill. Since that day three important events have happened in the world of finance and economics. The first was the crisis with regard to the position of the pound sterling in the world as a whole; the second was the decision to raise the bank rate to 7 per cent., and the third has been the decision of the Minister to overrule the Whitley Council in the Health Service. All those three matters are, of course, interrelated, and it is mainly with those three questions that I propose to deal to-day.

In my speech in July I urged the Chancellor of the Exchequer to do something with regard to the inflation which was threatening this country, and I pointed out that unless something was done and not merely talked about, serious consequences were likely to ensue. Of course, mine was not the only voice urging that upon the Chancellor of the Exchequer and the Government; a large number of other people throughout the financial world of this country were also urging action on the Government. But nothing new was done and the position grew from bad to worse. A financial crisis arose threatening the pound and based upon the belief that there would have to be devaluation in this country. Therefore I say that the Government ought not to have been taken by surprise when it happened. Nevertheless, they appear to have been so, and the main remedy which they adopted was to raise the bank rate from 5 to 7 per cent. in accordance with the policy that they have pursued pretty nearly the whole time they have been in office.

I have no doubt that your Lordships will expect me to express my opinion with regard to that action, and I am certainly not going to shirk giving you a direct answer. I realise, of course, that, faced with the unhappy situation of the immediate prospect of upsetting the pound, shock tactics were necessary, and among those shock tactics I am certainly prepared to say that a rise in the bank rate may have been necessary temporarily. That is not in the least to suggest that I resile to the slightest degree from my hostility to the use of high bank rate, dear money, as a means of conducting the financial and economic policy of this country. I will give the House a parallel. There are some people who, when they drive a motor car, drive it on the hooter and the brake. They go full speed all the time, they blow the hooter and then, from time to time, they violently put on the brake. I disapprove of that method of driving a motor car, but if, as a result of their doing so, they find themselves in a situation of great peril, I certainly would not deny them the remedy, if it is the way out of it, to put on the brake temporarily, even though that damages the machine. Because they are in great difficulty or on the edge of a precipice or whatever it may be, they will, of course, have to take some violent action of that kind; and to that extent I am willing to admit that the Government may have been right in adopting the very high hank rate at that moment.

I do not wish to repeat what I have said on previous occasions, and in particular last July, as to my objections to a high bank rate as a monetary policy—the main monetary policy. I think we must all admit that if there are objections to it as a rule, the fact that it has now risen to 7 per cent. adds greatly to the difficulties, inconveniences and financial loss which a high bank rate necessarily involves. There are two separate evils which a high bank rate brings about. In the first place there is the additional burden on the Exchequer. I may be wrong, but I do not remember any estimate ever having been made by Her Majesty's Government of the cost to the Exchequer of a high bank rate. I will therefore ask one of the noble Lords opposite, either the noble Viscount the Chairman of the Conservative Party or, as he is speaking so soon after me, probably the noble Lord, Lord Mancroft, whether he will be kind enough to get for me, if they can be had, the facts as to what precisely is the additional cost to the Exchequer.

The main part of that cost will, of course, consist of the higher rate of interest paid to holders of the floating debt in whatever form it may take, and I would ask your Lordships to realise that a considerable part of that interest will not be shared by people in this country but will go to foreigners and will therefore add very much to our overseas financial obligations. But not only is the cost of the National Debt itself affected. There are other matters for which the Exchequer has to borrow, among them being the cost of financing the development of the nationalised industries. The House will remember that only recently the Chancellor of the Exchequer has decided to finance those industries directly, by borrowing.

The figures of the direct cost to the Exchequer will, of course, be gross figures. I realise that there may be some abatement, and if so I should like to have the net figures as well as gross. I would ask the noble Lord to be good enough, when he comes to reply to the debate, to give me those figures which, so far as I am aware, have never been stated in full. If they have, I am open to correction. The comparison I want made is what is the cost to-day on the basis of a 7 per cent. bank rate lasting for a whole year as compared with the cost in the early days after the war, when the bank rate stood at 2 per cent. and when (unless my memory deceives me) the actual cost of borrowing was at a rate very much below that figure. That is a loss to the Exchequer and therefore to the country. I do not know exactly how much it will be, but it must certainly be in nine figures and it may well be up to, or passing, the equivalent of 1s. on the income tax.

But that is only part of the grave burden that this high bank rate places on this country. The major harm it does is through the effect on industry and the bulk of the people. If it be true that there is a gap between the working power of the country and what it is asked that the country should produce, it is for Her Majesty's Government to tell us that. Instead, this high bank rate throws industrialists into a certain degree of confusion. They do not know what is expected of them. They do not know whether they are to go forward or to retreat, and they have to pay a high consideration for any money which is not self-financed.

But in addition to the effect on the industrialist, large masses of the ordinary men and women of this country are filled with discouragement, in particular those who have been thrifty enough to arrange to own their own houses through a building society. If this high bank rate is kept up much longer, many building societies will be placed in great difficulties. Loans are made which are supposed to be paid back in interest and paid-off capital year by year. Last time the bank rate went up many of the individuals concerned, rather than pay additional cost each year, extended the length of their loan; but I understand that if the 7 per cent. is to be maintained many building societies will be unable to carry that process any further, for in many cases it is contrary to their articles. Thus both the building societies and individuals will be placed in very great difficulties. Those are only individual cases. There are other matters where, as we all know, the high bank rate works with great discouragement for the people as a whole. Of course, the Government will say that every form of dealing with inflation is disagreeable to somebody. But I venture to suggest that this reliance on the bank rate does more harm than almost any other method of dealing with inflation.

Another point to which I want to draw the attention of your Lordships is the comparison of to-day with the early 'twenties of this century. At that time the design of a high bank rate was to reduce the profits of industries, to drive some of the less efficient into bankruptcy, to lower wages, to create unemployment, and thereby to reduce the purchasing power and force down prices. The question which I want to put to your Lordships is this: Is that really what we want to do to-day? Will it happen, in the first place? Has the situation remained so nearly the same that what was successful in those days will be successful in the same way to-day; and, if it is so, are the results what we really want to see? I venture to think that it is very doubtful whether, when we realise all the different methods of finance that are used to-day, the high bank rate will have the results the Government profess to think it will. It certainly has not had them up to now in respect of inflation. But if it did, would it be desirable?

I should like to call your Lordships' attention to what actually happened, as some of your Lordships will remember and as the younger noble Lords will have read. The Bank of England in those days ruled the roost in the matter of the bank rate; the Government had no direct power to interfere with what the Bank of England did. The Bank of England put the rate up in 1919 to 6 per cent., and in 1920 to 7 per cent. They kept it up until 1921 when they reduced it to 6½ per cent. Of course, it was designed for the express purpose of reducing prices and bringing back the gold standard. What was the consequence? The consequence was that there was a terrific slump, one of the greatest slumps there have ever been in this country; a vast number of industrialists went to the wall; unemployment ran into millions and there was general depression and dependence on the dole—the most deplorable condition that has been known in this country in the whole of my lifetime. Are we going to repeat that today if we keep the bank rate of 7 per cent. for any considerable length of time? I venture to suggest that there is a very considerable chance of depression and deflation setting in, and I do not think that the Government will find it any easier to turn round and go back again than it was found to be in the 'twenties of this century.

What happened after that? Going on a few further years, I recall that the depression in this country was supplemented by a terrible deflation in the United States. The result was that we had terrific unemployment in this country. I happened to be Financial Secretary at the time, so I certainly remember this. I was opposed to the policy of the Bank of England then, just as I am now against a high bank rate, and when I was offered a post in the National Government I refused to accept because I disagreed with the policy that was being adopted.

I am certainly not going to prophesy what will happen; I do not know. Still less am I willing to prophesy what is going to happen in the United States. But there is one rather dangerous sign in the United States which exists to-day and which I do not think existed in the days of which I am speaking. The Congress of the United States saw fit some little time ago to make a ceiling in the total of the American national debt. The ceiling is, I understand, 275 billion dollars—(it is billions, not millions, of dollars)—and I am told that the borrowing of the American Government is very close to 275 billion dollars and that the Administration head is bumping against the ceiling all the time. if that ceiling has effect and the Administration find it necessary considerably to curtail their expenditure so as to obey the law Congress has passed, it is quite possible, at any rate (I will not put it higher than that), that there may be a very serious slump in the United States. We all know that unemployment and slump are exportable, and it may be that we shall import them from America if a depression takes place there. That is an added reason for not starting a serious slump in this country. I need not remind your Lordships that in the thirties the depression which had taken place ten years earlier was greatly aggravated in this country. I will leave that as it may be.

I turn now homeward to the nationalised industries. I notice that another step that has been taken by the Government in combating the financial crisis of the pound is to cut down the programme of the nationalised industries—I am referring, of course, to the programme of development and capital expenditure. How far that has been cut it is not very easy to see, although I have read interesting accounts of it. So far as I can see, for the most part it affects subsequent years, and I have always rather a suspicion of figures relating to a time several years ahead because I know perfectly well that an intervening Government, the same Government or a Government of a different political complexion, may easily reverse the plan that has been proposed. But it is proposed to cut down the expenditure of such industries as coalmining (I think coalmining will be the least affected), railways, electricity, gas, nuclear activities, and so on.

It is only a few months since the Government delivered fully mature thought as to precisely what these industries would expend in the next few years. It seems to me in keeping with the policy of the Government to change carefully decided policy at very short notice, having put out with deliberation what it is intended to do. That is one of my main criticisms of the whole Government policy with regard to inflation. The Government has blown hot and cold after very short intervals, and sometimes almost in the same breath.

One illustration I will give your Lordships is that when Mr. Butler was Chancellor of the Exchequer he elaborated a new scheme for giving higher depreciation allowances to industries to encourage them to make greater investments, and then, within a very short time—I forget whether it was within one year or two—the Government decided to reverse the whole of that policy. I suggest that that is a very discouraging way of proceeding. Another illustration is that, at the very time they were making great appeals to people to economise and not to spend, they reduced the income tax and later made reductions and allowances in the surtax. The Government must pursue a consistent policy. If they are going to say inflation is a very dangerous thing and that every effort must be made to control it, they should not tell us at the same time that. "We have never had it so good as it is at the present day."

I think the country is entitled to know a little more than the Government have told us. What is the nature of this inflation? The inflation that used to occur, and which most people understood, occurred when people tried to do more than their various resources enabled them to do. Then they had to learn to cut their coat according to their cloth. We are now entitled, I think, to ask the Government whether, in their opinion, there really is a gap between what the resources of the country—capital, labour and everything else—can produce and the production of food and other commodities which the country has said shall be available for sale to the general public, in addition to the development programme of the Government and of private individuals. If they think that there is such a gap what does it amount to? Can we know that, and will the Government say that they will bear such-and-such a share? Industrialists will then understand that they have to cut a little off to come down to that figure.

There are, however, quite a number of economists to-day who say that there is no such gap, and that in that sense there is no inflation of the old-fashioned kind. I am not in a position to know whether they are right or wrong, but certainly, there is a body of economists who take that view: They say that it is wholly a "wage-cost" inflation. We can understand, though not all of us quite clearly perhaps, what that involves. But what action are the Government taking in that matter? I can understand its being thought right of the Government to act, if they see various factors scrambling for a share in industry, and if between them they put up costs, and are continually doing so. People, it is said, want higher wages, on the one hand, and more profits on the other, but they cannot have any real increase in the aggregate unless they produce more. I understand that argument, but in dealing with a question of that kind you have to go about it very carefully. You have to consider how the various factors are to be induced to conform to the pattern to which you want them to conform.

I do not find that the Government have done anything of the kind. They have taken a very crude attitude towards this matter. They say: "We are not going to have any more claims. We may in certain cases allow wages to go up, but in many cases we do not think there should be any increase at all." Perhaps the noble Viscount, Lord Hailsham, when he speaks on behalf of the Government, may say that I am misrepresenting the Government. I do not want to be too particular about this point, but I think he will agree that the general impression left by the words of different members of the Government—particularly the Chancellor of the Exchequer—is that there is going to be a great drive to prevent increases of wages. That seems to me to be the wrong way to go about it. Not only that: the Government have taken a particular case. They have said that the rise that was to pave been given to people in the Health Service, and which had been decided by the regular proceedings of the Whitley Council of that Service, was to be set aside so far as the lower paid workers were concerned: there was to be no increase at all for them.

When I was Financial Secretary, I had some knowledge of the Whitley Council, and I know that its decisions were based en fairly definite grounds. It must be remembered that there are quite a large number of persons in this country whose wages are already determined on a sliding scale, according to the cost of living. I believe that the number is somewhere in the neighbourhood of three million—the actual figure is not very important and no doubt I shall be corrected if I am wrong. These people automatically get rises according to rises in the cost of living. Other civil servants do not come under this scheme, and the important factor which the Whitley Council had to consider was that civil servants are forbidden to strike. I am not sure what the punishment for striking would he, but at any rate it is part of the tradition of the Civil Service that its members do not strike. In reward for accepting that tradition it is understood that in bargaining, either on the employees' or the employing side in the Civil Service, they should get the same type of wages as those paid to people in similar employment outside the Civil Service. I have no doubt that this particular branch of the Civil Service, and the Whitley Council applied that principle in coming to the conclusion which was reached. Now, for the first time in the history of the Whitley system, the member of the Government responsible in the particular instance has reversed the decision of the Council. It strikes me as one of those actions which weak men take when they want to look strong. We have had other illustrations of that policy from a Conservative Government in the past.

I imagine that there are quite a number of Conservatives in this country who will now say: "Jolly good thing! The Government are taking a strong and firm line with the trade unions at last. I wish them good luck in going forward with it." Personally, if I were a Conservative I should be appalled at the action of the Government, because I should have come to the conclusion that, of all cases in which they could have picked a quarrel with the trade unions, they have taken about the very worst case imaginable. Here is a tradition which has gone on since the days of Speaker Whitley—because that is the origin of these councils. They have worked according to pattern and with great success. People on both sides have said how splendidly they have worked. And now the present Government are taking this opportunity to break the tradition which has gone on all these years with such great success They have aroused opposition not only from those trade unions immediately concerned, but from large masses of trade unionists all over the country.

The Chancellor of the Exchequer made unfortunate remarks about wage increases to the monetary body when it was meeting on the other side of the Atlantic, and many trade unionists take exception to what he said. On his behalf it ha; been said that he did not mean it in the way they took it. But since this recent case in which he has encouraged a member of the Government—I will not say to break, because of course the decision was subject to his approval, but to reverse what was the decision of the Whitley Council, the fears of those trade unionists have been enormously increased. They are now saying that this Government are out to destroy collective bargaining. I thought that perhaps some of the Labour criticisms of the Chancellor of the Exchequer had gone too far, but since this decision I am bound to say I think that there is great justification for the trade union fear of what is going to happen in the result. Therefore I say that if I were a Conservative I should feel very sorry that my Government had taken this most inept action.

My Lords, I have nearly finished. You may say: "Well, if you do not believe in that action of the Government, what would be your policy?" There are two things I would try to do. In the first place, in the monetary sphere, having accepted the temporary higher bank rate, I would reduce it as soon as possible, because I think that its continuance for months will be very injurious to the whole well-being of the country. In the second place, I would try to sit down and reason with the trade unions and try to find a real basis. Of course, two points have to come in. First of all, the question of the cost of living. It is one thing to say to the workers, "You cannot expect a rise in wages unless there is an increase in production"—I can understand that—but it is quite another thing to say, "From whatever cause the cost of living goes up, you shall not get an added monetary wage, and therefore your standard of living shall fall." I venture to suggest that that is practically what the Government are saying to certain unions. If I were the Government, I would sit down with the unions, if I could, and try to reach a basis on which some of their proposals might be granted, either in full or in some part. But this decision to shut down upon an already agreed proposal has put up the backs of the labour leaders, and I think that is a great danger both to the nation as a whole and, incidentally, to the Government. It reminds me of the Latin saying: Quos Deus vult perdere prius dementat.

3.12 p.m.


My Lords, as the first private Member on this side of the House to take part in the debate, I should like to be allowed to associate myself with the congratulations so deservedly given to the noble Lords who moved and seconded the humble Address yesterday. The gracious Speech from the Throne deals with the economic picture which the noble Lord, Lord Pethick-Lawrence, has been dealing with just now, and which seems to me to be overshadowed by two themes—the danger of inflation and the danger of industrial unrest.

I would submit three propositions to your Lordships. The first was stated by the noble Lord, Lord Pethick-Lawrence: that the danger of inflation and the question of industrial peace are interrelated, and in any examination of the situation both must be taken into consideration as factors. The second proposition is that the fight against inflation will not be won without new and further drastic measures and also, important as are material measures, without a reborn spirit of united determination sweeping through the country. The third proposition I would submit is that a nation divided cannot hope to win this fight against inflation.

Nearly half the nation, some 23 million, are what is technically known as "employed persons," and there are nearly 10 million trade unionists. Without the understanding and support of this half of the nation, including the body of trade unionists—I am not speaking of the leaders—no Government measure can succeed. To read some of the speeches now made in authoritative quarters on the dangers of inflation, one would think that it was something new and sudden which had to be faced. In fact, of course, successive Governments have faced this inflationary danger since the era of Dr. Dalton and of cheap money, which has been so costly to the fixed interest investor and to the small rentier, and so profitable, temporarily, to the equity holder. Successive Governments since the boom in commodity prices following Korea have had to face this danger. I was looking at Hansard in the Library, and began to count the number of "crisis statements" made since 1946; after I had got to twenty, I lost count. We have had eight of these statements in Parliament since 1951.

Your Lordships can look back on the debates in this House over the past six or seven years and read the warnings given from all sides on the danger of the external position of the currency and of the balance of payments. While we have been "living pretty" internally, we have been living dangerously externally. Your Lordships can look back on many familiar phrases, such as the "costs spiral" and "too much money chasing too few goods". Your Lordships can look back at the warnings of the effects of the crushing industrial and personal taxation, and on the need to reduce Government expenditure. Yet now, to read some speeches, one would think that the battle was just about to start, instead of its being a time when the battle should be won. To talk about a "death-bed repentance," is, I think, unfair and too harsh, but I do not think it wrong to talk about a stricken man realising his bad state and suddenly taking emergency doses in haste in order to remedy his immediate position.

