STABILITY OF THE POUND

HL Deb 04 February 1958 vol 207 cc349-427

2.40 p.m.

THE MINISTER OF POWER (LORD MILLS): rose to move, That this House supports Her Majesty's Government in their resolve to maintain by every effective means the internal and external value of the pound sterling. The noble Lord said: My Lords this is the first time I have had the privilege of addressing your Lordships' House on a matter not solely connected with my departmental responsibilities. Yet I humbly submit, for the approval of your Lordships, that the subject of this Motion far transcends m importance the basic industries for which I bear a responsibility. These industries, it is true, are essential to the present standards which generations of our people, and not least our present generation, have secured for us. Upon the progress of these industries we are dependent for the still higher standards promised us by the achievement of our scientists and engineers and the cooperative intelligence of the British people. I know we are all proud of the pioneering work for which we in Britain have been responsible: for the leadership we have attained in many spheres of world-wide significance, among which I would mention the following.

We led the industrial revolution based on steam. We are leading now in the peaceful use of nuclear energy, to the discovery of which British scientists have made outstanding contributions ever since Lord Rutherford proved in 1911 that the atom must have a nucleus. Only last week we heard of the wonders of Zeta in which this country once again has been in the lead. In electricity and electrical equipment we have played a leading part since one of the world's first stations for supplying electric power was opened at Godalming in Surrey. In electronics we have built a great and expanding industry since Sir Ambrose Fleming's patent in 1904. The basic inventions in television originated in Britain. I would also mention our pioneering work in radar, in digital computers, and in the gas turbine. And so I could go on mentioning British leadership in the fields of industrial materials and processes, in medical science and bio-chemistry.

Is it not also a matter of pride, for example, that this country, possessing virtually no oil resources, has played a leading part in the exploration for oil, its working, transhipment and refining, not only in this country but all over the world, so that to-day we have an oil industry not only meeting our growing needs but providing a widespread overseas trade to the great benefit of our balance of payments? We still possess the brains, the inventive genius, the ability, the intelligence and the skill of the craftsmen and the tradesmen for which this country is renowned. But we must also possess the means to turn them to account, and it is the means, the savings, the capital, the resources that we must command, that are in danger.

Why in danger? I think that to answer this question we must fully appreciate the burdens this country has assumed in the post-war era. First of all, there are the effects of two world wars in which we fought, sometimes alone, for the right to live our lives honourably and in freedom. These have consumed our resources and we have emerged a country bereft of its wealth and heavily in debt. Only the richness of the part we played has been our gain. Unfortunately our efforts in those wars have not brought us the peace we have all sought. We have been obliged to take a leading part with the other countries of the free world in the defence measures that are necessary to protect our way of life.

We have been investing year after year to provide finance for development all over the world, but particularly in Commonwealth countries and in those other territories for which we have undertaken protection and responsibility. In many territories self-government has followed the results of our efforts and our money, and in others the peoples are preparing to take their place in the ranks of self-governing nations, banded together, it is hoped, in our Commonwealth conception. Further, we have had to undertake large investment programmes throughout the industry of this country to meet the replacement, the betterment and the extension of our capital assets, which are essential if we are to hope for an expanding and competitive production in the future.

Then, as a country, we have taken the lead in social progress—the bad conditions of privilege, of industrial revolution and growth have awakened a national consciousness in an ever-widening degree. Led by men of good will of all Parties, we have been transformed in the course of a very few years to what is known as a Welfare State. This, too, essential and desirable as the change was, is a heavy burden on our reduced resources. Full employment has meant for the people of this country a higher standard of living, helping them to purchase the things that are necessary for a full and satisfactory life.

But we possess few raw materials and to ensure full employment we have to import a large proportion of them and of our foodstuffs. The achievements of our farmers in food production have been outstanding and agricultural production to-day is 60 per cent. above the pre-war average. But we are still left in the position of having to export an increasing quantity of goods and services in order to pay for the food and raw materials that are essential for the peoples of this country and for its industry. We have a good export record. Since 1950 the value of our total export trade has increased by 53 per cent., whilst our exports to the United States and Canada have increased by 67 per cent. and 51 per cent. respectively. We have been obliged to increase as far as possible our earnings of foreign exchange to meet our commitments.

It is no small wonder, therefore, that a small nation in our position has found these burdens difficult at times to carry. I think we can be genuinely proud of what we have done, but pride should not lead to complacency. We have not borne these burdens without strain, and unfortunately that strain has all too often shown itself at the expense of our scarce and precious gold and dollar reserves. The right honourable gentleman the late Chancellor of the Exchequer, in his admirable speech in another place in the debate on the economic situation, clearly summed up the position. He said that under the pressure of doing all these things we have been gravely weakening ourselves. He referred to the building up of our defences as a nuclear Power; the maintenance of the Welfare State at a high level; the repayment of debt abroad; the burden of maturing debt at home; and the conduct of the great international banking business of sterling, the measure of our overseas investment.

Yet, could we shed any of these burdens? Could we lightly dissociate ourselves from Western defence, from the Welfare State, from taking our share in overseas development and from equipping ourselves for an expanding industrial future? I am sure your Lordships would agree with me that, great as these burdens are, if we are to continue to have faith in ourselves and to hold our heads high amongst the nations of the world, we must so equip ourselves that we can carry them out successfully.

But we can progress only so far as our national wealth permits. And I am afraid that the truth is that in recent years we have not fully measured up to our responsibilities. We have not produced enough wealth to enable ourselves to discharge our responsibilities without excessive strain on the economy. But at the same time we have been prepared to pay ourselves more for not doing enough. The late Chancellor of the Exchequer drew attention to the fact that in 1956 we had added no less a sum that £900 million to wages and salaries with virtually no increase in production to offset it. Nor was that strain held or reversed in 1957. Last year's industrial output, according to the latest figures, was only 1½ per cent. above the average output for 1956. Wage rates in the same period averaged 5 per cent. above a year earlier. Industrial profits reported since March (although for earlier periods) have shown a similar rate of increase. For the year as a whole there can be no doubt that incomes advanced more rapidly than output, leading to a further increase in home costs.

We are already experiencing reduced order books, lower prices operating in overseas markets, and a tendency for profits to fall. These factors cannot be without their effect on the wages front; and until orders, and the capacity to deal with them, can resume their advance, it cannot be wrong to expect some stability in personal incomes. Any failure to keep personal incomes in relation to the national output and income can only add to the inflationary conditions which bear so hardly on many sections of the people.