The reply to the warnings given by noble Lords in all quarters of the House on these many occasions has usually been ministerial assurances, in general form, often in. statistical form, that "all is under control and, after all, what has anyone to complain about? "Even so late as this April the Chancellor of the Exchequer in another place (I paraphrase) said that he thought the temperature of the economy had been brought down to a more normal level by the disinflationary policies of the last eighteen months. For instance, he said that money value had been falling since 1745. That is true, but there is a difference between a gradual fall and the slide we have seen over recent years. The Party of which I am a humble member were returned on the promises of restoring the value of money and of halting the rise in the cost of living, and—let us be quite frank about this—the electorate will not forgive if the Government fail to fulfil these two promises. All the perorations and, with respect, all the bell-ringing will not save the Government if they fail in these two directions.

I do not believe that it is too late, but there is all too little time left, and I will turn for a few minutes to some possible ways of retrieving the position which I would submit for consideration. The 7 per cent. bank rate is an emergency measure, I believe that the need for this severe measure has obtained the support of all thinking people, irrespective of Party, in this country. Already we are seeing its beneficial effect; but by the very severity of its effects it can only be—must only be—a short-term measure. If it is kept on too long it will seriously damage tour competitive powers in the world's markets just at a time when the Government are leading us into the European 'Free Trade Area project where competition is bound to be much more intense than it has been before. The 7 per cent. bank rate, meaning that one borrows at 7½ per cent. or 8 per cent., impedes our ability for capital investment here, in the Commonwealth and the Colonial Empire and industry cannot replace essential plant and machinery on the financial terms such as have to be accepted at the present time. Therefore, while one says that is necessary, I would strongly support what the noble Lord, Lord PethickLawrence, said: that it is necessary but must be accepted only as a temporary measure.

I would submit to your Lordships that our long-term economic policy overseas and at home needs some re-thinking in the light of present events. We must try to set out to achieve a position that frees our social standards and our industrial activity from the effects of the man in Zurich or the recession on Wall Street. To have our financial structure dependent, to a large extent, on the ebb and. flow of fugitive money is not a sound basis for us to contemplate for a long period ahead. For that reason I am very grateful to the Government for having taken the lead in arranging for the Commonwealth Trade Conference in 1958. I believe that we must do some rethinking on the objectives of international, universal and multilateral trade and on convertibility as being one of the prime aims of our economic policy for stability. We are to debate these affairs of Commonwealth trade, of European Free Trade and other matters to-morrow and on later occasions. Sufficient for me to-day to suggest to your Lordships that we must do some re-thinking on these matters.

I should now like to turn for a moment to home affairs. To me, any thought of a head-on collision between labour and management or Government is to think in terms of economic disaster at home and catastrophic loss in confidence in Britain's credit abroad. I believe that any such loose talk on either side or from any quarter is a national disservice at a time of national stress. We seem to be drifting to some extent, in the direction of that national danger; but it is intolerable to contemplate, and I believe that it can be and must be avoided.

Here I come back to some ideas which were put forward in this House by some other noble Lords and myself some two years ago, when, naturally, for want of time the Minister who replied was unable to deal with the points. However, I think we have to get a "new deal" in industry and that all sides must contribute voluntarily; for Government compulsion by direction and legislation is bound to arouse sectional resistance and sectional objection. On the one hand, we see wage-earners pressing for wages to level up the cost of living and, in so doing, sacrificing the standards of many members of their own families—pensioners or those living on fixed-income savings. They then press for these latter to be increased, and so on. On the other hand, statistical profits have risen, though it can be shown that dividends lag behind wage rises; and it can be shown by figures that the dividend is only a small contributory factor to inflation. Nevertheless, bigger dividends are a political irritant—we must face that fact—and politically full of prejudice far beyond the justification in the sum of money actually represented by the payment of dividends. Like it or not, to carry a united nation we must face that fact.

I have suggested before, and I suggest again, not a statutory measure for dividend limitation (I believe that that method is full of troubles, evils and unfairnesses, and I do not think it would work) but a voluntary standstill for one year of distributed profits, as a moral recognition that it is better to do this by voluntary means than by compulsion. This standstill should be linked to a voluntary wage-increase holiday, and also a holiday for all applications for shorter hours. I should like to see the unions abandon restrictive practices in return for any increase in wages during that standstill period based directly on increased productivity. Then, so far as the Government are concerned, one would like to see them make a greater effort to reduce expenditure and also review expenditure on non-essentials.

I believe that we must be empirical in our approach to this matter and not doctrinaire from either side, either politically or economically. Perhaps we are all rather liable—and I am as guilty as anyone—to be somewhat doctrinaire in our approach to particular economic problems. But on the question of the direction of priorities of resources, I think there are worse things than some control on buildings, because while we cut back schools we are going on with less important buildings and less important works. I think there are worse things than some restrictions now, rather than later, on the import of dollar nonessentials and dollar luxuries. When we come to the end of the standstill period—one year, as I have suggested—then let us all think again and see whether we can progress, possibly on modified lines.

I believe that at the present time of great crisis Her Majesty's Government must lead; and I feel that the Govern ment must lead in a more definite way than expressed (again I paraphrase and do not quote) by the Chancellor of the Exchequer in another place quite recently in terms of what I call rather tepid tea, when he said that our object is to secure that increases in wages and profits are more difficult to get. He was not appealing to anyone, but was saying in regard to profits that restraint in distribution would be a help to our national purpose. With respect to the Chancellor of the Exchequer, that is a little wishy-washy; it is not leadership. In a democracy you can govern only by leadership, by example and by the conviction of an assenting electorate to measures which the circumstances of the times render necessary. It is for that leadership that we look to the Government with hope and confidence at the present time.

3.29 p.m.


My Lords, I wish to approach this subject from a somewhat different angle from that taken by the noble Lord, Lord Pethick-Lawrence, and the noble Lord, Lord Balfour of Inchrye. I should like to say a good deal about what Lord Pethick-Lawrence said, but I will leave it to the occupants of the Front Bench, because I want to express what I might call a City view of the fundamental position of this country and what flows therefrom. I wish to lay stress on certain outstanding aspects of the problem. We have reasonably good exports, though not enough; our Budget position is good, but inflation continues, and inflation must be stopped. The world situation is a little uncertain. The latest information I have about America is that to the Americans things do not look so bad. They do not expect much improvement this year, but they do not expect a great downward development. In my opinion, the big fall in some commodity prices is the most significant symptom. It will damage many countries who produce these commodities and who buy our exports, and it is likely, if it continues, to affect our own exports and make them more difficult.

First of all, I wish to draw attention to what I regard as our most fundamental weakness and the really vulnerable point in our economy. This is a point which I think I have always raised in your Lordships' House but it has become more significant than ever in the last few months, and that is the lack of enough gold and dollar reserves. Since the war our reserves have never been sufficient to enable us to take any serious strain. The United Kingdom is like a great bank with great call liabilities but wholly insufficient liquid assets. The main cause why comparatively minor unfavourable fluctuations in the world so affect our own internal conditions and produce a crisis, and sometimes a run on sterling, forcing us to take drastic action, is that we have much too small reserves. No Government since the war has been ready to take sufficiently prolonged and drastic measures to remedy this fundamental defect. It must be said that to do so would have involved asking for certain sacrifices from the general public over some prolonged period of time.

I compare the effort that we might have made to increase our reserves with what the Russians have done to create Sputnik. They have no doubt made their people suffer austerity to get that great result. We are a free nation, and we find it very difficult to persuade our citizens that something so abstruse as gold reserves is worth doing anything about. The temper of the citizens of our State, after winning a most exhaustive war and still heavily burdened with defence, was against such sacrifices. While our gold and dollar reserves in 1950 were 3.3 billion dollars, they were stated by the Treasury yesterday to be just over 2 billion dollars. I am inclined to believe—I could not quite make out the figures—that in that 2 billion dollars there may be some money we have from the International Monetary Fund, and also from the Export-Import Fund—the latter certainly so—and I am not sure whether the real net figure, if debts that we have to repay are deducted, is not somewhat smaller.


The noble Lord said 2 million dollars. Did he not mean 2,000 million dollars?


I beg your Lordships' pardon. I meant 2,000 million dollars; I thought I said 2 billion. Take the case of Germany. Germany in 1952 had, I gather from the International Monetary Fund, about 1,600 million dollars. Now it has something like 3,300 million dollars. We may not have much more than half of what we had in 1950, and Germany has more than doubled what she had in 1952. Moreover, Germany has now hardly any foreign liabilities. We have great liabilities to the external world. We have, put at its highest, £700 million in reserve—I think it is less—and we have current liabilities to the rest of the world, more or less call liabilities, of about 4,000 million to 4,500 million dollars. Before the war, I think our liabilities abroad were covered 100 per cent. by reserves. Now our reserves are only about one-sixth of our call liabilities.

Owing to this shortage of reserves, every crisis takes the form of a flight from sterling. Your Lordships will understand that, if you were depositors in one of the Big Five banks which had only one-fifth of the liquid assets which the other four banks had, you would probably not leave your deposits long with the first named bank. That is the danger we run. The United States has no trouble of that kind. They have about 20 billion dollars of gold. Even so, the United States is determined to stop inflation. I should like your Lordships to remark that, with no balance of payments problem, they see the great dangers that arise from inflation. With our balance of payments and reserve problem we ought to be doubly frightened of what inflation may do to us. Thus we shall live on the edge of a precipice until our reserves are sufficient, and this, in any case, must take not months but years of effort.

How near the precipice is we have seen from recent months. The whole world knows perfectly well our position and fears particularly the vicious circle of rising prices, wages and other incomes in this country. On this apprehensive frame of mind there came the news of the French devaluation, or near-devaluation, and the knowledge of Germany's growing strength. As a result, confidence in sterling evaporated and the withdrawals we all know about took place. We have now, by the drastic measures taken by the Government, made some recovery and are slightly further from the precipice than we were. But we shall get at a safe distance only when we have held inflation at bay and, ultimately, when we have increased our reserves.

I should like to consider for a moment whether there is any quicker progress to be made as regards reserves by not lending so much abroad. We can lend abroad only out of the surplus on our balance of payments. We now lend about £200 million a year. In the first six months of 1957 we lent £170 million, or at the rate of £340 million a year, which is more than the total likely surplus this year, in which case nothing could be added to our reserves. Socialist enthusiasts strongly support our lending much more. Perhaps they do not understand that such loans can be made only out of our balance of payments surplus. I may have quoted to your Lordships before a saying of Lord Keynes in a memorandum I once saw. He said that this country was like the Lady Bountiful who lived near a village which she had for years helped by deeds of charity and otherwise. Her solicitors and lawyers came to her and said, "You must stop. You have not got the money to lend." But the habit was ingrained and she went on doing it. It was only when the bailiffs came along and took the furniture away that she realised something serious was happening. That happens when we overrun our balance of payments.

Nevertheless, I should not favour greatly reducing external loans. We reap advantages in the end and, of course, so do the borrowing countries. It would be very hard on the latter to cut off supplies, when they may be in great difficulties. Moreover, in so far as the loans are spent here, they increase our exports, although for the time being of course they are "unrequited exports". But anybody who wants to increase loans abroad must also want to increase the surplus of our balance of payments. Indeed, he should be in favour of all steps towards this end; in the way, for instance, of seeing that, as in Germany, personal consumption at home remains within bounds so as to make room for more exports. He should also be strongly in favour of halting inflationary increases in wages, salaries and dividends, and therefore of keeping inflation in check. Inflation, particularly if we inflate more than other countries, will undoubtedly produce consequences such as a reduction of exports, which will render foreign lending more difficult and will make additions to our reserves impossible.

It is possible, of course, to hold a different view from the one I am expressing, and some friends of mine do hold an opposite and more fatalistic view. There are some who hold that the burden of our debts, internal and external, and our load of defence costs will ultimately be found insupportable; and that in the end the donkey will kick off the burden which he cannot endure. Those who argue thus would envisage letting the sterling exchange go free, letting it fall where it would or where it might be forced to fall, writing off all debts, internal and external; presumably abandoning generally our position as the centre of the sterling area and the greatest banking centre in the world, and then, after that, making a new start, as Germany did in the 1920's. But no British Government could adopt this policy voluntarily. We must do our best to pull ourselves through by our own strength, fortitude and hard work, all of which, of course, require a community less deeply divided than appears now to be the case.

Others, like Sir Robert Boothby, see the greatest trouble in the world in the shortage of international liquid assets. There is in my opinion much truth in this view. But how is it to be remedied? Lord Keynes's attempt at the Bretton Woods Conference, at which I was one of the British representatives, proved insufficient owing to the huge dollar gap, which showed itself shortly afterwards. Fortunately, for a time this was magnificently remedied by Marshall Aid. But the gap may now be reappearing. I see great difficulty in increasing the world's liquid assets. Few currencies are now sufficiently strong to offer themselves as acceptable reserves. They are the United States and Canadian dollars, I hope we can include sterling, marks, Swiss francs, and Dutch and Scandinavian currencies; but in actual fact most people now prefer gold and dollars. If we can strengthen sterling and make sterling an absolutely acceptable international currency for the future, with no doubt whatever attaching to it, as it was when I first went into the City, we should do much to meet Sir Robert Boothby's point. But at present we have not done so.

I should like to refer to one possible other alleviation, and that is the price of gold. I have had lots of correspondence with American friends of mine on the question of the price of gold but have never succeeded in making a dent of any kind on them. They regard increasing the price of gold as what they call debasing the dollar. They do not see that in terms of goods—that is, real values—they have been debasing the dollar continuously since the end of the war. At any rate, they feel that to increase the price of gold would cause further inflation in the United States. But if you look at the problem logically, it seems to me simply fantastic, if the world regards gold as a valuable commodity—and they do regard it as a very valuable commodity—that it should be the one commodity in the world which is not allowed to have its price raised, not allowed to put up its price; and that is, of course, because there is one buyer, the United States Government. In the end there is only one final buyer, and the United States Government does not see its way to increase the price of gold.

But imagine if, in the case of other commodities, with wages and commodity prices and everything going up every day, you were not allowed to raise the price of the thing you were producing. My own feeling is that if it had not been for two things, the discovery of the Orange Free State goldfield and the discovery of uranium on the Rand, not a great deal of gold would now be being produced in South Africa; and one way undoubtedly of increasing the liquid reserves of the world would be to make it more profitable to produce gold. 'I have raised this point but I do not see any chance that a decision of that kind will be taken.

I would repeat, however, that certainly if we do not stem inflation here and in the world at large—my own view being that inflation leads ultimately to deflation—then the United States strength, and the use of its strength, as in Marshall Aid, might alone prevent the consequences from being very serious everywhere, in this country included. But let us hope that any depression that comes is small and none of these things will happen.

All I have been saying may, however, seem to your Lordships far away from trade union policy and continuing wage demands, but it is not. It is certain that, with continuing inflation, we shall not be able to increase our reserves or indeed hold our position, certainly if other countries inflate less. Inflation here and now is our immediate problem, and it must be tackled now, unless we are prepared to risk bringing on ourselves great troubles, including unemployment. Our position as banker to the sterling area and a great international centre might then go with the wind, and there would be other serious consequences.

The only alternative, then, is to master inflation. In my view, this means bringing to an end the system where it suits employers and employed—almost, one might say, compels them—to co-operate in agreeing to inflationary wage and salaries rises which please the workers temporarily and are tolerable to the employers so long as they can make inflationary profits. This policy is not only to the great damage of the rest of the community, but can only seem successful for a very short time if we enter on a stable or deflationary world. Of course, if wages rise now, prices will rise again; next month wages will again rise, because prices have risen; and so on, it would seem ad infinitum. But not in fact by any means ad infinitum, because in my view after a period inflation turns to deflation, and that time may not be so very far off. If other countries manage to control inflation and we do not, then our exports will soon be out-priced we shall not be able to buy enough imports for food and so on that we in this country require. It should be remarked that as prices abroad, and certainly the prices of our imports, are now falling, any increase of prices here must be due entirely to internal and not external causes—that is, to rising incomes here.

Now I come to one point of the noble Lord. Lord Pethick-Lawrence. Economists seem to differ greatly as to whether we are suffering from what they call a cost inflation or a demand inflation. Roughly, as I understand, a cost inflation is when, for instance, wages rise and the costs of production go up, with the result that prices go up. A demand inflation, as I understand, is when incomes are too high and the result is an excess demand on the total national product, this also tending to raise prices. I must confess that there seems to me to be no very clear line between the two. If, for example, I am a worker who gets more wages, I add to costs and so help on cost inflation. But I am also a consumer and, having more wages, my demand for consumption is probably increased, and therefore I help to bring on demand inflation. I really do not see how a clear division is to be made between the two.

I understand that most economists, including what one might call our Left Wing economists, agree that we are suffering at any rate from a cost inflation, from too constantly rising wages and salaries. As I understand, that is what most economists, even of the Left Wing, feel, but they doubt whether there is a demand inflation, partly because they say we are capable of greater production which, if accomplished, would make demand not excessive. I hold the opinion that it is over-full employment which forces employers to pay higher wages to get the men they want and which enables the unions to succeed in their claims, and that somehow or other, while we all want full employment, we must restrain over-full employment into something like ordinary full employment, with some margin of men and women between jobs; otherwise, it seems to me that we are doomed to inflate and, if others are not doomed to inflate, our last state will be worse than our state now.

Mr. Gaitskell said yesterday in another place that more production is the main thing. I know it is, but we must remember our circumstances. More production for home consumption means more imports. For those imports we must pay with more exports. Supposing our customers abroad are suffering from a big fall of prices and cannot buy what they are buying now—in fact will buy less—then we shall not be able to buy great additional imports without perhaps facing a deficit, rather than a surplus, on our balance of payments, and another crisis in sterling. Thus, we are always brought back again, in my opinion, to the fundamental question of our balance of payments. The Opposition and the trade union leaders have been long complaining that it is the Government's policy which puts up prices, and that it is for the Government to see that prices do not rise. The trade unions have disclaimed, as I understand, all responsibility; and, of course, if conditions are such that employers will willingly give increases while inflationary profits exist, it is easy to see why trade union leaders do not restrain their followers. Yet now that the Government have determined, if they can, to do their part to stop prices rising, the trade unions, and indeed some of the Opposition, cry to the heavens at such an iniquity.

I do not wish to detain your Lordships further by discussing all the measures of the Government. On the whole, I agree with them, and I hope that the Government will maintain their determination to push them through. I agree that a 7 per cent. bank rate is bad, and I agree with much of what Lord Pethick-Lawrence has said about a very high bank rate. But we must face the fundamental facts of the situation. We cannot go on as we are. For instance, in the first half of the year 1957, while prices were up 3 per cent., wages, salaries and profits were up 5 per cent. It is highly desirable that we should not limit production by our restrictive measures more than absolutely necessary, and one naturally hopes that a 7 per cent. bank rate is to last only a short time. But I do not think the rate can be reduced until there is some sign of agreement between the Government and the trade unions and the Opposition as to how best to act in the interests of the welfare of the whole community. I believe that the Government are right in the way they are treating the national industries. Why should a Government who believe inflation must be brought to a stop deliberately finance further inflationary steps? We have reached a highly critical moment in our history. There are signs that other countries are getting control of inflation—indeed, Mr. Gaitskell may be right in fearing serious deflation. I doubt whether it will come, but it might come. If we go in the opposite direction, what chance have we of escaping grave trouble?

What I have tried to show is that in our highly artificial economy we must earn larger and not smaller surpluses on our 'balance of payments. If we inflate and others do not, we may, as I have argued, have no surplus at all shortly. With reserves as they are, this would mean more trouble. Do trade union leaders understand this sequence of events? One would suppose that they must. A great deal depends on their wisdom and moderation. Great responsibility goes with great privilege. Trade unions claim great privileges which are claimed by no other section of the community, the privilege of using coercion to get their own way. All the greater now, therefore, is their responsibility.

4.0 p.m.


My Lords, sitting behind by noble friend Lord Samuel, to whom I, among others in your Lordship's House, owe so much for his words of wisdom on many occasions, perhaps it might not be out of place for me to offer him our congratulations on his 87th birthday to-day.

I want to refer to a much more limited aspect than that dealt with by the noble Lord, Lord Brand, in the masterly survey which he has just given us. I should like to take a sentence in one paragraph of the gracious Speech: My Ministers are resolved to take all steps necessary to maintain the value of our money … by restraining inflation.… It would appear that during the summer months Her Majesty's Government have been making discoveries. On September 19 last the Chancellor of the Exchequer said: There is no remedy for inflation and steadily rising prices which does not include, and indeed which is not founded upon, a control of the money supply. On October 9 he said: Our policy is to halt the increase in the supply of money. On November 1 the Prime Minister, speaking at Manchester, said: The Government has decided not to finance inflation. These statements are extraordinary for two reasons: first, because they are announced as discoveries by Her Majesty's Government, who have been in office for six years, during which there has been a fall of 2s. in the £ in the value of our money and during which we were brought to the verge of a second devaluation of the f and secondly, they are extraordinary because they are very different from what Government spokesmen were saying even a few months ago.

In July the Chancellor of the Exchequer went to the City and made a speech which asked: How honest is our money? The Chancellor of the Exchequer spoke of the, nation paying itself more for doing no more work, and pointed out that a rise in prices must inevitably follow. Then he said something which shocked some of us very much at the time: No economic or governmental magic, no system of controls, can stop that process.… Inflation is an intractable problem.…Other countries had to face it; none had yet found a satisfactory solution. That was only in July last. Let us accept and welcome the paragraph in the gracious Speech as evidence of genuine conversion. But I am intrigued to know what caused this change in attitude. Still more, I am interested to know how far it is going to be effective in practical measures as well as in profession.

First, what caused it? When the threat of being forced to a second deflation became obvious, was there a revolt against the Treasury? Did the Bank of England regain some of the courage which was stifled by its subjection to the Treasury by noble Lords alongside us in 1946? If so, what gave them that courage? Was it reinforced by advice from the Federal Reserve Bank or by the example of the success of an independent central bank in Germany? If Her Majesty's Government have at last seen a light, what are they going to do to see that it continues to shine and to influence their decisions? What about future decisions on the bank rate? Was not the decision to raise the bank rate taken too late? If it had been raised, say, to 6 per cent. a couple of months earlier, would it have been necessary to have a 7 per cent. bank rate to-day? Do Her Majesty's Government propose to restore a little more independence to the Bank to take decisions on technical matters of monetary policy like the bank rate? With respect, I differ from the noble Lord, Lord Pethick-Lawrence. I believe that changes in bank rate, if they are not politically manipulated, should be taken as the result of conditions prevailing, conditions already created.

What do Her Majesty's Government mean by "controlling the supply of money?" Is it intended to limit the note issue or to restore some automatic mechanism or check to limit the note issue? Is there to be a restriction on the power of the Chancellor of the Exchequer to increase the note issue as he can do now? The note issue is now five times the 1938 figure? What about Treasury Bills, which are now at five times the 1938 figure? I ask Her Majesty's Government—I believe we should ask them—how far has their conversion to the view that they can and must control the supply of money really gone? Let us be clear. Inflation, as several noble Lords have already said, will not be arrested solely by a high bank rate. A high bank rate has obvious disadvantages. It is one of the means appropriate in certain conditions, but if it is not successful within a short time in bringing about an adjustment of the economy, it may itself develop into an inflationary factor. I am not quite so worried about high interest rates as the noble Lord, Lord Balfour of Inchrye, because the Germans have done very well on an overdraft rate of 9 per cent, for quite a long period; but all the same it is a rate which we should not like to see for any long period.

This is why the implementation of measures complementary to a high bank rate, of which Her Majesty's Government have spoken, is urgently necessary; and first and foremost the drastic cutting of Government expenditure. I would suggest something more: the submission of all capital investment programmes, including those of the nationalised industries, to the test of the market. If they will leave this matter to the market, abandoning authoritarian devices such as the Capital Issues Committee; put their own house in order in their management now of one-third of the economy, they can, I suggest, well abandon any interference between banker and client. If they will tell us what they propose to do on some of these matters we shall be able to judge whether their professed conversion is real and genuine.

Perhaps I may make one final comment. The gracious Speech refers to the necessity of fortifying our reserves. The noble Lord, Lord Brand, has dealt with this matter very adequately. Reserves are vitally important. But confidence—confidence in the integrity of our monetary policy; confidence that contracts and the rights of individual ownership will be respected; confidence in the good sense of the people of our country is also a most important factor. It is not generally realised, I think, how small were the physical reserves upon which we worked before the wars, when confidence reigned. My Lords, the Government have a responsibility to be frank; those who believe in democracy share the responsibility with them of creating an informed public opinion on a matter which affects the lives of us all but which it is not easy to explain in simple terms.

4.12 p.m.


My Lords, the debates in this House on economic affairs never fail to attract authoritative speeches from a number of experts, experts of acknowledged authority who never fail to help us with analyses of the situation which are of great weight. I am bound to say that on this occasion, as on a number of other occasions, the experts have agreed that something is wrong, and have at times agreed about the nature of what is wrong; but I very much doubt whether there ultimately emerges from the four or five excellent speeches to which we have listened this afternoon a single policy which it would be possible for Her Majesty's Government, without alteration, to put into effect.

To-day's debate has been consecrated, by agreement, to a discussion on economic affairs, and that is as it should be, because the economic situation is by far the most important of the immediate issues in front of Government, Parliament and people. But let us begin by reminding ourselves that, important as economic issues are, they are only means and not ends. It was for that reason that I heard with gratitude my noble friend Lord Balfour of Inchrye say, in the course of his remarks, that only a reborn spirit of united determination could assist us with the problems with which we have to deal. That spirit may be difficult to create, but I agree with him that it is a necessity. And so, in an age like the present, it is right and indeed necessary that those who approach economic matters should never forget that the ultimate human values and ends which it is the business of Governments to cause economics to subserve are not merely economic and not merely material in character. I make no apology for saying this at the outset of my remarks because of much that has fallen from noble Lords in the speeches to which we have listened this afternoon. If there is to be discussion between Parties and organisations about these important economic issues it is largely these fundamental human questions which will have to be discussed and threshed out.

The society in which we live consists of many different sorts of people, with divergent interests and different tastes, and often different demands; and the object. I suppose, of our economic policy must not be to prefer one set of these our fellow countrymen rather than another, but to try to reconcile, in accordance with some ultimate principles of justice, the various demands which they pat forward. That is certainly our ideal. Our ideal and our aim is to make each group within society feel that, subject only to the interests of the whole nation, they are there selves wanted, admired, and even beloved members of society. In approaching economics from that angle I think we exalt and not disparage the importance of economic problems, for it is worth while reminding ourselves that the most banal of these economic questions has immediate social, political, and hardly less immediate moral and spiritual, repercussions.

The reason I have said this is that I think it has a direct bearing upon the subject which we have been mainly discussing this afternoon. From what we have heard, I imagine that no one of your Lordships would doubt that, of all these questions, none is more urgently pressing and none is of more immediate consequence than the battle upon which we are now engaged for a stable currency—the fight for the pound against foreign speculation, against inflation, and against the constantly rising cost of living. This is, of course, a purely economic battle, but its success or failure is fraught with consequences far beyond the economic and material fields. It is because of that that I want to underline the truth that was enshrined in the speech of my noble friend Lord Balfour of Inchrye when he spoke of a reborn determination to secure the object for which we struggle; and he emphasised—and I would say at once rightly emphasised—the essential rôle of Government in this matter when he emphasised their responsibility for leadership.

When the noble Lord, Lord Pethick-Lawrence, complained that we were driving on our hooter and our brakes, I would say, by way of gentle criticism of that observation, that if, by referring to our "driving on the hooter," he is complaining of an attempt to exercise a degree of moral leadership then I think his criticism is misplaced. I think our function is to emphasise, by means of exhortation as well as by compulsion (if one compares compulsion to the brakes), the immense importance, not merely from the economic point of view, of fighting for a stable currency. It is, in fact, a stable currency about which we are talking this afternoon.

For the truth is, my Lords, that a stable currency is at the root of a stable society, It is the condition of the honourable discharge of contractual obligations, whether by a business or by a nation; it is the prerequisite of thrift, for in conditions of inflation the saver is frustrated by a depreciated currency and his savings destroyed; it is the essential vehicle of international trade, which can flourish only in terms of an established medium not too difficult of acquisition and yet not varying in value to an extent to render the possession of it speculative or its value precarious. It is the pride of any nation to have a stable currency, for a stable currency is the one mark of material greatness which cannot be counterfeited and which offers no threat to its neighbours. It follows that a stable currency is worth fighting for. It is something for which it is not illegitimate to conjure up feelings of national loyalty, or the spirit of individual service, self-sacrifice or restraint. It is, on the contrary, something which I profoundly believe ought to engage both the good will and the co-operation of every class in the community.

And again I would underline something which fell from the lips of my noble friend Lord Balfour of Inchrye, when he said that a divided nation could not, in the end, hope to cope with its great problems. We have therefore to set before the people, as an ideal for which they can co-operate, the ideal of a stable currency, if we are, in fact, to succeed in any measure in fighting for its success. In the post-war world, it is true to say that the battle for a stable currency has now been fought, with varying success and non-success, for upwards of twelve years. I think it is as well to remind ourselves that such a battle is not a single engagement, or even a single campaign. It is for this reason that I would respectfully reject some of the criticisms directed at our heads, to the effect that the battle is not over already, or that the fact that we have now to reassert the necessity to fight it involves some conversion of mind. That is not so.

There is no single master stroke of strategy, and there never has been any single master stroke of strategy, which can decide the event, which can turn defeat into victory, which can bring about a victorious peace which, once signed, can send the combatants back home. The fight for a stable currency is a running fight with many vicissitudes. It is a war demanding versatility as well as tenacity, and persistence as well as courage. This is, I think, in itself a partial answer to those who say that after six years of office we are still preoccupied with this topic. Why, they ask, after six years is it necessary to continue worrying about this question? Why was it not dealt with in the first two or three weeks, or the first two or three months at most, of the life of this Government? To this, I would reply, quite simply, first, that it would be odd, in a world which has throughout its length and breadth been subjected to these inflationary pressures, if we alone had escaped their consequences. Throughout the period under discussion inflationary pressure has been continuous all over the world. With greater difficulties than many, we have fared better than most; our counter-measures have been continuous, and have continuously met with some degree of success.

Secondly, I would say that, as I tried to indicate on the last occasion when we held our discussions, the problem is one far more complex than was generally admitted. Under the single name of inflation there are at least four separate, if interrelated and allied, enemies which we have to fight. We have to deal with the question of our balance of payments, the tendency of that balance of payments to remain too low, or even to become adverse. We have to seek to increase the level of our reserves—a task which, I would agree with my noble friend Lord Brand, is very nearly at the heart of this complex problem. We have to fight the tendency under a system of full employment for the amounts of personal incomes to rise without corresponding increases of production or productivity, and so to push up the prices. We have to fight the tendency of a high level of taxation to encourage extravagance and reduce efficiency. All these matters have at one time or another pressed heavily upon us. Each requires separate counter-measures. Though, on the whole, our campaign against adverse balance of payments has been successful, we have recently had renewed trouble with our reserves, and though we have reduced taxation over the last six years, we still have not conquered the tendency of wages to push up prices.

Thirdly, I would say that we have endeavoured throughout not to put on the people a heavier burden than the circumstances warranted. In 1951 and 1952, I believe, we faced far more severe restrictions than at present. In 1957, faced with an attack on our reserves, we have had to resort to a bank rate higher than in 1951. All these expedients are, in a sense, temporary. There is no sovereign remedy. Inflation is a world-wide disease; the counter-measures we take are necessarily, to some extent, palliatives. All economic pressures result in hardship and injustice, and it is the duty of the Government to counteract the effect of these pressures. It is not possible for individual Governments to reverse them entirely.

That brings me to certain remarks of the noble Lord, Lord Pethick-Lawrence, and to certain speeches and correspondence in the newspapers which suggest the possibility of an impending slump or a trade recession. Lord Pethick-Lawrence drew on his deep experience of the period of the 'twenties. He asked us whether our policy of increasing the bank rate was not designed, or would not have the effect, of producing consequences comparable with those. That was not the design; nor do I think that such consequences are likely. I do not feel called upon to comment fully upon the possibility of a slump. My noble friend Lord Brand referred to the fall in certain commodity prices and to the possible effects of such a fall. If there were a world recession our measures would clearly require revision to counteract its effect, but that does not alter the fact that we are now dealing with a boom and with inflation. Moreover, any measures designed to counteract world recession would, in my judgment, have to be concerted with those of other Governments, for I could not see without disaster an isolated Government here endeavouring to inflate against deflation elsewhere. But I would, on the whole and in the meantime, say that we need in this context to be on our guard against an excess of cleverness. For the moment, at least, it is not a slump with which we have to deal.

I have the clearest recollection of 1946 in another place. I recall Mr. Harold Wilson, who was then, I think, President of the Board of Trade, predicting a recession, in the face of quite insufficient evidence, as it turned out. It remains to be seen whether the evidence of an impending recession is sufficient now. I cannot help thinking that this talk in some parts of the Party opposite of recession, in the face of Government measures to deal with inflation, is inspired, at least in part, by wishful thinking. The measures are unpleasant, and I can assure noble Lords opposite that they have been adopted with reluctance. The noble Lord, Lord Grantchester, seemed to say that we had been too late. On the whole, I think it wise, when one is going to adopt measures which inflict hardship and which will no doubt give rise to corn-plaint, to do so only when the need to inflict them has been made fully apparent to those who will suffer from them. The measures are unpleasant, and some in the Party opposite, I feel, are unwilling to face them. Therefore they tend to invent in their imagination the possibility of a recession in order to obviate the moral necessity for accepting such unpleasant measures. I do not think that that is, on the whole, an attitude which will lead to constructive thinking.

The truth is, my Lords, that the problem facing us in 1957 is not the same problem as faced us in 1951. Here I would for a moment join issue to some extent with the noble Lord, Lord Balfour of Inchrye. I would agree that, in a sense, the problem of inflation has been chronic since the end of the Second World War. But in 1951, when we had just assumed office, the main economic task before the Conservative Party was, as I see it, to create abundance. An immediate flight from the pound threatened, but had been stemmed by the middle of 1952, and the problem then was to get rid of rationing, to build 300.000 houses a year, to develop school buildings and to invest in electrical generating power and fixed capital formation. Abundance has been created. The shops are full of goods; generating capacity has been developed and is being developed; schools have been built and are being built, and fixed capital formation is running at an all-time high of £3,000 million a year. Therefore, for the time being we have dealt—and I should have said dealt not unsatisfactorily—with that series of problems. Indeed, part of our trouble is that we have dealt with them so satisfactorily that many people have forgotten that they ever existed. Food rationing has gone. Controls have gone. Red meat is a thing of the present and not of political controversy. Houses, schools and hospitals have been built. Load-shedding is a thing of the past and generating stations have gone up. Personal savings have risen, and everything goes to shots that consumption is at an all-time high.

Therefore, I would say to my right honourable and noble friend that the problem is now a different one from that which we then had to face; or perhaps it would be more accurate to say that our very success in dealing with the problems which I have enumerated has brought back to the fore, perhaps in a more chronic form but certainly in a more obvious one, the underlying problem of reconciling a stable currency with a free society and full employment, a purpose which we intend to achieve together.

We have now to face a wages spiral which has developed since January 1, 1957. In a previous speech I tried to set forth to your Lordships the bare bones of that problem. In a period in which production did not particularly rise there have been increases in personal incomes to the extent of about £1,000 million, of which wages, after deduction of tax, form rather more than nine-tenths. Wages during that period have gone up by about 11 per cent. and prices have risen by only 7 per cent. But the difference is this: everyone has to pay the increase in the prices—the pensioner, the professional man, the housewife, the retired man and the small business man; only the wage earner gets the benefit of the rise in wages and is the lucky one who is able to contract out of inflation. But unfortunately all wage earners are not equally lucky, as the noble Lord, Lord Pethick-Lawrence, reminded us. Some are worse off, and even those who are better off are uneasily aware that their new-found prosperity reflects something unhealthy in the economic state of the nation.

The measures taken by the Government have been carefully selected to cope with the disease, or at any rate with the present phase in which the disease finds itself—the bank rate increase to counter the drain on our reserves, the limitation of the credit base to hold the increase in personal incomes, whether expressed in the form of profits or wages. Both measures have been misunderstood, both have been misrepresented; but really there is no need, I think, to misrepresent or misunderstand the purpose of either. May I say again that our wages policy is not an overt declaration of war against any section of the country. I should have hoped that I would not have needed to say this again, since it has been said so often, but as it has been misrepresented I think perhaps no harm can be done by reiterating what needs to be said upon this matter. Since words of mine have been misquoted and distorted out of their context to support this misrepresentation, I would crave leave to refer again to those words which I used, to indicate what is, and has always been, our intention. Referring to a statement of the Leader of the Opposition that it was our policy to wage war on the trade unions, I said: That, in a compendious form, as Sir Winston Churchill used to say, is almost the exact opposite of the truth.