The inflationary pressure would in any case have gone on if the Government had not shown their determination to bring it to an end. The Government had to act in view of the fact that in the past two years the growth of money incomes had completely outstripped the growth of real wealth. This meant that the supply of money would have to be restricted. Economies would be essential so long as there continued to be a tendency to increase personal incomes without a corresponding return. As the late Chancellor of the Exchequer said, "We were all agreed about the aim". Nor do I believe there can be any disagreement in your Lordships' House as to the aim, though it is perhaps only to be expected that there could be divergence of views as to the method.

As your Lordships are aware, Her Majesty's Government took steps in September last to continue to press for restrictions in bank advances and asked that they should not, in the next twelve months, exceed the average of the last twelve months. The bank rate was raised to the abnormal figure of 7 per cent, by the normal method. Capital expenditure in the public sector planned for the next two years was restricted to the level attained in the current year. This still left investment in the public sector on a very high level, but one which, while allowing for normal replacement and development, would ease the strains on our resources. The Government have insisted upon the greatest economy practicable in the expenditure for which they are responsible. It will not have escaped your Lordships' notice that, as announced by the Chancellor of the Exchequer in another place, the ratio of ordinary Government expenditure above the line to the gross national product between the periods 1951–52 and 1956–57 has fallen steadily from 32 per cent, to 27 per cent.

All these steps have been taken to defeat the inflationary conditions we have been experiencing. It has been, all along, a clear case of showing, not only to our own people but to the world, that honest finance is still the basis of our lives; that we intend to live within our resources; that we intend to maintain by every effective means the internal and external value of the pound sterling.

That has been the Government's part. But the Government are entitled to expect the co-operation of the people of this country in measures designed to safeguard the future of the country. The Government are entitled to expect that a full sense of responsibility will be exercised by those responsible for costs and prices. A universal endeavour to prevent costs from rising would count more in the battle against inflation than any other move. If the upward trend in costs and prices can be held, or better still reversed, it will also enable our exporters to battle successfully for a greater share of world trade which is so necessary for our economic wellbeing.

Her Majesty's Opposition have claimed that the Government are deliberately trying to restrict production, leading to an increase in unemployment. With respect, I would suggest that both these claims are ill-founded. No Government have been more successful than this one in maintaining a high level of employment throughout the whole period of their office. Indeed, we think that our record in this matter, of which we are proud, is sufficient answer to the accusations that have been made. What is clear is that if the Government had not enacted the measures of last September, the situation of this country would have deteriorated so rapidly that full employment would have ceased to be a practicable possibility.

So far as production is concerned, the Government have been trying to do two things. The first is to limit the supply of money, to stop people trying to pay themselves more money than was justified by the increase in real wealth. Secondly, the Government's measures are designed to limit the demand on resources in certain spheres—for example, investment in the public sector—until production is moving ahead quickly enough to support that demand, I should, however, like to make one point quite clear. The key to increased production lies as much with the people of this country as it does with the Government. What the Government have done is to put a brake on extravagance to stop people fooling themselves that they can keep taking more out of the pot than they are putting into it. Not until that lesson is learnt by everyone in this country will production and real wealth be able to move together again at a proper balanced pace.

My Lords, I have been a member of the Government team for just one year. Before that I had been engaged in British industry for many years, trying to keep our industry enterprising and efficient, realising that the welfare of many thousands at home and abroad depended upon the success of the management team in leading and co-operating with all those engaged in it. I was concerned with a business with world-wide connections, and I have experienced the hazards of currency insecurity resulting from the effects of two great wars. I have felt the force of the gale arising from lack of confidence in our own currency.

I know that the Government are determined to keep to the forefront the guarding of the stability of the pound, and I believe that the steps they are taking to deal with the problem are necessary and right. It was Abraham Lincoln who said: If we could first know where we are and whither we are tending, we could better judge what to do and how to do it. My Lords, Her Majesty's Government do know where they are and whither they are tending. But they also know what to do and how to do it, and they are determined to pursue those policies in which they feel they have the support of the responsible people in the country, policies which are already showing signs of success. I beg to move.

Moved, That this House supports Her Majesty's Government in their resolve to maintain by every effective means the internal and external value of the pound sterling.—(Lord Mills.)

3.11 p.m.

LORD PETHICK-LAWRENCE moved, as an Amendment to the above motion, to leave out all the words after "House" and to add: "recognising the essential importance of restoring the permanent stability of the pound, has no confidence that the policies of Her Majesty's Ministers will evoke united effort by the nation in pursuance of this end or promote the economic progress of the country." The noble Lord said: My Lords, I am sure we have all listened with great interest and attention to the well-thought-out speech of the noble Lord who has moved this Motion. I feel, however, in spite of his eloquent defence of the Government, that I must still move my Amendment which appears on the Order Paper.

May I deal, for one moment, with the last sentence in the noble Lord's speech? He said that the Government know where they are, that they know where they are going, and that they are marching forward to a future which they feel confident they will reach. The only comment I should like to make on that remark at this moment (I will come later to one or two other criticisms of the noble Lord's speech) is that if the Government know where they are now and where they are going, I wish they would let some other people in the country know it at the same time. When I was present in another place throughout the speech of the Chancellor of the Exchequer on the economic situation the other day, I found members of the Govment and supporters of Mr. Peter Thorneycroft, and a number of other Government supporters, rather confused as to exactly where the Government were going. It certainly raised a doubt in my mind, and I think in the minds of some others, whether the Government knew—certainly we did not know—where they stood at the present time.

My Lords, this debate arises from three causes: first of all, the resignation of the late Chancellor of the Exchequer; secondly, from the evidence and findings of the recent tribunal, and, in the third place, from the continued existence of a 7 per cent. bank rate. The form of the Amendment which I am moving is, of course, couched in terms of "No confidence," and your Lordships may like to know that it is our intention, at the conclusion of the debate on Thursday, to carry this Amendment to a Division. Probably no one in this House imagines that we are so confident of the eloquence of the speeches from this side of the House that we shall carry the matter to a successful Division. Nevertheless, the fact that over twenty noble Lords intend to take part suggests to me that, in spite of the inevitable conclusion of our debate, there are a great many noble Lords who are interested enough to take part and to come and listen, and that that is due to the fact that they regard it, as I do, as an "inquest' on the economic situation of this country, and are prompted by desire to find, if possible, a way out of our difficulties.