My Lords, can the noble Viscount tell us where he made this statement?


At Brighton, on October 10. I am obliged to the noble Lord; I should have made that plain. I added this, which I think makes clear my own feeling in the matter: On the other hand, I am more than a little suspicious that one or two of these leaders are rather anxious to pick a quarrel with us. This would be a disaster for both sides, but I must say frankly that I do not believe that Britain would tolerate or forgive an attempt by trade union leaders to dictate to the country, or to Parliament, or to the Government, what our economic policy should be. By the like token"— I added— I do not believe that Britain would encourage or condone in a Government any attempt to provoke a quarrel with the unions; and we shall provoke no such quarrel. That is what I said on that occasion, and I certainly intended to convey, and now try to convey to your Lordships, my belief that our economic problems are not best solved by a head-on collision between any organised sections of the community.

On the previous occasion I said, and again I should like to repeat it to your Lordships, but without wearying the House with the exact quotation, that although I would not accede to the proposition that the unions, any more than any other public institutions, should be immune from criticism or that their leaders should be immune from criticism—I do not suppose that noble Lords opposite would ever put that proposition—I have said before, and I say now, that we are proud in this country of the institution of the trade unions. We recognise the part they play in promoting industrial peace and industrial efficiency, and it is because we want to see them efficient and playing a responsible part in the industrial life of the nation that we are anxious that there should be no head-on collision in this matter.

There is only one thing which I do not think it would be right and proper for me to do in this connection, and that is to conceal from the House my true belief about the nature of the problem which we have to face, or to conceal from the House my belief that it is necessary to face it honestly, and that I do not suppose noble Lords opposite would ask me to do. With that introduction, I should like to reiterate that it is not part of the Government's policy to undermine the system of collective bargaining which has been built up over so many years. Nor do we intend to overthrow or disparage or interfere with the elaborate machinery of arbitration and conciliation which has grown up over the years. Incidentally, I may add that I do not believe that we could do it, even if we wanted to. There is nothing which we can do to prevent employers from granting wage increases by agreement with employees, if they are willing to face the economic consequences to themselves and to one another; and there is nothing we can do, or wish to do, to prevent the implementation of awards made after a fair hearing.

I think it might be convenient if I referred here, in a few sentences, although it is slightly off the main subject of this debate, to a matter to which the noble Lord, Lord Pethick-Lawrence, referred in some detail—a reference which must afford my excuse and justification for doing so—that is, the decision of my right honourable friend the Minister of Health to withhold his approval of the proposed increase in the salaries of certain National Health officials. I think, with respect, that for once the noble Lord was betrayed by the length and breadth of his own experience. It is true, of course, that the body which was negotiating and which ultimately arrived at an agreement in this case was a Whitley council, but it had this essential difference from the Whitley council with which the noble Viscount's immense experience naturally makes him familiar: it was a Whitley council in which the majority of the members on the management side were neither controlled by the Government nor representative of it. Whatever may be the merits of the particular decision which is under consideration, it would be altogether wrong, at least in my judgment, to draw inferences from this particular decision, which arose out of a very special case of a unique type of council, which would be applicable generally over the whole range of Whitley councils more normally constituted.

The facts of the matter—and with that introduction I think I can refer to them perhaps at a little greater length—are that on October 11 the Administrative and Clerical Officers' Council of the Whitley Councils for the Health Service agreed to increase the salaries of the administrative and clerical officers employed by the regional hospital boards, hospital management committees, teaching hospitals and executive staffs. The agreement was that salaries above £1,200 should be increased by 5 per cent. and that salaries below £1,200 should be increased by 3 per cent. On October 30 the Minister of Health wrote to the chairman of the management side of the Council informing him that he and the Secretary of State for Scotland, had decided, after considering the agreement in the context of the general policy of the Government in regard to the general economic situation, not to give their approval to the part of the agreement which gave 3 per cent. to all officers with salaries below £1,200. That part of the agreement, therefore, could not come into operation, since under regulations governing the remuneration of hospital staffs in the National Health Service, ministerial approval is required.

Of course, all the monies which are paid for these wages come out of Government funds, and the anomaly which I think exists is that the management side of the Whitley council is not controlled as to majority by the Government. The management side had the clear indication from the Minister before the agreement was made that, in his view, this offer should not be made, and the Minister's advice was, in fact, over-riden. Whatever the merits of that decision, I cannot myself believe that, in the circumstances, the approval of the Government could be treated as a foregone conclusion, or that the Government, who had to find all the money, should be bound by an agreement to which they had never consented; and I cannot myself sec that, whatever may be thought about this particular case (it may be that there was a strong case or a weak case for an increase; I do not argue the merits; it does not seem to me that the Houses of Parliament is a very good place to argue merits on wage disputes), the decision right or wrong, gives any justification for the widespread inferences, no doubt honourable, which noble Lords and other members of the Labour Party in the country have sought to draw from the facts. Those facts are special to the particular case, and it would be wrong to infer from them that there was any general desire to override agreements of Whitley councils when they are representative of the Government point of view, or any desire whatever, or in any circumstances, to go back on an agreement to which the Government have been a party.


My Lords, I should like to have a little refreshing of our memories on this particular Whitley council. Could the noble and learned Viscount tell us what were the exact numbers on each side; that is, the employers' side, the representatives of the Government and the non-representatives of the Government? Perhaps a little later on he may be able to explain to us exactly what effect his views expressed this afternoon may have upon the future of conciliation boards, set up after long years of development of collective bargaining, such as, for example, those we have had for thirty years in the Co-operative Movement, with thousands of employees, where the recommendations, after consideration, may sometimes be sent back but where we always accept the final decision of the conciliation board, which is like a Whitley council. Are we now to expect employers to follow the example given in this case?


As regards the first point, so as to be sure of accuracy, I will ask my noble friend when he comes to reply to the debate to give the figures as to the composition of the Whitley council. I will see that the noble Viscount is given those figures. As regards the second point, I really do not think (and I am sure the noble Viscount wishes us to be as conciliatory about this as possible, because it is an important matter about which I think there has been some genuine misunderstanding, as well as quite legitimate disappointment) there is any reason whatever, as I think I said to begin with, to believe that we in any way wish to undermine or cast doubt upon the value of the elaborate system of conciliation and arbitration which has been built up. I am not sure that it would be profitable to enter into the various types of conciliation board or negotiating machinery: they differ widely in particular industries, and often in particular industries different types of machinery are dealt with for different types of case.

But I do wish to give the noble Viscount this absolute assurance—this is not a debating point; I am trying to reassure him about something about which he is genuinely concerned—that there is no reason, so far as I know, why he should feel that the negotiating machinery which exists in industry, as we have known it over a large number of years, will in any way be weakened as a result of what has been done. This was a deliberate act of policy in relation to a particular case where the facts were of the most specialised kind, and where, I venture to think, and I think rightly, they are not generally understood. When they are more generally understood, I cannot but believe that, whether one accepts the view of the Government on the matter or criticises it, the general inferences which have been drawn will not then be drawn.


My Lords, I am obliged to the noble and learned Viscount, and I will look carefully at what he has said to-morrow. But I am speaking with great sympathy for the organisation which covers the majority of the people concerned in this particular award—namely, the National Association of Local Government Officers. I was the county secretary for Somerset of that organisation for some years, and I think we got the first Whitley council ever set up by a county council in 1920. Therefore, I am most concerned that all the conciliation bodies in this organisation—it is a fine organisation, not a quarrelsome one, representing the best traditions of municipal service—should not now have to fear the result in all the other conciliation bodies covering employees whom they have organised.


Obviously there are difficulties in the way of a Lord President of the Council giving all the assurances the noble Viscount may wish for without having consulted with his colleagues, but I give them, believing every word of what I am going to say and believing that there is absolutely no reason why it should be falsified on further consideration. On that point I think there is absolutely no reason to feel disquiet at all. I would say—again without having made the necessary consultation, but still believing it to be true—that I am certain that, if the secretary of the body concerned (of whose responsible character I have every knowledge, because anyone who has practised in the courts as long as I have cannot fail to know which bodies are responsible, and I absolutely agree that it is a responsible body) feels that discussion in a friendly spirit on this particular point and its possible implications would be of benefit, neither of my right honourable friends the Minister of Health and the Minister of Labour would wish to reject that.

I am not saying—and I want to make this clear—that there is any reason to believe that the decision to withhold approval in this particular case (which was the occasion for my discussing this matter at all) would necessarily be gone back on. That I have no reason to say. But I can quite see that the noble Viscount has genuine apprehensions about the structure of conciliation. I believe them to be wholly groundless. If, by reason of that fact (and I am not in consultation with my colleagues in saying this), the officials of the bodies would like to reassure themselves by consultation with my colleagues, I feel certain that my colleagues would be only too glad to give them that assurance.


My Lords, will the noble and learned Viscount say whether it is not a somewhat unusual proceeding for a Minister to intervene in the management side of a Whitley Council before a claim has been considered on its merits? Was not the intervention designed to throw responsibility on to the manage-merit side to decline this claim, whereas after full consideration they recommended it to be implemented?


I would not seek here to pontificate about the usual methods of procedure in such cases. All I would say—and as, indeed, I have said—speaking as a layman in such matters, but still as a member of the Government, is that it seems to me absolutely unthinkable that, where the whole of the money comes out of public funds, as is the case here, the Government are to be held bound by an offer and held bound as if by agreement to do that to which it never consented, when it had given notice it did not approve.


My Lords, I do not wish to pursue the matter now, because there may be an opportunity later on to debate the whole subject on a specific issue. But surely the management side have the benefit of the advice of representatives of the Ministry, and their advice is always taken into full account when consideration is given to claims of this kind.


I am not sure that they did take it into full account. Perhaps it is not for me to speculate as to what went on in their councils, because it might be embarrassing to all concerned. What I would say is that I think this again is something which ought to be considered. It may well be that this particular event, happening at this time, has revealed a defect in machinery. I believe that it is for all of us to consider, and to consider constantly, whether machinery can be improved. I know that my colleagues in the 'matter would be anxious to improve any defect of machinery.

I mentioned that matter in the course of this speech for only two reasons (because this is really a debate of a rather more general character than one which lends itself to detailed discussion), and I think the noble Lord, Lord Pethick-Lawrence, will forgive me. First, I wished to make it plain that the general inferences which were being drawn, to the detriment, I think, of good relations over quite a wide range of subjects, were not legitimate; and I wished to give reassurance on that point. The second was to emphasise what I believe to be the legitimate general observation of policy, that whether or not you agree with this particular dispute, the Government can hardly be supposed not to have an interest, and perhaps a controlling interest, in an agreement in 'which they are to provide the whole of any sum of money which arises out of it. It was only on those two general points that I wished to delay the House on this particular subject this afternoon.


My Lords, the noble Viscount, having raised this matter, will not, I hope, mind if we try to understand the case that he is making. I know that he is being very conciliatory, and wants to assure us that nothing the Government have done should be deemed to undermine the procedure of the Whitley Councils. But I wish he would explain how it comes about, first of all that the Government seek to intervene and influence the tribunal before they have made the decision, and, secondly, that when the tribunal have arrived at the decision the Government feel themselves in the position not to implement it. Are the Government not in the position of every other employer? The decision having been made, what right have they, more than any other employer, to ignore the decision?


My Lords, I think the noble Lord is fogging himself by the use of totally inappropriate language about this particular machinery. This was not a tribunal and there was no decision. The noble Lord's difficulty arises from the fact that he supposed it was a tribunal, and then supposed that the tribunal had arrived at a decision. This is a Whitley Council; it is not a tribunal, and it does not arrive at a decision. If the Whitley Council had disagreed, I imagine that there could be arbitration proceedings. There is, normally, in relation to Whitley Councils. That arbitration award, if it had been arrived at, could be legitimately described as a decision.

The anomaly in this case—and I am not seeking to say that the machinery may not require examination—arises from a series of facts. The first is that a body which was purporting to negotiate on behalf of the employers—namely, the management committees of hospitals—was not negotiating on behalf of those who had to pay all the money—namely, the Government. The second fact was that, precisely for this reason, no doubt—it may be that it is true in other cases as well—the agreement, when made, was not a binding contract on either side but was made expressly subject to Government approval. Therefore, nobody can complain when Government approval was withheld, because in relation to this particular type of machinery Government approval is anything but, and must be anything but, a foregone conclusion when they have to find all the money to implement the award.

The position, therefore, is that no binding agreement was made. An agreement was arrived at, subject to Government approval; and that approval was withheld. Of course, one is entitled to argue one way or the other on the merits as to whether the claim was a good one or a bad one. But the only point I think the House is concerned with this afternoon—because, after all, this is a general economic debate—is that no general inference can be drawn from that very special set of facts. I felt that, as so many general inferences have been drawn and were, in fact, drawn by the noble Lord, Lord Pethick-Lawrence, it was worth my while, and worth the while of the House, to delay the debate by trying to explain the very special circumstances of this case in the hope of creating a better atmosphere.


My Lords, I am much obliged to the noble Viscount. I shall be interested in going over all the points he has made. For the moment, may I ask him one further question? He said, of course quite rightly, that the Whitley Council is not a tribunal. But if I speak as the president, as I do, of a very important national voluntary hospital, in which we always pay what we consider either the professional or, in a Labour sense, the trade union rate, what is our duty now, when the same organisation which put their case to this Whitley Council come to us and say, "You have always observed Whitley Council recommendations. Do you observe it on this occasion?" We are not a State hospital.


I should have thought that that was a very different question, but if the noble Lord is really in difficulties on that particular point I shall seek, if he wants an answer, to find an answer for him. Personally, I should have thought the problem was not a particularly difficult one. I do not venture to put forward my own solution in case I may be falsified by events.

I think I have now, so far as this debate is concerned, succeeded in establishing the fact that the general inferences sought to be drawn by the noble Lord, Lord Pethick-Lawrence, were in fact unjustified, not because he did not put them forward in a thoroughly reasonable way but because he drew too much upon his general experience of Whitley Councils and too little upon the actual facts of this individual case.


My Lords, I knew the facts, because I read what the Prime Minister said in another place. I still do not find the noble Viscount's answer satisfactory.


My Lords, what I was seeking to do in this particular case was not to convince the noble Lord entirely, because perhaps that would take a much longer time than we have at our disposal. What I hoped to do was to destroy part of the bad feeling which seems to have arisen about this case; and I think I have gone some way to do that, irrespective of whether or not noble Lords agree with what I am saying. What I believe is very much more important than the question whether this decision was right or wrong is the question whether bad feeling is unnecessarily aroused over a much wider field; and it was that sort of fear I was trying to allay. What I think we can do in relation to this whole question—and this brings me back to the point at which I was guilty of divagation—is by our monetary policy to discourage inflationary consequences of agreements and awards. Whatever arbitrators may do, and whatever negotiators in industry may do, the Government cannot abdicate its responsibility for the public interest.

Here I should perhaps say a word or two by way of answer to my noble friend Lord Balfour of Inchrye. I do not think it would be fair to make the suggestion that the Government are deliberately refraining, for doctrinal reasons, from the use of weapons in their armoury which would otherwise prove effective. We are not refraining, for instance, from the use of import restrictions or building controls simply for doctrinal reasons. We have no ideological objection to import controls as such. Unless I am much mistaken, in 1952 Mr. R. A. Butler indulged in quite savage import controls to deal with the economic crisis which we faced when we took office. But we do take the view that the use of this particular weapon is not appropriate at the present time to an extent greater than is being employed.

My noble friend referred to dollar import controls. But convertible sterling is so easily convertible into dollars in one way or another that it is not really effective to treat dollar imports as a separate water-tight compartment, quite apart from the difficulty (which I am advised in practice is almost insuperable) of differentiating between Canadian and United States dollars. Secondly, United States imports of luxuries, so far as they are separable at all, are already limited by quotas. You cannot easily obtain a Cadillac motor car. Some foodstuffs are, but the question which foodstuffs can be described as luxuries is one into which I will not enter in detail. In our view, it is not generally in our interest, except in emergency, to legislate to control imports in this particular way when the countries against which we legislate are in a position to retaliate by countervailing legislation against our own exports. I do not believe we have an acute ideological objection to import control. The situation is merely that we are not satisfied we stand to gain much if we employ them at the moment.

I think that a similar case could be made in relation to physical building controls. I confess that I have in my own mind a certain ideological objection to them, and I should be less than candid if I did not confess that fact quite frankly. But here there are very considerable practical objections, as well as ideological objections. In the first place, a considerable time-lag would operate before such control could become effective. A building control can effectively operate only to control starts; buildings in course of erection cannot be economically restrained. Secondly, only retrospective legislation, doubtfully effective in achieving its purpose, can prevent forestalling. This would have to be contemplated if we were to legislate. Thirdly, I do not believe that any case has been established that certain types of building are qualitatively undesirable or luxurious in themselves. Cinemas, so far as I know, under the present credit squeeze are being erected only near new population centres. Office blocks are not intrinsically uneconomic. Garages, which are usually cited, must bear some relation to the number of new cars, and if to be restrained at all might be restrained by quite a different type of legislation. I am not at all satisfied that a sufficient or significant difference in the wages spiral could be achieved at the moment by any form of building control.

On the other hand, there are some quite certain and positive disadvantages of imposing a control. We should have to recruit a large, expensive and fairly high-class administrative staff in order to work it. It is not a short-term operation. I think it would be difficult to conceive that a general control could operate without a return of the black market, with its army of spivs and drones and contact men, and always possible chances of scandal. If I may add a personal note, I do not think it was possible for anybody who worked in the courts in the realm of contract law during the working of the building control to overestimate the extent to which it encouraged dishonesty amongst traders and customers. A very large number of starts were made with the full knowledge of the Government, even with the encouragement of local officials, in advance of actual agreements.


May I thank the noble Lord for his full reply to the point? I was not advocating it. He has given me the complete assurance I wanted, that the Government have an open mind. And if, on examination, it turns out that the advantages would outweigh the disadvantages—the Government have the knowledge and I have not—I am quite content.


I am very much obliged to the noble Lord. I will now try to bring these rather disjointed remarks to a close. I would do so with this sentiment to the House. We are bound to set before the country what we believe to be the causes of the present rise in prices. We are bound to attach to the rise in wages, as against the rise in productivity and as against the rise in prices, the same kind of significance which the noble Lord, Lord Brand, attached to them. We would beg noble Lords on all sides of the House to use such influence as they possess to discuss these matters objectively, and, if possible, to arrive at some kind of constructive solution. So far as we are concerned, we know of no alternative policy of sufficient size or power to deal with the situation other than that which we propose. We are not convinced at all by any suggestion which has so far emanated from the Labour Party. Of course it is true that we can ask the Germans to help; we can ask the Americans to help; we can ask the Commonwealth to help—which was the immediate reaction of the Leader of the Labour Party. I am not sure that any such request would be likely to be successful, even if it were honourable, if those three parties to whom we addressed ourselves for help were not satisfied that we were doing enough to help ourselves. Such requests can therefore be no possible alternative to a constructive policy.

I noticed that a number of noble Lords suggested that we should talk with various bodies in this country. Speaking personally, I certainly hope that the spirit of discussion will always prevail in these matters. But here again it would be wholly wrong if I were to suggest that, however much one may desire to discuss things—I certainly always prefer discussion to any other method of procedure—anything we could discuss would lead us to fog what we regard as the clear issue of the cause of the present inflation, or to seek to adopt anything less than what we regard as the minimum in order to cure it. Of this I am absolutely certain—and I think I can say it with assurance we have always believed that restraint by co-operation is a better policy than the type of restraint which we are compelled as a Government to impose. Whatever proud words may have been spoken at one time or another, and by one side or the other, if a policy of restraint by agreement and co-operation can be worked out which meets the needs of a situation, certainly I would hope and pray that nothing I have said would ever stand in its way.

5.12 p.m.


My Lords, I should like to begin by saying how much I agree with a good deal of what my noble friend Lord Pethick-Lawrence said in a speech which, if I may say so, I thought was admirably cogent, convincing and informed. I share his view that the Government is wrong in attaching too much importance to, and in relying too much for results upon, what is known as the monetary mechanism—a high bank rate and a credit squeeze. However efficacious such mechanism might have been in other conditions before the war—there are, I think, grounds for doubting whether it was efficacious—in the new economic set-up of this country I submit that reliance upon the monetary mechanism is outmoded. After all, we now have as a basic foundation of our economy full employment, not, as was the case, unhappily, between the wars, a vast army of unemployed; and all Parties are pledged to the maintenance of a high level of employment. Yet it seems to me (and there is a considerable body who share this belief) that the operation of the Government's policy of a high bank rate and a credit squeeze may seriously endanger the maintenance of a high level of employment.

There is also a growing volume of opinion which is doubtful as to how far the Government's present policy is likely to be effective in arresting inflation. The point of view is held by some that, whilst its short-term result may have some advantages, the long-term consequences—a restriction of investment always has long-term consequences—may be most disadvantageous to the economy of the country. One of the great defects of this procedure is that the operation will be so indiscriminate and so unselective that it will check investment for necessary purposes at the same time as it may check investment for undesirable purposes. It will have this effect: it will make necessary, essential, required investment, whether in the private or the public sector of industry, much more costly. It seems a curious situation that those who, whether in the private or the public sector, proceed to invest in desirable projects—the equipment industries, the export industries, and other essential industries—will have to pay, not only now but it may be for twenty or more years, a high rate of interest in order to stop some other person from doing what ought not to be done in the interests of the nation. That seems to me to be an almost indefensible situation.

There is plenty of money available free of control; and if the money is available at present there is nothing to prevent capital expenditure, not only on luxuries but on undesirable projects. Each year, for instance, there accumulates as undistributed profits something in the region of £1,500 million. That was the accumulation during the year 1956, and that was the sum after tax. Most of the capital investment last year was made out of undistributed profits; only £236 million was raised by new issues. Accordingly, that money is available with no restraint upon the quality and character, the necessity or otherwise, of the capital project upon which it may be spent. It seems to me that the monetary mechanism is a blunderbuss when what is needed really is a precision instrument. It cannot be satisfactory to the Government that, as a result of the Government's monetary policy, Vickers should be compelled to go to the market and offer 6 per cent. at a discount, for money for projects which are eminently desirable in the interests of the nation; or that Monsanto should go to the market and pay 6 per cent. at a discount—the price was 95—on money to be repayable in 1977–82. This high rate of interest must increase costs for, as I have said, some twenty years or more.

Then there is the situation which was referred to by my noble friend Lord Pethick-Lawrence, of the nationalised industries. Those nationalised industries are of the very foundation of our economy, but they are to have their capital expenditure restricted. The railways have been starved of development and modernisation for many years—before the war because of the inability of their then private owners to find the money, and since the war because the railways have always had to take something of a back seat when questions of priority arose in regard to capital expenditure. The nationalised industries are in need of development and expenditure. As Mr. Roy Harrod said in the Financial Times of September 21: I judge the programme of the nationalised industries ought to be stepped up in the next two years by £300,000,000 per annum (at 1957 prices). Instead, so far as one can judge from the pronouncements made by representatives of Her Majesty's Government, the nationalised industries may have their capital expenditure curtailed. It is noteworthy, also, that whilst the proposal for physical controls has been rejected by Her Majesty's Government, some of them for some of the reasons given this afternoon by the noble and learned Viscount, Lord Hailsham, nevertheless it is a fact that physical controls, or controls ministerial, are to be applied to the nationalised industries and to the expenditure of local government.

I want now to say something about the effect of this high bank rate upon the finance and activities of local government. Perhaps I should say, first of all, that, incredible as it may seem, it is the case that since the present Government took office in 1951 there have been fourteen changes in the interest rates charged by the Public Works Loan Board to local authorities. During the period 1946–51 there was only one change. I put it to your Lordships, how can a local authority really plan its capital expenditure with changing rates of interest such as I have indicated? How can they utilise their resources and exercise their borrowing powers to the best advantage, with this constant instability and ignorance of the rate of interest which they will be required to pay?

Up to 1951, local authorities could borrow for their general purposes at 3 per cent. For loans to home purchasers, they could borrow at 3¼ per cent. Now the London County Council have to pay, or are being called upon to pay, 7¼ pet cent, for loans up to five years and 6¾ per cent, for loans over five years; and the London County Council is in as good a position to borrow at the lowest rates as any local authority in the country. In October, 1955, the Public Works Loan Board indicated that they would be willing to advance monies to local authorities only as a last resort and that local authorities were first to exhaust all the possibilities of borrowing money, either in the money market or in the mortgage market. This has meant competition between authorities which has no doubt resulted in higher rates being charged. Moreover, it has forced local authorities to that form of borrowing which they do not regard with very much favour—namely, on short-term mortgages. One metropolitan borough was offered, by a finance house, £100,000 at 6¼ per cent. for sixty years, with no break clause—and that was when the bank rate was 5 per cent., not 7 per cent.

The importance of this high rate of interest for local authorities will be better appreciated, perhaps, if I give some figures indicating what an important—one might almost say, what an oppressive—element it is in the expenditure of local authorities from year to year. In fact, the debt service of local government is the second most expensive service. The only one which exceeds it is the education service. In the year 1954–55, the loan charges of local authorities amounted to £168 million, of which £95 million was in respect of interest and £73 million in respect of redemption. As regards the London County Council, its loan charges in the year ended March, 1956, were £8 million, or thereabouts, for interest, and £4 million—about half—in respect of redemption.

The effect of the interest rates to which I have referred—namely, the 7 per cent. bank rate and the interest rates flowing from it—will have this result on certain activities of the London County Council. The difference between 3¾ per cent. and 7 per cent. on a sixty-year annuity (which is the basis on which the financing of houses is done by local authorities) means, in regard to flats, an additional cost of 10s. 1d. per week for each room. In regard to cottages, the increase in the charge as the result of the movement from 3¾ per cent. to 7 per cent. is 7s. 6d. per week for each room. These figures exclude the cost of land and, as your Lordships will be aware, the cost of land in London is very high.

If we turn to education and ascertain what its effect is upon the annual cost, per place, in the schools, again excluding the cost of land, we find it is as follows: for primary schools per place, an additional £4 10s. per annum; for secondary schools, per place, an additional £7 16s. per annum. And, of course, those increases of charge have to be borne, generally speaking, by all the local authorities up and down the country. That is the effect upon the finances of local government of the policy which the Government are pursuing. Much of the local government expenditure is essential. The affairs of this country could not be carried on without the activities of local government; and yet, although its expenditure is proper expenditure, although its capital expenditure is upon projects which are necessary and essential, it is to be penalised in many cases for a period of no less than sixty years—not for anything which local government itself has done wrong, not because local government itself is acting against the declared policy of the Government, but because the weapon of a high bank rate is regarded as appropriate to prevent other persons from doing what it is considered in the interests of the nation they ought not to do.

Housing will be cut down. If the Government's policy is to limit expenditure for the next two years to the ceiling of the expenditure of this year, it follows that local government activities must be restricted. Indeed, it is already expected that housing will be cut down by some 20 per cent. over the next two years. In many local authorities loans for house purchases are being refused or the number is being seriously reduced. It is the case that the increase in the rate of interest on monies advanced to house borrowers from 3¼ per cent. in 1951 to 5¾ per cent. in 1956 meant, on a £2,000 house, no less an increase than 15s. a week. There has now been added something in excess of a further 10s. as a result of the movement of the rate of interest up to 7 per cent., or thereabouts.

The Times in its issue of October 23, referring to the programme of capital restriction, said: The school building programme has never kept pace with the famous 'bulge' and it would be dangerous to reduce it. But if the ceiling is maintained, it will be impossible not to reduce it. It will be impossible not to cut down proposed programmes of expenditure, whether on schools or other social services, which would inevitably take expenditure beyond the ceiling, because of (a) the general increase in costs, and (b) the increase in costs which will flow from the higher rate of interest. We all know that there is still a serious shortfall in school places; there is grievous overcrowding of classrooms in many schools in many places. And yet the programmes to remedy that at the earliest possible moment will be cut down. I am sure that your Lordships will realise how disastrous this increase of the bank rate to 7 per cent. will be upon the finances of local government. It will put up the rates and, not incidentally, because it is important, it will increase the sums to be paid by the Government on all those services where there is a percentage grant.

It seems that the Government's policy, from a national point of view as well as from the more limited, but not unimportant, point of view of local government, is a disastrous one. It is ill-conceived, it will be misapplied, and in operation it will be unfair and unjust; and it ought not, it seems to me, to receive the approval of your Lordships' House.

5.36 p.m.


My Lords, my contribution to-day will be a very fragmentary one. It will consist of a few comments, necessarily rather disjointed, upon what others have said before me. In the first place, I should like to refer to a remark made by my noble friend Lord Brand, who said this afternoon that the case for this country embarking upon a counter-inflationary policy was much stronger than that of America doing so. The noble Earl who moved the Address yesterday, Lord Waldegrave, after quoting a recent declaration by the Chairman of the Federal Reserve Board, said the same thing. I entirely agree with both noble Lords, but I think neither of them emphasised sufficiently the fundamental difference between the compelling necessity under which we in this country are to start such a policy, and the rather doubtful and debatable issue of policy that is presented to the United States.

Think, my Lords, of our position in the sterling area and of what that institution means both for us and for others. Think of the position of sterling, still, I believe, the greatest currency as a medium of international trade; and think of what would happen to the sterling area and to the retention by sterling of its r½le in regard to world trade if, after the devalue ation of 1949, we were forced into another devaluation now. Think, my Lords, of the weakness of our reserves, to which Lord Brand referred this afternoon. Think not, indeed, of an actual deficit in our balance of payments, but of the quite inadequate margin to meet the strains with which it will be confronted, and of our commitments. Think, above all, my Lords, of our dependence, greater than that of any other considerable country, upon foreign imports, and, therefore, on our power to buy the exchange with which to purchase foreign imports of food and raw materials. In all these aspects, our position is not only different but fundamentally different from that of the United States.

People have spoken about the danger of unemployment in one contingency or another. But consider, my Lords: is it not the case that the most serious danger, and, indeed, perhaps the only serious danger, of mass unemployment in this country, is that we should be unable to purchase the essential raw materials without which neither the full working of our industries nor full employment would be possible? Our ability to purchase these imports must depend on our exports being competitive in world markets and not having their cost increased by inflation, or at least not to a greater extent than the costs of other countries competing with us in world markets.

These are not just differences between our case and that of America; they are fundamental differences. I confess that if we were, in all the respects to which I have referred, not in our actual position but were in that of America should in present circumstances not advise a counter-inflationary policy. Indeed, I think that with the world currency systems what they are at this moment, they can hardly be made tolerable, hardly be consistent with the proper maintenance, and still less the expansion, of world trade, unless there is not only a policy of counter-inflation by countries whose balance of payments is weak, but also a complementary and different policy on the part of countries which are in precisely the opposite position; countries which have embarrassing surpluses in their balances of payments and whose surpluses are endangering the reserves of all other countries less fortunate than themselves.

We have recently had a few tokens of the principle to which I am referring, of a differentiating policy between countries which I may call surplus and non-surplus countries. When the Chancellor of the Exchequer made his declaration at Washington a short time ago as to our determination to maintain the £ at its present value, and combined with that the increase in the bank rate from 5 per cent. to 7 per cent., that was accompanied by a complementary declaration on the part of the representative of Germany, whose balance is rather embarrassingly surplus rather than deficit, and there was a small token of the kind of policy I am suggesting in the fact that when we raised our bank rate from 5 per cent. to 7 per cent. the Germans reduced theirs from 5 per cent. to 4¼ per cent. We had a rather similar experience in O.E.E.C. a few years ago when I was a member of the Government. There was a rather embarrassingly surplus position in the case of Belgian currency. Not only did deficit countries take action in the nature of counter-inflation, but, by agreement, the Belgian Government similarly took action to liberalise their policy and encourage imports without at that time expecting similar action from other countries whose balance of payments was negative. That is why I should like to emphasise that, if we were in the position which America is in, the argument against a counterinflationary policy at this moment. having regard to the possibilities—if no more—of a world economic recession. would lead me to oppose such a policy at this time. But in our case not only is the case for it overwhelmingly strong, it is a compelling necessity.

What should that policy be? I am not going to attempt any general appraisal of what the Government are doing or intend to do, partly because I have not the knowledge of all the factors to which the policy must be adjusted, partly because the Government have not told us everything that they intend to do, and partly because the Government, to some extent, have still to develop their policy empirically in relation to any developing situation. I agree, however, with the noble Lord, Lord Pethick-Lawrence. when he speaks of the increase in the bank rate in itself as not being an adequate policy but as in the nature of an emergency action which should be brought to an end as soon as possible.

The noble Lord used a metaphor which I think was a little misunderstood by the noble Viscount, Lord Hailsham, when he spoke about a car being driven towards a precipice after having been hooting its way till the last moment. I should like to use the same metaphor but slightly changing it. I think the clamping on of a high bank rate recently was like the action of a driver who has been taking the wrong course (when I say a "driver" I do not mean just the Government; I mean the whole of our economy in which the Government have a part, an important part, but a part only), finds himself on the edge of a precipice and then clamps on the brake, at the cost of considerable discomfort but so avoiding disaster for the moment. That action is necessary and, in the particular case of ourselves, has averted the immediate danger. I am very glad that it has. But it is neither a solution nor action that can, without loss and disaster, be continued for a very long time. And it is no alternative to other forms of counter-inflationary action of which some suggestions have been made to-day.

It is too big a question for me to attempt to propose a general policy at the moment, but I agree with the noble Lord who has just spoken that an increase in the bank rate is not a precision instrument. I do not think he suggested any alternative instrument that was more of a precision instrument, certainly not physical control of imports whose abolition he appeared to regret. There are a number of things which could be done which together I think would make a policy which would make it unnecessary to retain so high a bank rate for any very long time. I notice that Sir Frederick Leith Ross, in a striking article in the Financial Times, suggested that we should so arrange our policy that we can reduce the bank rate within a period of something like two months. I thought that reasonable, but it will be extremely difficult to do. We have very real and widespread fears that whatever we may want to do and to avoid, the £ might again be devalued. Directly that fear arises, for any kind of plausible reason, you have not only the whole forces of speculation against you, but what is normally much more important, the decisions taken by people who in the ordinary course of their business—buying and selling materials, entering into contracts of one kind or another, in one currency or another—have to form a view about the future value of the currency, not because they are speculators but because they must do so to run their current business.

It is true to say that in normal circumstances the speculator, the "mere speculator", as he has been called, who is just attempting to make a profit by guessing what is going to be the future of a particular exchange, is only like a jackal scouting about ahead of a much more formidable creature—the ordinary trader—behind him. This individual would not normally do very much damage, or be dangerous himself, but for the existence of the more formidable creature behind. But when the reserves of a country are as weak in relation to the stresses upon it as ours are, when future policy is uncertain, and the future course of our economy is as difficult to foresee as it has recently been, even speculation by itself may be a very dangerous force in anticipating, in accelerating, in aggravating and possibly in causing, disaster, as I think those of us who remember the history of the French franc after the First War will agree.

I have only one or two further comments that I should like to make. I think that every speaker has said that to tackle our problems successfully we need a united nation and that it is essential that there should be something like an agreement between the forces of unionised labour and Government policy. I do not think that all the real difficulties of securing such an agreement have been stressed. I am not going to argue now whether some things recently said have increased the difficulties or not, but I do not think it is quite fair to speak as if those in the separate unions who are now engaged in dealing with wage demands are abusing a privileged position if they do not have so much regard to the interests of the country as a whole as to what, after all, is their immediate task, that of looking after the interests of their own members.

The essential difficulty—and this is no disparagement of those now engaged in leading the unions, whether centrally or in particular areas—is that effective trade union policy is made by the separate unions (if not, indeed, by shop stewards and others against even the local trade union leaders), and there is no effective guiding and controlling influence by the trade union world which gives the essential views of the leaders of the trade union world of what would be the interests of trade union members as a whole. That is something which cannot be dealt with by short-term measures, but in the long run the trade union world will need to develop an organisation which enables it to have an effective responsibility commensurate with the power of unionised labour.

Such an organisation does not exist at the present. The leaders of the Trades Union Congress may take the most reasonable view of what would be in the interest of their own members, but in fact they do not effectively guide and control the negotiations in the separate unions. I believe that if there were central and efficient collective authority in the union world, because the interest of the union members, though not identical with that of the country as a whole, is so nearly coincident with it, our problem would be relatively easy to solve. But we are at the moment a long way from that. However, this is too much of a long-term matter for further discussion this afternoon. I have put it before your Lordships at greater length on other occasions. This afternoon I have attempted merely to throw out a few comments upon the actual proposals and arguments that have been used by those who have preceded me. That is the reason that what I have said has been, I fear, so inconsecutive and fragmentary.