THE SECRETARY OF STATE FOR COMMONWEALTH RELATIONS (THE EARL OF HOME)

May I interrupt for a moment? The noble Lord said, I think, that there were three questions with which he proposed to deal. One of them seemed to be matters arising out of the Bank Rate Tribunal. That seems to me to be very far removed from the Motion, and, indeed, is not a matter which comes within the wording of it. I shall listen with interest to what the noble Lord says, but I hope that the debate is not going to stray into that field, because if it is to stray into that field, it would have been better to say so on the Paper.

LORD PETHICK-LAWRENCE

My Lords, I was going to add shortly that I did not propose to deal with that matter, so that, so far as I am concerned, I am absolved of any criticism by the noble Earl the Leader of the House. But I am not sure that on a Motion of "No confidence" in the policies of Her Majesty's Government the noble Earl would be able, even if the Rules of Order in this House were narrower than they are, to call out of order somebody who happens to make some oblique reference to that matter.

I do not propose to say very much about Mr. Peter Thorneycroft's resignation. I bowed to none in my endeavours to find out what it was all about. I read almost every conceivable piece of printed matter dealing with it, and I took the trouble to attend in another place and listened most attentively to the first three speeches, which I think everyone would admit were the most important speeches in the debate. At the end of it I was about as wise as I was at the beginning as to precisely what the difference was between the combatants. In the course of a fairly long life, I have learned that you should not enter other people's quarrels, particularly if you have not the least idea what they are fighting about. Therefore, I do not propose to refer at any great length to that question. Nor do I propose (this is the assurance that I give to the Leader of the House, in view of his interruption) to deal with the findings, as such, of the Tribunal, either the direct finding on the major issue, or on the other findings about which an announcement was made yesterday in another place.

I do want, however, to deal with the question which seems to me, arising out of all these financial matters, to be really of supreme importance; that is, on whom rests the real and effective responsibility for monetary policy, including the Bank Rate, in this country, and whether the action which successive Conservative Chancellors of the Exchequer have taken has enured to the general prosperity or to the protection of the stability of the pound, which of course is mentioned directly, both in the Motion of Her Majesty's Government and in my Amendment. First of all, I want to find out, not who has the technical responsibility (because no one doubts that that rests with the Chancellor of the Exchequer), but who has the effective responsibility. Is it with the Court of the Bank of England? Is it with the Governor? Is it with officials of the Treasury? Or does it rest solidly on the person of the Chancellor of the Exchequer?

I had supposed that, for practical purposes, this question had been settled twenty-five years ago and had been clinched by the Bank of England Act of 1945. Now, from reading the evidence in the Report of the Tribunal (and here perhaps I differ from the noble Earl, Lord Home, his view that it is only an oblique reference), and from what I gather is increasingly the practice to-day, we are slipping away from that solid fact; and the Bank of England is resuming once again the position that it held before Mr. Neville Chamberlain (who was, of course, a Conservative Chancellor of the Exchequer) created the Exchange Equalisation Account and, in effect, took away from the Bank of England not only the nominal power but the practical power of deciding exclusively what the bank rate was to be.

I am not very clear whether the Court of the Bank of England has any power or not. The facts that we have recently learned show that the decision to raise the bank rate to 7 per cent. was taken in advance of a meeting of the Court and was definitely known; and I am wondering whether the Court has only the same powers as the Dean and Chapter when a message is sent to them, in effect, that a certain person is nominated to a position and it is hoped that the nomination will meet with their support. If the Court has very little power then its composition does not particularly matter. If it has any power then its composition is of considerable importance.

The other day I listened to a broadcast by a financial expert, Mr. Shonfield, in the course of which he used these words: My fear is not that the directors of the Bank of England may be influenced in their private business decisions by what they have learned there but that the Bank's decisions may be unduly influenced by its special rôle in relation to the business interests of the City. Personally, I feel that there is a great deal in that comment, and it is one of the reasons why I take exception to the policy pursued over many years past by successive Conservative Governments. If it is not the Court that has the final power, does it rest with the Governor? If so, is he right to consult with other people? I should say that he certainly was. But is it right that the Governor should have the ultimate responsibility? Or, equally, does it lie with the Treasury officials, who to-day are quite knowledgeable in many of these matters, who have the responsibility? To-day I am not very clear. I was clear a little while back that they had lost that ultimate responsibility; but I am not quite so sure to-day.

I want to say a word or two on why I feel it important that it is the Chancellor of the Exchequer, in his personal capacity, who must and should be the final arbiter in this matter. The old idea was that the Chancellor of the Exchequer had one province, the Budget, with responsibility for items on both sides. It was his business to curtail undue spending by the Departments, and it was also his business to decide the taxes. But it was the business of the Bank to decide questions of banking policy. That idea prevailed up to twenty-five years ago, although it was not always admitted. I find from a recent biography by Sir Henry Clay that no less a person than Sir Winston Churchill certainly did not agree with Sir Montagu Norman on that; and Reginald McKenna once told me that even Mr. Norman himself recognised that in a conflict of opinion the view of the Chancellor of the Exchequer must prevail.

The reason why I insist on the personal responsibility of the Chancellor of the Exchequer is that this matter of Bank policy, and of the bank rate in particular, is in my opinion essentially a political issue. By "political" I do not mean a matter of Party politics; but it is a matter of high policy, and I have always maintained that decisions with regard to the bank rate are at least as important to the everyday life of the mass of the people as questions affecting the Budget. If, therefore, the Budget is to be within the province of the Minister of Finance—or the Chancellor of the Exchequer, as we call him—this matter of bank policy must be included in his province. The case that I have to make against Her Majesty's Government to-day is that successive Chancellors of the Exchequer, including the two prime authorities, men in the most prominent places in the Conservative Government at the present time, and Mr. Peter Thorneycroft, have allowed the financial authorities to dictate to them the policies they should adopt, instead of seeking their advice as men of great expert knowledge and then using their own discretion as to whether they should follow or reject that advice.

The noble Earl may perfectly properly say to me, "But Chancellors of the Exchequer are not necessarily men of great financial experience"—and that is true. I suppose that in the course of my life I have known only three or four outstanding financial experts who were Chancellors of the Exchequer, but your Lordships must remember that the whole tradition of British constitutional procedure is not to appoint an expert as a member of the Government to control a Department, but to appoint a man of general common sense who will hire experts to give him advice and then use his judgment in deciding between them. The period of office of Mr. Kingsley Wood was, in my opinion, one of the most beneficial of any Chancellor of the Exchequer, but I do not think, though he was a wise man, that he ever contended that he had any expert knowledge of finance. He was, however, a very good chooser of advisers, and he had the good sense not only to choose the most competent advisers but to decide, after consultations, whether they were right—to decide who was right and who was wrong. That is the rôle I maintain a Chancellor of the Exchequer should adopt with regard to his financial advisers, whether they are inside the Treasury, inside the Bank or inside the City.