5.54 p.m.


My Lords, the experienced and fluent analysis by the noble Lord, Lord Salter, has followed many other speeches of a high order which give this debate an authoritative character. At this stage of the debate most points one wished to raise have been adequately covered by other speakers. I would particularly refer to the noble Lord, Lord Brand, who made a contribution from his long experience to which it was a privilege to listen and which merits being widely read.

I admit my own perplexity. If I may have your Lordships' indulgence to try to describe the situation in a somewhat lighter vein, I would describe it as being like a horse race where in front of the body of the field we find a horse called Inflation with, a little behind the field another called Deflation and among the field itself a horse called Wage Demands. In sporting parlance Inflation should "come back to his horses," Wage Demands should have an even chance, and Deflation should catch up with the main body but not advance beyond it. There seems to be some perplexity about what the rest of the race should be. For myself, I am entirely confused and I suspect that there are a great many industrialists who are likewise.

We have had pronouncements from various Ministers but they have seemed insufficient. Fortunately, we heard yesterday from the Prime Minister what seemed to me to be a clear definition and we are indebted to him for it. But many of us feel that the measures taken to date will not suffice. There are many who suggest that the first thing is to reduce Government expenditure. I remember that in the discussion in your Lordships' House before we rose for the Summer Recess it was suggested that we needed another Geddes Committee. I was interested to see that this suggestion found support from no less an authority than Sir Frederick Leith Ross, formerly of the Treasury, to whom the noble Lord, Lord Salter, referred. That appealed to me as a very desirable suggestion. The Government would then decide which saving recommended should be selected.

There have been several references to the nationalised industries and their ability to withstand wage claims made. This is another instance of the unfortunate decision to transfer the financing of the nationalised industries from private finance to reliance upon the Treasury. There is psychological effect in the necessity to present a picture of current achievements when seeking funds from the market, even if they carry Government guarantee.

The noble Lord, Lord Balfour of Inchrye, appealed for moderation in speeches. Certainly the tone of his speech was conciliatory, giving us an admirable lead. Among other things, he referred to the need for limitation of dividends, carrying with it the suggestion that profits should be curbed. But, surely, if earnings are not adequate, how are industrial companies, in going to the market, going to secure resources to buy new equipment, which alone will keep them up to date and give proper conditions of employment to their workers? Some suggest that there is need to decrease home consumption and so to make more savings available for investment—and I will return to that point in a moment.

The noble Lord, Lord Pethick-Lawrence, emphasised in his analysis of the effects of the high bank rate how it was burdening our balance of payments through the greater interest on sterling balances here and also the increased rate paid by the Treasury on its short-term indebtedness. I repeat that there are many who feel that stronger measures are necessary and that this will compel considerable unemployment. It seems hypocritical to pretend that we can get real correction without producing considerable under-full-employment.

For industry to enjoy the highest production there must be no increase of cost; that is to say, there must be no wage advances unless they are associated with increased production. In many industries the necessity is to work two or three shifts, which means that instead of machinery being employed for only eight hours a day it should be employed for sixteen or twenty-four hours a day. That would require some modification of the Factory Acts. At the moment there are many unions which resist either overtime or two or three shift operation. In both the highest standard of living countries, like the United States, and the lowest in Europe, like Italy, habitually three shifts are worked. It is hard to see from that how it can be suggested that the social conditions in this country ought not to be aligned with what is done in other countries. if progress is to be made on re-equipping industry, the initial allowances and depreciation rates should be more generous, otherwise the national equipment will run down to the disadvantage of labour. A third point, following the suggestion that we should consume less at home, relates to a general sales tax, which would deflect from domestic consumption to export.

I cannot refrain from quoting from The Times of last Saturday, when it referred to the uncertainty aroused by current wage claims. It said: The foreign operator is obviously watching the trade union attitude to the Government's new measures fairly closely… the speeches of trade union leaders are now being studied with great interest in Zurich and other centres … it is the issue on which the pound's future will be eventually decided. I refer to the commodity situation, mentioned by the noble Lord, Lord Brand. Judging from the prices to which many commodities have fallen—copper, tin, rubber, tea, cocoa, and particularly wool—I think it is obvious that the primary producing countries' income must be so reduced that exports from this country will be gravely imperilled.

While to-day the debate is confined to the economic side, and to-morrow will deal with overseas affairs, I want to say a word about migration to the Commonwealth. I fervently believe that a steady outflow to maintain the British "content" of new arrivals in the Dominions is essential to maintain the inclination to "buy British" when imports are negotiated. Sentiment in Canada or Australia will inevitably influence buying decisions. This fad in the value of commodities may well compel the receiving countries, particularly Australia, finding themselves short of the necessary savings to finance an inflow of migration, to impose import restrictions to protect their balance of payments.

Returning to the general economic position, I should say, in conclusion, that noble Lords on the opposite Benches, members of the Party not called "Socialist" but "Labour", must have great influence with trade union leaders in this country, and they can rightly explain the illogicality of demanding shorter hours or resisting the revision of trade union practices, and can in that way, with sound counsel, contribute much to the peaceful solution of industrial problems.

6.10 p.m.


My Lords, I believe it is customary after six o'clock in the evening to refer to "this late hour"—




—so I shall be as brief as possible. There are three points in the gracious Speech that we heard yesterday afternoon on which I wish to speak. First, I would refer to that part of the gracious Speech which speaks of the need to preserve the economic basis of full employment by restraining inflationary influences. I do not think it will be disputed that the general public are confused and dismayed by the economic position of this country as it is now being presented to them. Since 1955 we have had a regular series of crises, each appearing more grave than the last. I believe that this country reacts better to the truth, particularly if it is in a language the people can understand. But to-day we find a country which is bewildered and divided. This situation cannot continue. If it does, we shall fail to mobilise our full resources and thereby risk the loss of our high standards of social security.

The Government, to whom the people look for guidance, must be consistent in their statements. It is no good claiming success and prosperity one moment, and the following month telling the people of the serious inflationary tendencies which have been brought about through overindulgence. I do not believe there is any useful purpose to be served in exaggerating our difficulties, but I believe it would be a greater disservice to attribute our present difficulties to any one section of the community, as is being done at present. Inflation is being largely attributed, by Government spokesmen and by the national Press, to continued selfish demands by the workers. A Government spokesman was reported in The Times of last Monday as saying that there is a faint suspicion that the Socialists would like to see a little industrial strife if it would help discredit the Government. The trade union leaders and members of the Labour Party rejected many years ago industrial action for political ends. Our position, I believe, is sufficiently grave without any incitement or provocation to industrial strife. All sides of industry, political spokesmen, and particularly, I believe, our national Press, who enjoy great freedom, should recognise that we are now going through a period when great responsibility on all parts is called for.

The gracious Speech gives us little indication of what is the long-term economic policy. In fact, there is hardly any mention of the need for a great increase in our exports. As we move from one crisis to another, each is met with emergency treatment, with much the same medicine, except that it is in stronger doses. We fight a tactical battle close at hand whenever the emergency arises, but there is no indication that we are getting to the root of our problems. The present "medicine" is the 7 per cent. bank rate, and a tighter credit squeeze. What most people are asking to-day is how long we can afford this high bank rate and, above all, what will occur to our economy when the bank rate is reduced and if it is not replaced by some measures which will hold inflation in check.

The high bank rate was once described in your Lordships' House as a blunt, rusty sword. It hits at everyone—the manufacturer producing entirely for the home market, and the manufacturer and merchant who are struggling to maintain our position in the world export markets in keen competition with our main competitors. I hope, both for the sake of our manufacturers who are doing their best for exports and for the sake of the merchant, for an early reduction in the bank rate. It must be replaced by a policy that will channel our efforts into these export markets. It is only through the development of these export markets that we can ensure increased productivity and the lowering of our production costs. The Government have pointed to our continued increases in exports, but the present rate is far from sufficient. I believe, too, that our exports are far too dependent upon those markets where we have preferential treatment—Australia, New Zealand and South Africa. I believe that it is vitally necessary to expand our trade in Europe and America.

To-morrow there is to be a debate when trade in Europe will be discussed. I would ask your Lordships' forgiveness if I speak on that subject now, because I do not wish to speak to-morrow. As your Lordships know, there is a certain nervousness in this country about our participation in the European Free Trade Area. After careful consideration, I cannot see that there is any answer for us other than that we must enter the European Free Trade Area; for apart from obvious trading possibilities, the political aspects also play their part. If we stay out, Germany will dominate Europe; and clearly we cannot afford that. Apart from that, such domination would eventually effect our own position in our present export markets.

In connection with the European Free Trade Area, I believe that what is most vitally necessary is that we fully mobilise ourselves now to take immediate advantage of all those large and important markets. We just cannot afford to delay. We must start now. We must be in a position to deliver the goods. This will mean a considerable increase in our productivity, for Europe, like America, will expect immediate shipment on order. I see that I have spoken far longer than I had intended, but I believe that this European Free Trade is a great challenge to us. It is a challenge rather similar to that given in days long ago, when our merchant adventurers went across the seas to the Far East. If we do not take advantage of this challenge, I think the consequences will be serious for us.

Before I sit down, I should like to refer to the question, mentioned in the gracious Speech, of Singapore. I was recently in Singapore, and I must say that I was gravely disturbed with the conditions that I found there, and in particular with regard to internal security. Whilst I believe that great credit should be given to Mr. Lim Yew Hock and his Ministers, the Communist infiltration in the schools and in the trade unions is very grave. I should like to ask Her Majesty's Government whether they can give us an assurance that, when they bring the Bill to this House and to another place, they will give us ample time to consider all the implications. Apart from the people in Singapore, who have to be considered, there are people in the Federation of Malaya and in the other S.E.A.T.O. countries. I hope that Her Majesty's Government will give us that assurance.

6.20 p.m.


My Lords, I could not disagree with most of what the noble Lord, Lord Shepherd, said, and therefore I do not propose to follow him in his remarks. Our crises are generally of two kinds: of balance of payments or of confidence; and fortunately this time it is a crisis of confidence only. If we were talking of a crisis of balance of payments at a time when world trade had been booming, indeed our future would be very dark. As my noble friend Lord Brand remarked, the reserves are just not big enough to counter the changing of the sterling balances into other currencies, such as India has been doing on a very large scale and looks like doing again shortly, and at the same time act as a counterpoise to what is described as speculation but is very often normal trading activity. As a former merchant, I can only suggest that the majority of the merchants of the world to-day would be more likely to be short of a pound held at a fixed level than to be long of it. I do not think it is right to measure the crisis by the amount the reserves fall, or vice versa, because many of these balances are undoubtedly balances of the moment that flit here and there, and they do not count one hundred per cent. in a division.

This problem has been with us for several years, in fact ever since the war. As a matter of curiosity I looked up what. I said when I last had the honour to address your Lordships in an economic debate, over four years ago, and I found that I made almost exactly the same speech as I am making to-day. The problem is how to remedy the situation—and here I depart slightly from agreement with my noble friend Lord Brand, because I do not believe that it is realistic to think that we can achieve great surplus trading balances, and translate thorn into some desirable form of currency. I say that for this reason: so long as we remain the banker of the sterling area, and a great exporter, the pressure on us to lend is almost overwhelming. Only too often, I am afraid, it is to lend long what we have been borrowing short. To illustrate my meaning, look at how the Finance Minister of India has been globe-trotting in search of funds. We are the people to whom he first turned. We are the people who should have been able to provide them, but we have not sufficient surplus to do so. Then again, with regard to lending to foster our export trade, I read that we had secured a great contract in the Argentine, but only by giving many years' credit. That is an investment to foster our trade for the length of the payments.

I can see only three real solutions. The clean solution is a realistic price for gold. I get a little impatient when I hear people dismissing that automatically because we know the American prejudice against that idea. My noble friend has mentioned one prejudice, that it would mean debasing the dollar. I have always heard that there was another equally strong one, that it would mean increasing the economic power of the second biggest gold producer in the world, which is Russia. But it is not much good allowing one's friends to sink for fear of doing a favour to one's enemies. I believe that we ought to lose no opportunity to "plug away" at the Americans the whole time to make them realise that until this question of a proper price for gold is resolved there will be this permanent imbalance in the world; and, moreover, the outside world is going to cost their taxpayers an enormous sum of money in gifts and loans and so on to create a balance.

I wonder whether the second solution, which is the curtailment by ourselves and by the whole of the sterling area of American imports, is quite so impracticable as my noble friend the Lord President suggested. I should have thought that a tentative embarkation on a policy of that nature might well lead to results in the field of the revaluation of gold. I can see no justification for our spending enormous sums of money every year on American tobacco, though tobacco can be grown in the Empire, when at the same time our reserves of dollars are so small that we cannot properly defend the pound. The third course is one which sounds almost unthinkable to us, and that is to give up being banker to the sterling area. I think that would have very grave and unpredictable results to our export trade. It would be a terrible shot in the dark, but it is a solution to which we might be forced if other things were not found. I am afraid the solution of the Opposition, that of exchange controls, I cannot accept as a real solution, because I think history has shown that you cannot get a real system of exchange controls unless you are prepared to have a postal censorship; and even then it has to be reinforced by a firing squad if it is to be 100 per cent. effective.

If the reserves of ourselves and the sterling area are inadequate, we must obviously employ them to the best advantage. That means that our way of living must create the confidence of our creditors. One method of doing that is to preserve a high rate of investment, because a high rate of investment gives them promise for the future that Britain will be economically prosperous. We have been trying to do this, of course, for years, but the trouble is that the resources were just not there to do what we wanted to do. We had to look after consumer expenditure in this country, private capital expenditure, Government expenditure, and Government capital expenditure; and somehow or other the total of those four always exceeded the resources available to meet them. Attempts to make a hole in any of them, to make the pattern fit, have always failed; and so we have had inflation.

The economists and the Treasury experts have attempted to make the pattern fit by reducing consumer expenditure by taxation, but I think history shows us the folly of that. By so doing you "soak" the pensioner, but everybody else in the country goes on strike for more pay to pay the taxation. Private capital expenditure is so important for the future of this country that one does not wonder it has been difficult to keep that down sufficiently. All Governments say that Government expenditure cannot be reduced, and Government capital expenditure is the very infra-structure of future prosperity. So it boils down to four sections in the economy, none of which can be reduced. And the result is that over the years we have inflated the resources to meet the demand. To-day, wage claims take the headlines. I agree that wage claims act as a sort of rocket booster, but they are not by any means the origin of the inflation. The inflation started with Doctor Dalton and devaluation and this perpetual policy of trying to buy more resources than really exist in the country.

If we can halt the creation of new money, that means that we must either have less investment or else we must save more. Therefore it follows, as a corollary, that one of the best ways to inspire confidence in the pound would be to save more. There is not a great deal involved in that classic "sixpence in the pound" of which we have heard before, but a 2½ per cent. switch from consumer consumption to capital resources would probably just about do the trick. But such an enormous proportion of our capital expenditure has to be invested by the Government that a large proportion of the savings of the country must be lent to the Government, and all round we have been seeing the exact opposite. This inflation has been brought home to the people in the cost of living.

One of the Chancellor's greatest worries must be the fact that he cannot borrow genuine savings. We have seen the evidence of this in the disposal of Government stocks—the portfolios of insurance companies, investment trusts, and all sorts of property owners have seen a reduction in their holdings of Government stocks. As a sign of the times, I may remind your Lordships that next week we in the Church Assembly expect to pass the final stages of a Measure which, if passed into law, could result in many millions of pounds of Church funds passing out of Government stock into various other forms of investment. With this background, it is vital that the Chancellor should make Government stock once more a desirable holding.

He has been criticised a great deal for the bank rate. I think that the criticism is unjustified. After all, he is dealing in that scarcest commodity in the world to-day—genuine savings. The world is crying out for capital, and the people of the world are just not saving sufficient to satisfy the need, and the difference is being made up by printing presses everywhere. If the presses stopped, then the demand must fall on an inadequate supply, and therefore money must be dearer, irrespective of what the Chancellor does to the bank rate. After all, 7 per cent. less 8s. 6d. in the pound—that is, 4 per cent.—is not all that generous a reward for frugality. Still, we do not want 7 per cent. for ever. And if we do not print money we must save money, and the Chancellor must somehow produce an atmosphere which would encourage savings.

At the moment the atmosphere is very much the reverse. We have been passing through the intoxication of a trade boom, with profits easy and wages mounting. The atmosphere has been one of prodigality rather than frugality. By the incidence of taxation the Chancellor is the major partner in every financial decision in trade and industry in this country, ranging from about 60 per cent. in the public company up to as much as 92½ per cent. in some firms and partnerships. I may say, in parenthesis, that in such a partnership the cost of an overdraft would be less than 1 per cent., and in this atmosphere only the best is good enough for the firm when the Chancellor pays most of the Bill. Why stop at a Ford if the Chancellor will stand you most of a Bentley?

Then, when we turn to the individual, we find that the individual at the top sees an almost absolute ceiling on income. He is rather like the consulting engineer in the Conan Doyle story of the engineer's thumb, where the lift is going up the whole time but the top of the press is immovable. Measured in pre-war pounds, the ceiling is a very low one indeed. Many people are not prepared to go on successively paring their commitments the whole time. The result is that they have to find other methods of ekeing out their living, other than by a genuine income. Some live on capital; some put down to farm and firm expenses which their grand-fathers would have paid out of their own pockets.

The result is that over the whole of industry and private life at the top there is a general lessening of the control of expenditure and the exact opposite of an atmosphere of saving. In the middle incomes, saving is done to a certain extent by life insurance, but lower down the National Savings Movement makes a pretty dismal picture. I doubt whether its net efforts offset the dis-saving of the better-off caused by over-high taxation. Just as people at the top live on sales of capital and expense allowances, so lower down they live by borrowing money on the hire purchase system. In a nation that spends its time "keeping up with the Joneses" a wrong atmosphere at the top speedily transmits itself all the way down to the bottom. We have a wrong atmosphere at the top caused by a ridiculous rate of taxation of income in the higher brackets—up to 92½ per cent. This mistaken policy has been built into our economy as an automatic inflator by many successive Chancellors.