I would not have it thought for a moment that I do not have a very great reverence and respect for the successive men of eminence who have been Governors of the Bank of England or for the very able men who are leading lights in the City. I have a great faith in their integrity, in their knowledge of their subject, and in their judgment, so far as their judgment goes. But we who have the benefit of hind-sight can see quite clearly, in the recent history of this country, in the light of the present day, what colossal blunders the Governors of the Bank of England have made during those years.

Let me start with the Governor of the Bank of England who thought that the Germans could pay a reparation after the First World War equal to the whole capita] wealth of Germany. Let us take the case of Lord Norman who, when he was Governor of the Bank, in his desire to bring prices down and restore the gold standard, inflicted upon this country one of the most disastrous deflations and slumps that this country has ever experienced. Let us take the return to the gold standard at the old parity when Sir Winston Churchill was Chancellor of the Exchequer. I disagreed with that view at that time; and later, when we went finally off the gold standard, Sir Winston Churchill himself explained that he had been over-pressed into that decision by his officials and by the Bank of England.

As to the Treasury, I am an old Treasury man—I was Financial Secretary—and I have always had a tremendous admiration for the Treasury. I would not decry them in the least. But to quote only one illustration where they have been mistaken—we should probably all have fallen into the mistake, but we have the benefit of hind-sight—we have the fact that they preferred to leave most of the National Debt in the form of a floating debt, and from that we are suffering at the present time. We could have funded the debt at one time, certainly at 3½ per cent., possibly at 3 per cent. or even less. Only recently we have had to fund £500 million at the rate of 5½ per cent., and the cost of that to the Exchequer runs on every year during the continuance of that tranche of the National Debt. I am not saying that the Treasury have not good advice to offer. I am not saying that the Chancellor of the Exchequer ought not to listen most carefully and attentively and pay great respect to all the information and views that are put forward by the Treasury and by the Bank of England. I think all that; but I think that those experts have to be balanced by other experts who, perhaps from a slightly different angle, take a different point of view, and the Chancellor of the Exchequer ought to use his discretion between them.

The accusation which I make against the Government is that the Chancellors of the Exchequer who have had control of affairs from the advent of the Conservative Government have not done that. They have accepted too easily the purely monetary standpoint, and, because of that, they have brought upon this country many of the evil consequences from which we are suffering to-day. We are always told that just a little longer is required for a monetary policy and it will be triumphantly successful. I think that that has been said every year by every one of the Conservative Chancellors, and we are still where we were.

I was rather struck by a certain inconsistency in the speech of the noble Lord, Lord Mills, in that he at one time told us that productivity in this country had fallen in the last two years to the low figures of increase which he gave, and at the same time he commended the policies of the Government to us by saying how splendidly productivity had increased. The fact is that we charge the Government with the failure of productivity of the last two years: we say it is owing to the monetary policy which the Government have pursued through all this time that we have had the lower increase of productivity.

Just let us see what the position is. Taking the years from 1953 up to the present time, we find that while German productivity has increased 46 per cent., Italian productivity 41 per cent., and the productivity of France 40 per cent., the United Kingdom's productivity has increased by only 16 per cent. During all that time the Government knew where they were, knew where they were going and invited us to share in the Hallelujahs at having such a wonderful Government to look after our economic and financial affairs. Let us see another result that has happened concurrently with the existence of this Government. There is this very considerable rise in prices. I would ask your Lordships to realise that that rise in prices has been going on while world prices have been steadily falling. The reason is not far to seek. The Government have taken a number of steps (I have mentioned them before and I will not repeat them), culminating in the Rent Act, which, of course, has put prices up, and they are reflected throughout the whole economy. So I do not think the Government can get away from that.

Another factor is this question of the depleted reserve. The Government claim that they have been wonderfully successful with the 7 per cent. Bank rate and there have been additions to the reserves. I should just like the House to realise three facts. In the first place, in this current year the Government have had a waiver or, more strictly, a postponement of payment of the December payment of the debt to America. In the second place they have borrowed money from international resources. But in the third place—and this is really the most important factor; this is why I put the word "permanent" into my Amendment—no one must forget that the particular half-year through which we are now passing is the favourable part of the year from the point of view of the Government. It is the time when money normally comes into this country. I notice that the present Chancellor of the Exchequer said last Saturday that he hoped in a short while he might be able to ease up; he did not specifically refer to the bank rate, but it was fairly clear that it was in his mind and in the minds of most of his readers and hearers. He has not a very long time to spare, because, supposing the 7 per cent. bank rate or anything like it is still in existence when a new crisis arises at the unfavourable half of the year, what is he going to do then? Is he going to put it up from 7 per cent. to, shall we say, 10 per cent.? Or what else is he going to do? The importance of what the Government have done has to be viewed not in terms of this favourable half-year. We shall know a little more about it when the second half of the year arises.

Another thing the Government have done is that they have estranged the trade unions. When the statement about inflation was mooted first on a wide scale, the trade unions were anxious to be helpful, and certainly leading trade unionists, and even those who are mostly the Aunt Sallies of the Conservative Party, have shown considerable restraint. But I am bound to say that the treatment they have received at the hands of the Government recently makes me wonder how long—I hope long, but I must say that I do not count on it too much—they will be impelled to take that reasonable course.

Another consideration for which I hold the Government responsible is the great loss of money arising from the undue haste of the Treasury to effect complete convertibility. A gap occurred. I have seen an estimate of £100 million as the amount of money that flowed out in consequence of that gap, and I blame the Government, as those responsible for the Treasury, for allowing that gap at Kuwait to pass unnoticed so long, and for letting so much money go before they shut the door.

These are the principal points on which I find myself in disagreement with Government action. I blame it on the fact that Chancellors of the Exchequer have allowed themselves to become the servants of the monetary authorities instead of their masters. I notice that the present Chancellor seems to take human factors also into account in what he says. I hope that it may work out so, but it is too early to judge, and we have to take the position the Government stand for from what we have seen in the past. I am very much afraid that the measures which we on these Benches would recommend the Chancellor to substitute for the exclusively monetary methods he has adopted do not commend themselves to the ideologists of the Conservative Party. Where Mr. Butler and Mr. Macmillan failed to restrain the monetary check, I am not too confident that even Mr. Amory, charming man as he is, will be able to hold the field.

That is our case against the Government and that is why I have moved this Amendment. I have attempted to show that the continuance of the policy of the Government gives no assurance of permanent stability to the pound. It gives no assurance of uniting the effort of the people in working to end inflation and to preserve the pound. It gives no assurance of industrial peace and it gives no assurance of a united drive to increase production, which in the last resort is the main criterion of the ultimate prosperity of this country.

Amendment moved— Leave out all the words after ("House") and add ("recognising the essential importance of restoring the permanent stability of the pound, has no confidence that the policies of Her Majesty's Ministers will evoke united effort by the nation in pursuance of this end or promote the economic progress of the country.")—(Lord Pethick-Lawrence.)

3.45 p.m.

LORD REA

My Lords, an Amendment has now been put by the noble Lord, Lord Pethick-Lawrence, but I take it (and I trust I am right in so taking it), that with your usual latitude and generosity, your Lordships will not expect me to address my remarks only to the Amendment. I should prefer, if I may, to address myself more to the substantive Motion of the Government. As your Lordships know, I am a comparatively junior Member of your Lordships' House, but with, I think, a record of fairly assiduous attendance during my membership over the last ten years. I cannot recall any Motion I have ever heard, put forward either by the Government or by the Opposition, couched in such near-Machiavellian ingenuity as the One now before your Lordships.

I imagine it is unnecessary to point out that the presupposition implicit in the Government Motion is quite unacceptable to this side of the House—I hope I speak for noble Lords on my left as well as for those on these Benches. The Government's so-called resolve, or resolution, to maintain the value of, the pound may exist—we hope it does—but to many of us it is not sufficiently manifest and still has to be proved. We should, of course, applaud any clear signs of that desirable resolution in Government policy, and, further, we should certainly support what we consider would be "effective means"—those are the words which appear in the Motion. But to ask your Lordships' House to support invisible intentions of taking disembodied and unspecified steps, unknown to your Lordships, unknown to the country and probably unknown to the Government, is assuredly reducing the framework of this debate to a rather dangerously unreal level.

I suppose that in other circumstances, at some other time and in some other place it may have been found expedient so to phrase a similar vote of confidence that those voting against it were seemingly put in the position of the defendant who is asked, "Have you stopped beating your wife?" But I regret that your Lordships should be put in that position; and with the safe majority which the Government command in this Chamber it would, I respectfully submit, have been perhaps a little more frank and more forthright to have a Motion moved in terms such as this: That this House supports Her Majesty's Government in their past actions and present proposals directed towards maintaining the internal and external value of the pound sterling. I think that with that wording we should have had a straightforward vote of confidence which no doubt would be enthusiastically carried in your Lordships' House, irrespective of what view was held outside; and it is only from a sense of proportion—backed up, no doubt, by Standing Orders—that I do not personally put before your Lordships such an amended Conservative Motion as I have suggested—and to which I should be wholeheartedly in opposition.

I do not intend to traverse the very wide vista which this Motion reveals, and I content myself (if it can be called contenting myself) with recording the anxiety I feel about the programmes of both the larger Parties. At the same time I urge the Government, despite the prevailing fashion of circling the main substance with immense rapidity and no sense of gravity, to come down to earth, or at least to pursue a consistent course. It is stability in our policies, as well as in our finances, which alone will bring us to a proper measure of that prosperity and that leadership which we used to enjoy (and which, I suggest, the High Tory pipe-dreamers still enjoy), in the rattling good times of 1758, but do not in 1958.

In 1758, as your Lordships are aware, we occupied a certain position vis-à-vis America and Russia which we do not to-day occupy. To-morrow, neither America nor Russia will hold much of that sort of position vis-à-vis anybody, not even the smallest nation, when that nation possesses a nuclear missile. And yet we seem to dissipate much of our wealth in spending vast sums—far more than we can afford, as we have been told most authoritatively by the ex-Chancellor of the Exchequer—in a sort of armaments race based roughly on the 1758 rules: a race which has for us already become little more than a ruinous and fruitless window-dressing competition. This sort of activity is rather like diving into an empty swimming pool: it commands considerable effort, much courage and high faith, but has no future.

What we ask from this Government is something much more definite than the mere hopes of the words "every effective means". We want to live with less stress and less taxation. We want a substantial and noticeable cut in Government expenditure and a new reassessment of the possible means of achieving this. I shall leave the elaboration of this point to other noble Lords who are to speak. Finally, I would once again in your Lordships' House advocate the appointment of a Royal Commission on the working of the trade union movement. That is a suggestion which I know is unpopular with noble Lords on my left, but it is, I think, quite obvious to the public, whatever their political affiliations (if any), that all is not well. I will not go so far as to say: Something is rotten in the state of Denmark"; but something is wrong from the angles alike of many workers, many employers and all consumers. It is time, I suggest, that the two big political Parties—if I may be forgiven for lecturing them—should overcome their electoral terror of this powerful organisation of great tradition, great value and great potentiality, and that whichever of those two Parties is in power should institute, as soon as possible, an impartial investigation to ameliorate, not to penalise, the fortunes of those concerned in its working: and that is all of us. I do not like this Motion, and I think the majority of the people in the country would not like it, and, for that reason, quite briefly, I am unable to support it.

3.53 p.m.

LORD WISE

My Lords, I would ask your Lordships to leave the city of finance for a few moments and to take with me a trip to the countryside. I do not anticipate that in referring to agriculture in this debate I shall be called to order, for I noticed that in another place the Chancellor of the Exchequer, who had just left the Office of Minister of Agriculture, Fisheries and Food, had a brief reference, extending to eleven lines in Hansard, to the sub- ject. I was a little surprised that that was the only reference in the debate to this important industry of agriculture. I do not think that any discussion on economic matters can be complete without some reference to the agricultural industry and its present position. I hope that what I have to say will be endorsed by noble Lords on the other side of the House, many of whom have great landed interests and an interest in farming generally. I am sure that noble Lords will know, from what I have said previously in your Lordships' House in regard to agriculture, that any criticism, suggestion or proposal which I may have to make in this short speech will seek only to ensure once again for those engaged in agriculture and rural pursuits a fair and proper reward for their labours, both at the hands of the Government and of the community, so that confidence in the industry may be restored.