One can attack inflation in various ways; taxation and savings are only two. But the overall aim is quite a simple one: to create a reduction in demand on our resources to the level of the actual resources. I hope that the measures which the Government are proposing will do this and that they will once more do what the Chancellor has described—make our money honest. Then Ministers can go with a clear conscience to the people and ask them to save for their old age. Savings in Government stock are one of the chief keys to our situation, because without them we cannot pay for the infra-structure of prosperity unless by using a printing press. As the result of two wars I believe that we shall always have to contrive our way through the world with inadequate resources. But if the world sees us maintaining a large programme of expansion based on genuine savings, we shall be able to face any lack of confidence which arises with calmness. The first step to take is to make people believe that when they lend money to the Government, the Government will repay them in the same coin.


My Lords, may I ask the noble Lord this question? He said that if a Measure is approved by the Church Assembly this week, it will lead to the sale of a quantity of Government stocks. Did I hear that correctly? Is it not the position that since the amalgamation Measure the Church Commissioners could sell Government stocks? If I am wrong in that, surely before the Measure becomes law it will require the Affirmative Resolution of both Houses.


My Lords, I intended to say "if passed into law", and that covers the noble Lord's second point. In reply to his first point, I may say that this proposal covers a large area of trusts and funds at present in the hands of dioceses and parishes which at the moment are not the concern of the Church Commissioners. It widens the field.

6.41 p.m.


My Lords, we have had, as is usual in this House, a very interesting debate and one that has cut across ordinary Party questions. We have just been listening to what I thought was a most interesting speech from the noble Lord, Lord Hawke, particularly with its ending on the question of savings. I had not intended to deal particularly with that subject, as it has been so adequately dealt with by the noble Lord, but it may be of interest to him and other noble Lords to realise that since the end of the war the immense figure of £2,000 million has been taken in death duties by successive Governments. I am quite impartial, even though I sit on these Benches, in saying that one Government is equally to blame as another.

I had intended to back up any pleas made this afternoon to lift the question of inflation out of Party politics, if that is possible. In Her Majesty's gracious Speech the words used were: My Government believe that these are purposes which should command the support of all sections of the nation. Those purposes are to maintain the value of our money and to try to conquer inflation. I should therefore like to say that I deplore speeches from either side which tend to inflame either wage-earners or Her Majesty's Government; and I hope that, if possible, leaders of trade unions and of the Government will be rather more careful of what they say than they have been in the last few weeks. The question of inflation is even more important than other questions which are regarded as almost non-Party—foreign affairs and agriculture. There is a great measure of agreement on both foreign affairs and agriculture, and I suggest that there should be a greater measure of agreement on how to combat inflation than there appears to be at the present time.

On the question of high money rates I am personally wholeheartedly on the side of the noble Lord, Lord Pethick-Lawrence, and I agree with what was said by the noble Lord, Lord Latham, about London County Council borrowing money at high rates for a great number of years, because that must itself cause inflation. If the rates in the area of the London County Council go up, that will add to the costs of business, households, and everyone living in the County of London. I have worked out these figures, which I have given before: if a council, whether a big council, as in London, or a small rural district council, wishes to build houses, the difference between borrowing money at 4 per cent. and borrowing money at 8 per cent. means 35s. a week on the rent, Who has to pay that extra rent?—the worker living in the house; and it is no surprise to me, at any rate, when he asks for extra wages in order to pay the rent. It is quite obvious that he will do so. I deplore high money rates if they last too long.

As I am not an international financier with the knowledge of the noble Lord, Lord Brand, I cannot speak on the international implications of a 7 per cent. bank rate, and I am glad to see that the pound is now in better shape than it was before that increase in bank rate. But I cannot help feeling that this medicine, while it may be all right if it is strenuously applied for a short time, will, if it goes on for a long time, have a very bad effect on industry in general. I know of one company (which must remain anonymous) which produces electrical equipment and does a lot of Government work. I was told that the additional interest it has to pay, through the raised bank rate, on its overdraft—which it uses quite legitimately for carrying on its work—may be more than £300,000 a year. That must mean that its costs are raised, and when this company does work for the Government or private industry its costs will be higher, thus causing further inflation.

I wish that all political Parties could get together on the question of inflation and work out any common ground they have. On the question of the bank rate, for example, the Government of the day—whether it be a Conservative or a Labour Government—will have to decide whether or not this high rate is a good thing if continued for a long time. I heard the noble Lord, Lord Latham, say that since the Conservative Government came in, in 1951, there had been fourteen different rates for loans to local authorities. That is not good for industry, and I say that although I speak from these Benches. Her Majesty's gracious Speech says the proposals "should command the support of all sections of the nation" and I feel that all Parties should somehow get together to see whether there is any common ground as to means by which inflation can be fought.

The next question I should like to tackle is high taxation. I always imagined that what I might call the "obsolete" Treasury view is that if we take by taxation a greater proportion of the income of the inhabitants of this country they will have less income to spend, and therefore their smaller income will chase fewer goods and inflation will thereby be fought. I believe that that view has been proved to be not only obsolete but absolutely wrong. In his Autumn Budget in 1955, Mr. Butler put increased purchase tax on pots and pans. That was known as the "pots and pans Budget". I thought it was completely wrong at the lime, and I was quite sure that it would cause further wage rises—which it did. 'That Budget asked for wage rises, and it got wage rises.

I believe that if the working man's weekly budget is increased it is quite reasonable, particularly in a period of over-full employment, that he should ask for more wages; and in a period of over-full employment he always gets them. If there was unemployment, it would be quite possible to resist a claim for a wage rise, but in over-full employment the worker will get a rise every time, in order that his wife and he himself should pay for Mr. Butler's increased purchase tax on pots and pans. In that case purchase tax is undoubtedly a great contributory factor to a higher cost of living; and a sales tax such as is suggested would similarly be a contributory factor. fn fact, all forms of taxes—on whiskey, cigarettes, beer and everything else—are factors contributing to make life more expensive, and they all make the workman want more income with which to pay for them.

There is another question. Like many of your Lordships. I am connected with industry and agriculture, and I believe there is no doubt that when an employee looks at his weekly wage packet he does not really care whether National Health Insurance takes 5s. 9d. and Pay-As-You-Earn takes so much more. He is interested only in the net amount that he can take home to his wife. To him that is the only thing that counts, and it is absolutely right to say that Pay-As-You-Earn, National Health Insurance and all such charges on the wage-earner's pay packet add to the cost of production. The money from Pay-As-You-Earn may go to the Government, who may spend it wisely or unwisely; but it all adds to the cost of production.

If I may take an instance at the other end, we have heard that executives of companies and well-known scientists have to be paid high salaries in order to attract their services—and in my opinion they really earn those higher salaries. If an executive of a company is given a gross salary of £10,000 a year, which is the same salary as the Prime Minister gets, he pays £5,659 5s. in tax, leaving £4,340 15s. I have calculated for a single man only because it is very difficult, with all the different children's allowances, to calculate for a man with two or three children. But that means to say the executive's pay packet, if I may so call it, is £4,340 15s. a year, and not £10,000 a year. If that employee of a company does particularly well, and the directors wish to reward him, then in order to give him an extra £600 net salary a year they have to give him £5,000 a year extra gross income. That amount adds to the cost of production of the company, and means that their goods are more expensive and that they will probably be able to export less. I feel that this question of high taxation is quite definitely inflationary. It is one of the chief reasons why in future years, if other countries such as Germany, Italy, Japan and so on, beat us in export trade, it will be to a quite considerable extent due to the high taxation of British industry.

My Lords, there is one other criticism I have of the gracious Speech. It is that the Government's panaceas or remedies for inflation are largely negative. A 7 per cent. bank rate is negative; high taxation which has not been reduced is negative, and high expenditure goes with high taxation: the two go together. I feel that what we want is to be able to increase production at lower cost. But, of course, if we increase production it is quite useless doing so unless we can sell our production, either in this country or in foreign countries, and we get back again to this question of the high cost of production. If our costs of production are too high we cannot sell our exports in other countries. I feel, therefore, that these questions of high taxation and a high bank rate are two questions which should be looked at from an all-Party point of view, rather than from the point of view of just one Party or the other. I do not know whether my hopes are too high, but I feel that inflation should, if possible, be put on the same sort of basis as foreign affairs, and I should like to see the Prime Minister—I think he is the only member of the Government who can make such a suggestion—call a conference of leaders of political Parties to go into this question.

6.53 p.m.


My Lords, I think it is generally agreed on all sides of the House that in the inflationary field this country is in as great a danger as it was in the military field during the war. During the war when this country was in very grave danger her people rallied round and, by a magnificent war effort, saved her. They did this through their innate and deep sense of patriotism, but also because they felt they were fighting for a better world. Another thing was that we had a policy of fair shares for all. After the war, due to the Labour Party, we had what has been called the "Silent Revolution" and that policy was continued. Since 1952 we have had what I think future historians will undoubtedly refer to as the "Counter Revolution". The gaps between the classes, the financial gaps, have been widening, and the policy of fair shares has been thrown overboard. All appeals for classes to tighten their belts, and to organised labour not to make any further wage demands, have been directed purely at organised labour and at the working class. I have never seen any appeals to the richer classes in this country to cut down their expenditure, which not only contributes to the inflation but, I think, is psychologically very bad, as it provides a bad example.

In fact, all the Government seem to be able to do is to say to organised labour and to the working class, "You have never had it so good." Because, for the first time in their history, the working class of this country have at last succeeded in gaining a moderate standard of living, they are told, "You have never had it so good." Of course they have never had it so good. It is rather like a bad landlord, if I may use a mythical example, who has neglected to repair the roofs of his tenants' houses and is eventually induced to do so, turning round and saying, "You have never had it so good."


"You have never had it so dry."


Of course they have "never had it so good" when their position is compared with that in which there were two million unemployed before the war. But we on this side of the House hope they will have it a good deal better.

Why is it always the working classes in this country who have to be the ones to tighten their belts and not put in any more wage claims? I agree that these wage claims are a very important contributory factor to the inflationary spiral; but I think it would be equally desirable if the Government would make an appeal to the so-called upper classes of this country to curtail their expenditure. How is it possible for organised labour to feel that they are still getting a fair share when one sees London full of large and expensive limousines, and large hotels in this country full of people having expensive meals, on expense accounts, when it is possible for somebody to spend on one night's party as much as would keep, say, ten families in comparative comfort for a year? I think it would be agreed that this expenditure by a comparative minority does not have a very great effect financially on the inflationary spiral, but I think that its psychological influence is almost incalculable, and that is why I hope the Government will take it into account.

When I speak of people giving a bad example I do not mean that this by any means applies to the great majority of those in the upper income brackets in this country; but there is a small minority who are not, I think, behaving in the way that they should. I hope that the Government will make an appeal not only to organised labour but also to every other class in this country, so that together we can defeat this grave threat to our economy.

6.58 p.m.


My Lords, I think we must agree that to-day, at this stage of our discussions on the loyal Address in reply to the most gracious Speech from the Throne, we have had a very interesting, and I hope profitable, debate, with speeches from all parts of the House. We are once more indebted to my noble friend Lord Pethick-Lawrence for an introductory speech which made quite certain that the debate would be interesting. His survey of the situation, and the specific reasons he gave for his views, as well as the questions he asked, made quite certain that the debate would be interesting and I am once more indebted to him for the manner in which he introduced the discussion this afternoon and for the excellence of the quality of his speech.

I hope that the noble Lord who is going to reply on behalf of the Government in the final stage will, whatever else he cannot cover, in replying to my noble friend Lord Pethick-Lawrence, answer his first point about the cost to the Government of the borrowings during the time of the high bank rate. Although a certain opinion has been expressed by the noble Lord, Lord Brand, one knows that there is a difference between schools of economists with regard to the present inflation; they differ as to whether it is "wage cost inflation or" upon demand inflation. The noble Lord does not seem to think that there is much difference between them. I should like, however, to have an answer from the Government Front Bench upon this point. Lord Brand, I know, has had great experience himself, and has at his disposal the knowledge of nearly all the greatest economists in this country. None the less, I should like to have the answer from the Government to my noble friend's question.


I should like to say that I have never discussed the question with a single economist up to the present time. I have read some of their documents but I have never discussed the matter with any of them.


I did not intend any reflection on the noble Lord. I have known him for many years. I recall the old days at Chatham House, and I know what resources he has behind him in this connection, what economic advice he can call upon at any time if he needs it.

I was very much interested in the speech of the noble Lord, Lord Balfour of Inchrye. We can both look back on long years of political cut and thrust, both here and in another place, and I must say that I thought he made a statesmanlike speech to-day. Coming, as it did, from the Conservative Benches, I was greatly interested in it. He struck a note which has been sounded by other speakers on the Government side. He asked for tolerance and the largest amount of co-operation that can be achieved between different Parties and interests in the country in order to deal with this terrible problem of inflation. Of course, I welcome very much the manifestation of that spirit, but I think we should be less than frank if we did not seek to show that we in the Labour movement have been rather put in the dock by statements made by Ministers and others in the Conservative organisation.

We have been treated as if we were in some way responsible. It was even suggested that there was some kind of conspiracy between the political side of our Labour movement and the industrial organisation. To make such suggestions is not a good way to start a "get-together" and to enlist co-operation. So, whilst I say at once that I welcome very much the changed tone heard in the speech of the Lord President of the Council to-day (it was very different from some of the statements to which we have listened in the past, although he claims he has not always been fairly reported, and that may well be so in the modern Press) I feel bound to say that one of the most bitter periods of this foreshadowed controversy—for in the past it has been foreshadowed—came at a very early stage in our debate last July.

On that occasion the Lord President (as recorded in Column 344 of Hansard for July 30) devoted a whole paragraph of his speech to an attack which was clearly intended to be directed to the leader of the Transport and General Workers' Union—the largest trade union we have. He certainly used terms and phrases which were inappropriate. I am not going to quote them at length, but I just cite this passage [OFFICIAL REPORT, Vol. 205 (No. 98), Col. 344]: It is here that I come to some recent statements out of doors by a trade union leader who has been widely reported. I am bound to say that he has not, so far, thought it expedient to bear the burden of Parliamentary responsibility. My Lords, that is not the way to achieve a "get-together." The target of those remarks was the leader of the greatest trade union in the country, the largest and one of the most powerful—a union extending into a great many industries. If we are to get anything like the right spirit of good will and co-operation there must be a different approach. So I welcome the improved tone used in this connection by the Lord President of the Council to-day.

Nevertheless, it would be wrong for us to leave the House with the impression that all the fears in this matter expressed by Lord Pethick-Lawrence have been allayed. In the circumstances there is bound to be a lack of confidence on the part of leaders of the trade unions and large numbers of their members by reason of the follow-up of earlier conversations, statements and comments, by the action of the Minister of Health in dealing with the award of the Whitley Council. There is bound to be a lack of confidence. I was responsible, as county branch secretary for Somerset of N.A.L.G.O., in 1920, for getting what I think was the first county Whitley Council set-up. It had great influence on relationships at that time. May I say, frankly, as a Labour man, that I think there was a fine example of intelligent dealing with the situation as it was at that time by a Conservative county council. I never once knew in the course of the negotiations and discussions arising from that Whitley Council, a case in which the actual recommendations of the Whitley Council were turned down by the local authority.

If the Government now are going to take the line that there are special circumstances in the present case, because the money comes from the national finances, and to maintain that they were not really directly represented (of course they had their representatives on the body but they were not in a majority), it means they are giving a very bad lead in a campaign designed seriously to improve co-operation between industrial representatives and those responsible for the national economy and the prosperity of the country at large.

I feel greatly obliged to my noble friend who spoke last for the comments which he made. He has spared me the trouble of saying something on the subject of the principle of equality of sacrifice being exercised in present circumstances. But let me just say this. There are some people who have what I would call "temporary money" in investments. Whether those investments are "blue chips" or not, if they follow the details given recently in the Financial Times I think they will see that there has been a drop, on the average, of about forty points. There must be people on that side of the House who, if they have investments of such a character that they have been affected, have made a great deal of money, or, as is more probable, have lost a good deal owing to the fall in values. I therefore think there ought to be more support—though it is true we have had some from the other side of the House—for Lord Pethick-Lawrence's plea that there should be at the earliest possible moment some reduction in the present high bank rate.

A very telling point was made by the noble Lord who put before us the fact that in the last six years there have been great variations in the bank rate, up and down, up and down, so that many leaders of industry have not been able to assess exactly what their overheads would be in their capital expenditure. That relates especially to capital expenditure which must be made if the necessary stocks are to be available at any given moment to carry on businesses which nearly always have to be carried on upon a bank overdraft. It puts them in a most difficult position in assessing their actual liability for the coming year. I think that to rely upon the increased bank rate as one of the main factors for dealing with the stabilisation of the pound and attacking inflation is wholly insufficient, and brings hardship in many cases where hardship ought not to exist.

The hint has been dropped here and there by different speakers that this inflation has grown steadily from the days before 1951 and that the responsibility cannot be wholly placed upon the present Government, and I agree with that. Let us please remember that from 1945, when Lease-Lend came to an end, we had a state of affairs to deal with during the following few years which was very different from that which was visualised by the noble Viscount, the Lord President of the Council, in his speech. He seemed to think that when, in 1951, the Conservative Government came in, their principal task, their great problem, was to fight against inflation, not by a carefully controlled economy but by a "free-for-all." Although he did not use these common words, which are so frequently upon the lips of my noble friends now, that was what he said; and if your Lordships will read the report of what was said by the Lord President of the Council you will see his claims about abolishing rationing, letting people have what they want when they like, and all the red meat they want—taking off all the constraint aid control which the wicked Socialist Government had continued and always contemplated. Now the Government want to be able to say that after six years we "never had it so good." But we have never been in a worse currency crisis than we are in now.

It has been proved, to our satisfaction at any rate, that the general financial policy which has been adopted by the Conservative Government since 1951 cannot control the kind of situation that has arisen since the end of the last war. That is the justification for our criticism at all times of Conservative policy. In 1945 the Labour Government started from a literally bankrupt position, at a time when we had to turn over entirely from war production to peace-time production and restore export markets which were not there, and we could not do it without control. So long as we have the present debt of £30,000 million, let alone the other factors which have to be met by the programme which the Government have in view, it is quite impossible, especially out of the limited resources, to which the noble Lord, Lord Hawke, referred in his speech, to escape the crisis we are dealing with at the present time.