We are an industry of small units, and for that reason we may sometimes be overlooked. But we are as important in the national life of this country as the City of London, the financial interest, or any other of our great industries. Our small units add up to a significant whole, and on this whole is founded one of the main pillars of national prosperity, strength and livelihood. Depression and distress in our industry would lead to similar circumstances in every other industry in the country. From the land, whether it be the land of Britain or that elsewhere, from the surface and underground alike, most of the wealth of this country and of the world has sprung. Its full use has brought, and can and will brine, abundance—and that abundance is most important in these times, when so many people throughout the world are underfed but idle land has meant, and will mean, poverty, depression and distress.

We in the industry are worried—there is no question about that. People may think that there is still confidence in the future, so far as agriculture is concerned; but we do not know the way, nor whither we are tending, in the words of the noble Lord who opened this debate. There is a lack of confidence, and there is understandable apprehension within the industry. We cannot see the road ahead. We started to tread a road of prosperity after 1949, but that prosperity is, to some extent, dwindling away. In a few moments I will quote some figures, which may be known to some noble Lords and which will, I hope, interest those who do not know them, as to the exact position of our industry at the present time.

Those attending the recent conference of the National Farmers' Union (I call the Government's attention to this matter, because I think it is important) heard bitter words of resentment and disagreement levelled at the Government; and it is obvious that, although they may have been pacified for the moment, animosity of an unpredictable nature amongst farmers struggling in financial setbacks may break out afresh. Something more drastic may happen than an Amendment in your Lordships' House of "No confidence". What may happen is most undesirable, and I hope that after the new February Review of Prices we in the industry shall have some cause to thank the Government for viewing the circumstances with common sense and for helping the industry as a whole. I hope that Her Majesty's Government will heed the sighs of the times, so far as we in agriculture are concerned.

I do not wish to trespass this afternoon upon a debate which may take place in your Lordships' House within a few weeks after the February Review of Prices is known, but I should like to call your Lordships' attention to a few points which I think come within the compass of the Motion and the Amendment. In another place a few days ago, the new Minister of Agriculture commended the industry, and said that our production had risen by no less than 60 per cent. during the post-war years. It. is obvious from that that agriculture has played its part, and I want to show your Lordships that our industry, as such, is in no way responsible for the present national economic struggle. It has been said, and I think quite rightly, that we are one of the best dollar-saving industries. To endorse that, the increase in productivity within the industry during the post-war years saves us no less than £400 million on imports. That is no mean figure, and it has a tremendous impact upon the balance of payments. Without that £400 million we as a nation should be in a sorry plight.

The industry has risen to the occasion, as it was asked to do after the war. We are now in the position of producing more milk, a greater number of eggs and more pigs above our national requirements—a most extraordinary condition of affairs. We are also producing greater numbers of stock. The acreages of our grassland for feeding purposes is rising, and we have had considerable increases in our barleys for feeding purposes. As an industry, we are capable now of producing 50 per cent. of the food required for feeding the people of these islands. It is significant that although the industry does not employ more than 3 per cent. of the working population, we can produce that tremendous amount of the foodstuffs which are required. If we break down those figures, we see that under 1 million of our people are capable of feeding over 25 million of their fellows.

So far as the national economy is concerned, we are an extremely good spending industry. If noble Lords will refer to the advertisements in the farming papers—the coloured pages and others—they will realise that if the industry supports the tremendous number of merchants and manufacturers who advertise in that way, then we must spend very well indeed. In fact, we spend £800 million annually, with other industries. In addition, in personal spending (not in extravagance, as I heard a few moments ago; our personal spending in the countryside is not by any manner of means extravagant) we spent £600 million. We keep the villages going. We keep the village stores in business, and we help to keep prosperity in the small towns and, through them, in the cities. We fear that a depression is about to start in our industry, and the effect of our lack of spending would be very detrimental indeed to other industries. We seek only for a proper reward for our labours, and, as I mentioned a few moments ago, we have not only played our part in producing the foods which are required, but we have shouldered, as an industry, some of the burdens of increasing costs, over which we have no control whatever, and so relieved the taxpayers, through the Annual Review of Prices, to the tune of £135 million.

I should like to give your Lordships a few figures on the national income. Between 1948 and 1956 the national income rose by no less than 24 per cent. It is within the knowledge of noble Lords that a few days ago figures were produced showing the increase in the numbers of millionaires and sur-tax payers in this country. I have a serious doubt, however, whether many engaged in our particular industry were added to those lists. But while the national income rose by 24 per cent., the income of the farming industry during that period, instead of rising with the national income, as we felt we were entitled to expect, fell by no less than 8 per cent. If other industries were able to increase their incomes, then I think we in agriculture were entitled to do the same. Since 1952, our share of the national income has decreased by 25 per cent. There is no reason why we should have borne that burden, because an increase in income and prosperity should be shared generally. Between 1952 and 1956 agricultural production went up by 8 per cent., but there was no increase either in gross profits or in real income. The distributive trades, however, during that time increased their gross profits by 34 per cent. on a 17 per cent. increase in gross turnover. If we had received our just reward, instead of receiving no increase at all we should have been entitled to no less than a 15 per cent. increase. The distributive trades, however, were not the worst niggers in the woodpile. Builders and contracts, operating, I expect, on a cost-plus basis, obtained an increased profit during those years of no less than 63 per cent., although they increased their production by only 18 per cent. Figures may prove anything, but your Lordships can see from those figures that there is a ground for complaint in the industry.

The total of bank overdrafts, too, in our industry has increased to £223 million in the last few years. That may mean, of course, either that we have had to borrow more or that our credit has increased to such an extent that we are able to obtain higher overdrafts from the banks. But the point I wish to make on the question of overdrafts is rather on the question of the amount paid in bank interest. While the bank rate remains at its present figure £18 million a year is paid by the industry in interest on its overdrafts. And our interest charges do not stop with the banks. In addition, the industry is probably faced with payment of a similar amount in regard to interest charges by merchants, manufacturers and others. We are anxious as an industry to plough back into the land our profits when we make them, and to make improvements; but we cannot do that if we are fighting a losing battle the whole time. The noble Lord who opened this debate spoke on the question of full employment. At the moment there is unemployment within the farming industry, and that is increasing. I can take you to a few villages in my own county where during the last few months many men have had to stand off. Employment in farming is not so good as it used to be.

I want very shortly, in conclusion, to make a few suggestions, which I think may be in order, about how it would be possible to help our economy and the balance of payments. First of all, I should hope that the Government will take some steps to exercise greater control on imports. I noticed in a local paper the other day something which seemed to me to be quite unnecessary; that a ship left a small East coast port with barley for Germany one week, and a ship came back the next week from Denmark or Holland—Holland I think—with barley from that particular country. It was obvious that the barley was going abroad at a higher price than the imported barley was coming into this country. That may be all right so far as the country's economy is concerned, but it does not help the agricultural industry if barley bought by the merchants at a low price is exported at a high price and then lower-priced imported barley is brought into this country and sold to us at a high price as feeding-stuffs. I want to reach the situation when our merchants and manufacturers will take the whole of our products at a reasonable price and produce the feeding-stuffs which we want. I hate the thought that we in Norfolk are feeding pigs on imported barley when for the last month or two our barns and hangars have been full of barley which we could not sell.

Marketing needs to be improved. I have spoken many times on the disabilities of the present systems of marketing, and I hope that, sooner or later, Her Majesty's Government will take stock of the tragedy of some of the marketing systems under which we try to carry on. Then I think the Government might look at the question of subsidies, to see whether some portion of the subsidy which is now paid to the farmer cannot be borne by the merchants, the miller, and those who buy our products. We as an industry are suffering from low prices in the markets. The Government are suffering from heavy subsidies which they have to face to make up the deficiency between the low price which the farmer receives and the standard price of the commodity which the Government have set. That is no good to the farmer; it is no good to the Government, and it is not helping the consumer, because the low prices which are paid for our products are not passed on to the consumer. It was said to me a few days ago that the countryside would prefer a rich farmer to a bankrupt farmer. That is so, and we as a nation, I think, should be far better served by trying to create prosperity in the industry which will help the farmers and the nation as a whole in the countryside.

4.17 p.m.

LORD BALFOUR OF INCHRYE

My Lords. in the speech which the noble Lord, Lord Wise, has just delivered, a speech full of interest dealing with Britain's oldest and still principal industry, I could find, I am glad to say, no great indictment of Her Majesty's Government and no great support for the Amendment moved by the noble Lord, Lord Pethick-Lawrence. Indeed, in the speech of the noble Lord, Lord Pethick-Lawrence. in moving his "No confidence" Amendment, he was so modest and so sparing in his supporting arguments that I looked in vain until the last few words he spoke for any censure on Her Majesty's Government. He gave us a most interesting history of the errors of the Governors of the Bank of England. It is true he missed out Lord Cunliffe with the then Chancellor of the Exchequer and started with Lord Norman and reparations after World War I. I found no indictment of Her Majesty's Government.

Then he gave us—and I am sure we all listened with great respect because of his authority—a discourse on Treasury history and weakness, but again I looked in vain for the "No confidence" expressions in the policies of Her Majesty's Government. It seemed to me that maybe his mind was travelling along the same lines as mine, when one looks at the terms of the Amendment. My mind said: In whose care should I rather see "—to use the words of his Amendment—" the care of the permanent stability of the pound?" That is the choice. No doubt many other people outside this House are asking the same question. Should I care to see the responsibility kept by those who now discharge it, or hand it over to those who now seek it? My Lords, should I prefer to have the pound kept in the charge of those who are trying to see that we live within our means—even though, as the noble Lord, Lord Mills said, we may have tried to do too much—or should I prefer the pound to be in the hands of a Party who are pledged to spend, at a moderate estimate, some £600 million more on their Budget as soon as they can shovel it out, in higher pensions and higher benefits and the abolition of Health Service charges, quite irrespective of the financial position of the country and the ability of the Revenue to bear such charges?

Would one care to see the pound in the hands of those who want it to stand in the world of exchange as creditworthy and sought after, or those who advocate, in a policy of social egalitarianism, a certain repression of individual success, and who advocate a compulsory detention of capital and an imposition of exchange control even within the sterling area? Should I prefer to see the pound in the hands of those who believe that by our own efforts alone we shall survive, or of those who use such words as those used by Mr. Gaitskell last autumn when he proposed five definite measures, two of which have already been carried out by Her Majesty's Government and the other three which are for other people abroad to carry out? There is no solution for us in lecturing the United States and Germany about the duties of other nations; it is no good our telling them that they owe us a trade living. It is by our own exertions finally that we are to survive. Therefore I have no doubt at all in whose hands I should prefer to leave our solvency.

That being so, as a humble Back-Bencher I am glad to give support to Her Majesty's Government. But with this support for measures taken to deal with the last emergency goes also a right to ask for something more. We can reasonably ask: "Where do we go from here?" We have done much; but much of what we have done, like the 7 per cent. bank rate, can finally be only temporary, and we have to look further ahead than temporary measures. The battle against inflation is not a short-term contest. We are told on the authority of Ministers that this battle is a vital one. We are told that the success of our survival as a nation depends upon winning this battle. We are told, quite rightly, that we are all in it, collectively and individually, and that it is a battle that cannot be won by measures of Government compulsion, but only by determination and sacrifice by each one of us. That is what we are told, and one does not dispute it.

Next we are told that any further general wage increases unrelated to increased production may spell disaster. We know that the unions have put in claims for some £450 million of increased wages, for eight million workers. So, as I see it, the position is this: if these increases are granted without any increased productivity, we are likely to lose the battle of inflation. But if they are refused, it looks at the moment as though we are heading for an industrial conflict; and, equally, the effect, at home and abroad, of such an industrial conflict may cause us to lose the battle of inflation. It is as simple as that and I think it is as threatening as that. So I say that what I call the "mixture as before", even with stronger doses, is not enough to meet the situation.

My Lords, I apologise for repeating what I have tried, with great respect, to point out to your Lordships before—namely, that no Government can hope to win this battle of inflation without the support of the bulk of the 11 million trade union rank-and-file in this country. It is a joint responsibility of the Government and the trade union leaders to get this mutual determination. It is not for me to repeat some views that have been expressed in the past—because nothing is worse than always repeating something of which little notice is taken—on how to obtain this co-operation, but I believe it can be obtained by Her Majesty's Government and, given the right approaches, it will be obtained because the bulk of trade unionists and the bulk of trade union leaders support one Party or another; and let us remember that no Conservative Government would get in without a wealth of support from the rank-and-file of trade unions which it has had in the past and which it will, I believe, continue to have. Most trade union leaders and men are perhaps political, but, above all, they are Britishers and they will respond to an appeal; and maybe we shall have to come somewhat nearer than we have in the past towards a wages policy.