I would add to what my noble friend said at the end of the speech in which he opened to-day's debate that I would certainly take all necessary steps to tackle inflation and reduce its ill effects, and I would not hesitate to use control. But what will be the reply from the other side? They will say, "All that is old stuff. We are not having any of it"—not because controls were not effective, but because it is a political dogma which they cannot accept now after they have won power in two elections by promising the people all they could possibly want. 'They have been saying, "You have 'never had it so good'"; now they do not want to say, "You have got to have it worse." I think that that is a very inconsistent way of going on.

I am quite willing to talk to all my friends in the industrial labour movement on the evils of inflation and to reason with anybody, but I am bound to say that the case I have in my heart was never better stated than it was this after noon by the noble Lord, Lord Brocket. What counts in the working-class home is what finally gets into the working-class home to meet necessities. When it is said that wages have actually gone up above the indices of prices that are published, I find myself in difficulty in accepting that, because the usual run of experience of trade unions and their members is that wages always follow prices. The argument in the reverse direction that I have always put as a Labour leader over the last forty years is that when prices fall there is a grave lag in the corresponding fall in wages. It is very difficult to force the fall of wages in a falling price market without wide and deep disputes, but the general experience has always been that in a rising market wages lag behind prices.

I have read many economic articles on this question and it has never been proved to me conclusively that the incomes of the workers have been forging ahead of prices or ahead of real production. Therefore we must approach this matter with a considerable amount of restraint. I think I can speak for all my noble friends on this Bench when I say that we are certain that the consequences to our general economic life in this country and our markets abroad will be exceedingly serious unless we get greater stability. We are in favour of that. I have not the slightest objection to saying: "Let us unite so far as we can in discussing how this is to be brought about," but I would say, hacking what has already been submitted to us from the other side of the House by more than one speaker, and especially by the noble Lord, Lord Balfour of Inchrye: for heaven's sake, avoid statements on behalf of the Government which are calculated to produce a head-on collision with organised labour! There is no need for it.

If the Government would really get down to cases with the industrial leaders, I am sure, speaking from my experience of them right through the days when I have been connected with them, sometimes from the point of view of an employer in co-operative production, that if the Government are reasonable with the trade union leaders, they will be reasonable with the Government. Many of the men leading the trade unions who were called "Left Wingers" and "wild men" in the early days because they put forward just pleas on behalf of their members, when it has come to a question of sticking by and honouring a contract have stood up against all pressures—men like Ernie Bevin and Arthur Deakin; and other great leaders of the trade unions are today in no sense less earnest and responsible towards the commitments of this country, as well as to their own members, as they were then. If the Government want their co-operation they must go and get it in a responsible and decent spirit. I am sure that when the trade union leaders make all the contributions they can to the success and prosperity of the country, they cannot be expected to do it at the constant expense of the standard of living of their members.

I do not know how other noble Lords felt when the Lord President of the Council was giving us that rather long and technical homily on economics, but I will tell you how I felt. So many economists write as if human factors hardly ever come into economics at all. When a Government have to deal with it and try to put a policy on to a right basis, their duty in a modern age is to try to avoid at all costs the experience of 1920 to 1926, when the whole basis of the argument of the economist simply meant that you threw on the table as a counter, human life, the welfare, the experience, the blood and the sweat, the unemployment and the suffering of labour, without which you cannot possibly run your country. If you want to get that kind of thing put upon a right basis, I beg of you to approach the trade unions in the proper way.

7.21 p.m.


My Lords, my noble and learned friend Lord Hailsham has had to leave your Lordships' House in order to honour a public engagement from which he could not withdraw, and he has asked me to apologise to your Lordships on his behalf. I offer further apologies for my inadequacy in winding up this most interesting debate. As the noble Viscount, Lord Alexander of Hillsborough, rightly said, it is a debate that was bound to be interesting when it was initiated in such a typically calm and responsible way by our old friend Lord Pethick-Lawrence. At this hour of the night I do not propose to traverse familiar ground, but the noble Viscount, Lord Alexander of Hillsborough, will forgive me for reminding him, in reference to his speech, which certainly we all on this side enjoyed, that controls did not stop us having three financial crises, and devaluation, between 1945 and 1951. I should like to offer one or two brief observations on the theme that has been running through the debate, and I will also try to answer one or two of the questions that are still outstanding.

The noble Viscount, Lord Alexander of Hillsborough, commented yesterday on the lack of any specific reference in the gracious Speech to defence matters, particularly recruiting, which worries him, as it indeed worries me, and asked if we could have an early discussion on the matter. It is not in my hands, but I can assure the noble Viscount that I am at his service and that of the House, and no doubt the matter will be arranged through the usual channels. However, this debate to-day is hardly a suitable occasion for dealing with defence, save from one point of view, that of the economic aspect, and I propose just to touch upon that.


I am obliged to the noble Lord for his reference to the debate which the noble Earl the Leader of the House has kindly promised he will endeavour to arrange. But before that happens could we have in the Printed Paper Office the printed Dispatch of the General Commanding our Forces to the Suez? I see that in the other place one or two Members have it, but we have not got it in the Printed Paper Office, and I should like it to be available for noble Lords who will take part in the debate here.


I thought that it was already in the Printed Paper Office, but if it is not I will make it my business to see that it is made available to the noble Viscount and to any other noble Lord who wants it. I propose to touch on only one aspect of Defence for which I have particular responsibility in your Lordships' House—namely, the economic one, because it was the huge defence bill which had such a marked effect upon the original inflation problem.

I want to sound a note of warning, and I will tell your Lordships what worries me. It is the feeling current in some circles that as a result of the important steps which Her Majesty's Government have recently taken we are immediately going to see a striking reduction in our defence bill. Your Lordships will remember that the White Paper made clear that one of the reasons for our new defence policy was that we have been trying to do far too much. We felt that we had to reduce the burden of the defence programme on the economy of the country, a point to which several noble Lords have referred to to-day; that the bill for men, money and materials was more than we could sustain. To use the words of my right honourable friend the Minister of Defence, it is no good spending so much money on insurance premiums when you have not enough money to spend on bread and butter.

The bill, as things were running, might have amounted to something like £2,000 million next year. We told our Allies—and our Allies were frankly consulted throughout—that a bankrupt ally was a rotten ally. We therefore undertook a general reassessment, a pruning to meet the needs of our stategical requirements, and not a mutilation to meet those of politics. We are at the moment giving careful consideration to the possibilities of streamlining our administrative arrangements, and we hope that the new Forces will have a great deal more "teeth" and less "tail". But paragraph 72 of the White Paper stated that it was not possible to forecast the level of expenditure in later years. I cannot promise that the expenditure will show a decline in any way comparable to manpower strength in the Services.

I want to re-emphasise, as a note of warning, that we cannot expect to see by to-morrow morning any spectacular reductions in our defence bill. The benefit to the economy of the new programme will inevitably take effect in later, rather than in earlier, years of our five-year plan. Initially there may be some increase in expenditure—due, for example, to the rates of compensation which have already been announced to Parliament for those whose careers have been prematurely ended. I would ask those who are clamouring now for vast increases in pay and a huge building programme of barracks, to bear that point in mind. The trouble is, as we have frequently seen, particularly from the conference agendas of both political Parties, that everybody is always cursing any Government for spending too much and, in the same breath, demanding expenditure on a large number of their own pet hobby-horses—I myself have frequently been guilty in that respect.

I say this to those constantly accusing us of weakening the Forces: that we cannot be strong everywhere and meet the universal demand for a greater economy in our defence programme. I say, with respect to those noble Lords who have been Members of another place, that we have heard our colleagues in that other place say so often that we must have a great reduction of Government expenditure "except in my constituency"; we are all prepared for the Government to cut to the bone—except our own bone. I want to sound this note of warning, in case there is over-optimism. We have high hopes, following the Washington Conference, of better arrangements being made to avoid duplication with our Allies in the field of research and development, and we hope that, in the long run, this will bring about considerable economy.

So much for the defence aspect of our economic position. I now turn to some of the points made in the debate. The noble Viscount, Lord Alexander of Hillsborough, asked for the figures of the particular Whitley Council we have been discussing to-day. The figures are: hospital authorities, 10 executive councils, 3—total 13; Ministry of Health, 4; Department of Health for Scotland, 1—total 5: grand total 18. The noble Lord, Lord Shepherd, talked about Singapore, and I was glad to hear him mention Singapore, because he will remember that it was on Singapore airport that he and I met for the first time. I will certainly give him the undertaking that he asks for, and we will make sure that he has all reasonable time to study this Bill.

My noble friend Lord Hawke made an extremely interesting speech. If I understood him aright, he implied that investment had flagged in recent years, and that the one way to obtain the confidence of our international creditors is to sustain that high-level investment. But I would remind my noble friend that investment has been increasing steadily in this country in recent years, both absolutely and as a proportion of the total national income. It is now running at about 18 per cent. of our national income, as against a figure of 13 per cent. before the war. I can assure my noble friend that it is the aim of the Government, so far as the public sector element is concerned, to keep investment at the current record levels.


Do I understand that the 18 per cent. covers private and public investment?


So I understand. The noble Lord, Lord Latham, implied that the nationalised industries in general, and British Railways in particular, would suffer a reduction in their investment programmes, and also that education would be hard hit. Those were the points he particularly stressed. I should like to assure the noble Lord that, whilst the Government intend to hold the total of public sector investment in each of the next two years at this year's level, the programmes of the nationalised industries will, within the total, show a substantial increase in each of these years. In particular, a significant increase in expenditure by the British Transport Commission is being allowed for.


Less than would have been the case but for this restriction.


That is a different matter. I can see the noble Lord's point. My right honourable friend the Chancellor of the Exchequer has explained—the noble Lord, Lord Latham, has probably noticed this—that although economies are being sought in respect of education, the main school building programme and the programme for technical education will both continue unchanged.

The noble Lord, Lord Pethick-Lawrence, asked me a very technical question, one which I understand he has asked before and to which he has never received an answer to his satisfaction. He wanted to know what is the cost to the Exchequer in a full year of having a 7 per cent. bank rate as compared with the immediate post-war level of 2 per cent., in terms of National Debt charges; additional cost of advances to the nationalised industries and overseas sterling balances. I have consulted the pundits about this, and they tell me that there is no direct connection between movements in the bank rate and in any of the costs which the noble Lord mentioned, while estimates of the various indirect effects depend on unwarranted assumptions about the duration of the rate and the future course of rates generally. For instance, the cost to the Exchequer of servicing the National Debt is immediately affected through a change in the interest on the floating debt—that is, on market Treasury Bills. But if I have understood this correctly—and I am not for a moment prepared to guarantee that—the market Bill rate can and does diverge from the bank rate. Furthermore, the debt charge would also be affected by other consequential changes, such as the cost of funding maturing stocks and any changes that might become necessary in the interest paid on National Savings securities. I have had that explained to me twice, and at one moment I thought I understood it. I still think I do. I should be grateful if the noble Lord would consider it carefully, and tell me in due course whether he thinks that is right or not.


I think the people who put that answer up to the noble Lord are really hiding the facts. It may be true that you cannot make that estimate to the last halfpenny, but broadly speaking the amount of money paid on Treasury Bills is governed by the bank rate, and you have only to look at the figures year by year to discover the immense increase in the cost of servicing the National Debt. If the Treasury people who know the facts do not care to disclose them, I am bound to say that we on this side of the House think there is something rather shoddy about it. I am not including the Minister, but I think people are anxious to hide the facts which I shall continue to claim run into several hundreds of millions a year.


May I answer the noble Lord's interruption? It seems to me extremely difficult to discover which of the holders of the floating debt are subject to tax and which are not. For that reason, I should have thought that it was impossible for an official to make an estimate of the net cost.


should have thought the figures were fairly clear. It may be true that there can be some doubt as to the proportion they get back in the form of higher income tax, but I should have thought that some approximate estimate could have been given. I am sorry that once again the figures for which I have asked seem to be unobtainable.


My Lords, may I say that I thought there would be no real challenge to the statement made from the Labour Benches in another place, that the cost of this last rise in the bank rate was over £100 million. I have seen no real answer to that, and I should have thought it was a still larger figure. We try to understand things here. Only the week before last, the rate tendered for Treasury Bills was £6 12s. and either a halfpenny or three-farthings. If you work it out, that £280 million was borrowed over a period of three months—possibly extended afterwards. There is no interference with the cost of those particular drawings, and it seems to me that the cost must be very heavy indeed.


My Lords, perhaps I might join in again now. This is a very technical matter. I spent a long time trying to understand it, and I have obviously explained it wrongly, inaccurately or unhelpfully, and I apologise. I will look into the matter again in the light of what has been said by the noble Lord, Lord Pethick-Lawrence, the noble Viscount, Lord Alexander of Hillsborough, and also my noble friend Lord Hawke. But I will not allow the noble Lord to say that the Treasury officials are behaving in a shoddy manner. Your Lordships may blame me for describing it badly or inaccurately. You must not allow me to stand here and shield behind anything the Treasury officials have done. I take the sole responsibility. If there is any shoddiness it is mine, and I can assure the noble Lord that there is nothing of the sort, There may be a genuine difference of opinion.


I withdraw what I said, but I do think that even if there cannot be an exact estimate there could be an approximate one. That is what I have been unable to obtain from the Government, on the advice of their advisers.


I am obliged to the noble Lord for withdrawing—it is typical of him. I will look into the matter again and see whether I can give him an answer which will satisfy him better in the future.

The last point is one to which every one of your Lordships has referred. War has been declared, but we are all agreed that it is war upon inflation that has been declared, and not war by any one section of the community against any other section. I was glad to hear the noble Viscount, Lord Alexander of Hillsborough, come a long way to meet everybody on the desire to have no further "Yah boo—you're another!" which will do nobody any good at all. If there has been provocation on the one side, there may have been provocation on the other. The matter is too serious for hot blood or quick words, when cool heads are what is required to get on with this war against inflation.

I warmly support the views put forward by the noble Lord, Lord Brocket, and others who expressed themselves strongly on this matter. As the noble Lord, Lord Salter, told us in a particularly interesting speech, if we do not win the war, if we carry on abusing each other within our own ranks, that way lies suicide. I do not know how many of your Lordships had the honour of serving during the war under the command of the noble and gallant Viscount, Lord Montgomery of Alamein. One of the things which I chink contributed measurably to his success as a soldier in the field was the way in which he always insisted that everybody, down to the last lance-corporal, under his command should know whom he was fighting, what he was fighting for and what was in his General's mind. I believe that something of that sort, carried into our industrial life and industrial relations a bit further, would do an immense amount of good.

My noble friend Lord Brocket said that people were confused, and that they could not understand. There is a lot of mystique and ju-ju about economic talk, and as the noble Viscount, Lord Alexander of Hillsborough, rightly said, economists all too frequently forget the human element. Our real difficulty is that there are not enough "Lord Brands" to go round. If we had a few more like him, who can explain things so clearly and simply, there would not be so much cynicism and so much misunderstanding. Frankly, people just do not understand the problem. They have been told it so often that they become cynical about it. They can understand a rise in the cost of living, particularly those who cannot offset it by any rise in their wages. But I agree cordially with my noble friend Lord Balfour of Inchrye, in his most interesting speech, concerning the need for closer relationship between employer and employee if we are to get this sort of understanding and co-operation. It is very noticeable that in the firms where you have good relations, where employers take their employees into their confidence, tell them what they are doing and why, and explain the difficulties, you then have far better productivity.

We have reached the stage when dividends and wage rises and profits have, for some people, become rude words. The noble Lord, Lord Hawke, and the noble Lord, Lord Brocket, both spoke eloquently upon this and explained why it was wrong. But an incredible amount of political nonsense is talked about these things. There are misapprehensions and prejudices concerning profits and dividends which we can no longer afford. I agree with the noble Lord, Lord Strabolgi, in one thing (though I agreed with very little of what he said), that vulgar, ostentatious display of wealth must have a provocative effect on people in humble walks of life, earning humble wages. That has been so for thousands of years; it always will be so. There will always be vulgarians who show off their wealth, and I regret it as much as he does.


My Lords, it is not so in the Soviet Union.


My Lords, there are many things in the Soviet Union that are not the same as here. I suppose in the Soviet Union, if they do have Bentleys which they can have "on the firm," they are probably compelled to write the name of the firm on the side of the Bentley. I am not certain that it would not be a good idea here.

I agree that there are irritants which cause conflict and trouble and which we must try to reduce to the minimum. There are irritants on both sides. I must say that I had some sympathy with one of the employees in a firm concerned in a take-over bid. He could not understand the financial aspects, he could not read the balance sheet which was highly complex, and he did not like working for a firm that treated him like a sack of potatoes in an auction market. I have a great deal of sympathy with him. I feel that the more workers can be told clearly what is happening and why, the more chance there is of beating the problem of inflation, because people are more willing to work for something they understand. The number of firms who now attempt to increase productivity by breaking down their balance sheets into diagrams, showing how much goes in wages, taxation and profits and so on, is rapidly increasing.

I speak with some experience of this matter because I was for some five years the chairman of a joint advisory council, that of the carpet industry, one of our finer craft industries. I became very much impressed with the benefits of joint consultation and frank exchange of views between workers and employers from every point of view. I realise how difficult it is and how much room there is for more education. That is a point which several of your Lordships made this afternoon: the need for the Government to tell the people more of what is going on and what the problem is. The Government have done, I think, the best they can and used every medium available to them to explain the dangers of inflation, the battle we are fighting and the risks we run if we do not win the battle. The trouble is that too many people like inflation, although, as the noble Lord, Lord Brand, explained, they will not like it very much longer. The reasons we now know; they have been broacast up hill and down dale.

The noble Viscount, Lord Alexander of Hillsborough, asked me to give a definition of the Government's attitude towards inflation. That I cannot dare to do, whether it be wage inflation, price inflation, or cost. Whatever it may be, we have come this afternoon in this debate to one conclusion: whether what we are doing is right or wrong, too much or too little, we are paying ourselves too much for doing it. I hope the debate has left no doubt in anybody's mind as to the gravity and complexity of the problem that faces us. I hope it has left no doubt in anybody's mind that it cannot be solved whilst two branches of the community are fighting each other. It cannot be solved by petty squabbling or by mere catchphrases or shibboleths but by sitting down quietly and deciding how we can avoid committing suicide. I hope that this debate has also shown Her Majesty's Government's determination to do everything possible in their power to win the battle.


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

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

On Question, Motion agreed to, and debate adjourned accordingly.

House adjourned at a quarter before eight o'clock.

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