It is a very difficult matter, I know, for any Government to lay down a wages policy, but perhaps there is something in the idea which Lord Chandos expounded recently, that we should agree with the trade unions that there should he, as it were, a level of wages, and that increases should be related to increased productivity. It may be that there is something in the revolutionary idea of Mr. Walter Reuther, the American trade unionist, who has put forward a revolutionary proposal to the American motor car industry which would entail a datum level for wages, for salaries and for other costs, and when profits increase, so much would go to the operatives, so much to shareholders and so much towards lowering prices. These are, no doubt, matters about which noble Lords will know far more than I do. But the point I am trying to make is that we must try to think beyond the lines upon which we have been thinking in the past.

I believe I am on common ground when I stress the need for everyone to realise the issues of winning or losing this battle of inflation. I do not believe that we have brought into the homes of ordinary men and women the dangers of the loss and the certain misery that must lie ahead if we lose this battle of inflation. I submit to Her Majesty's Government that there is a need for much more direct, forceful and widely-spread realisation than exists at the present. If you talk to nearly any participant in the wages-prices spiral of recent years, he is quite uninterested, unmoved and unimpressed by this talk of the danger of inflation. His position is, as it were, that he has "got it better" than he has ever had it before, and he does not see the dangers ahead. One cannot blame him. He thinks that inflation is a sort of technical matter talked about by the banking experts. He does not realise that eventually it may mean the ruin of his own home.

VISCOUNT ALEXANDER OF HILLSBOROUGH

My Lords, I am very interested in this argument and I hope the noble Lord will continue with it, but I am most anxious in regard to the point about getting the good will of the trade unions. You will never get it until there is removed from their minds the belief that has firmly grown up from experience—namely, that the great depression of their standard of life after 1920, and again after 1932, was quite unnecessary, having regard to what the country did out of its wealth afterwards.

LORD LAWSON

My Lords, I am sorry I did not hear the whole of the noble Lord's speech, but do I gather that what the noble Lord means is that the bare negative to every claim that is put forward will not do?

LORD BALFOUR OF INCHRYE

Yes.

LORD LAWSON

May I just say, as one who has watched this thing from the wings, so to speak, that I am very pleased indeed to hear this note struck from the other side?

LORD BALFOUR OF INCHRYE

My Lords, I was supporting the policy of Her Majesty's Government in regard to what they have done and are continuing to do, and what they are going to do in the future. I agree with the noble Lord, Lord Lawson, that a pure negative is not enough.

I cannot cover the complete economic arguments opened up by the noble Viscount the Leader of the Opposition, but I want to try to put forward something positive. If this is an economic Battle of Britain for our national survival we must do much more, and with a greater sense of urgency, to bring home the issues of the battle to those who are the fighting army. That is the responsibility of Her Majesty's Government. The media of radio, television, the platform and newspapers are hardly touched in regard to driving home the dangers of inflation. Cabinet Ministers have what might be called "Summit talks" with trade union leaders, but those talks should be underpinned by efforts to convince the rank and file of the dangers; and leaders of all Parties and people respected in our national life of no Party could all give help in such a campaign.

There is no need for them to support the execution of the policy of Her Majesty's Government; they may or may not be supporters. But while there can be differences as to the methods of defence against the enemy, there can be no differences as to the result of losing the battle. The noble Viscounts, Lord Alexander of Hillsborough and Lord Hailsham, could easily appear on the same public platform when testifying to the dangers and horrors of what will happen if we lose the battle. They may argue as to the merits or demerits of a particular line of defence, but they could equally testify to the results of losing the battle, whoever might be responsible for the loss. Trade union leaders like Mr. Cousins and the noble Viscount, Lord Chandos, could appear on television perfectly amicably, both testifying to the dangers and the effects on all workers if we were to lose the battle. Speakers from countries abroad whose economic life has been ravaged by uncontrolled inflation could testify upon it to the workers of Britain. Newspaper editorial and advertisement columns, the B.B.C. and the Independent Television Service could all be used constantly and bravely in a great effort to bring home to the people the dangers which face us.

My Lords, I conclude by saying that if this is the great battle then our steps to fight it should be on a grand enough scale, in imagination, effort and breadth of presentation, to match the issue; and my appeal to Her Majesty's Government is to get going in a big way, building the moral determination to win which must be the foundation of success for any policy of any Government.

4.34 p.m.

LORD SALTER

My Lords, I believe we were all impressed by that part of the noble Lord's speech in which he emphasised the view, which perhaps we all share, that there will be no real and permanent solution of our problem unless we are able to get co-operation between the power exercised by Her Majesty's Government and the power of organised labour. We must, however, at once address ourselves to what is a fundamental weakness in our present system. I am convinced that at present the real interests of unionised labour as a whole are, though not identical, so nearly coincidental with that of the whole country that if we could only have, as an effective influence on particular labour disputes, the collective judgment of the trade union world as a whole, then it would not be difficult to bridge the narrow gap that might still remain between that and the national interest.

The real trouble is that in the nature of the case, when specific disputes and wage demands come along, they are sectional demands, demands for increases of wages in a particular industry, put forward by particular union leaders whose job it is to use the bargaining power they have in order to get for their own members the best terms they can. We cannot say to leaders of a particular union, "It is useless for you to press this because if you get an x per cent. increase in wages the effect will be to put up by x per cent. the prices of goods which your members buy." That is not true, because the fact that that demand is made does not automatically mean that the makers of all the things which members of that union buy will also push up wages and prices by x per cent. Nor, if they refrain from making the demand, will they thereby automatically dissuade leaders of other unions in other industries who make goods which their members buy, from making a demand for a wage increase.

Unhappily, there can be no short-term or immediate remedy. But I believe that, as a long-term policy, nothing would be of such great advantage to this country—and I commend it to noble Lords on the other side of the House—as a development in the internal organisation of the union world which would enable those at the centre who represent union labour as a whole to make their influence effective upon union leaders of different sections in different industries. I have ventured to put that theme before your Lordships in greater detail on earlier occasions and I will not further develop it to-day; but I should like to commend it to your Lordships, and especially to those who are connected with the union world.

I agree with the noble Lord who introduced this Motion that the debate really covers three different questions, although my questions would be rather different from his. I should say the first is: was the ex-Chancellor of the Exchequer right in his policy and his resignation? Secondly, which objective of policy should now have priority—curbing inflation or safeguarding ourselves against possible deflation? And, thirdly (since this is, after all, a vote of confidence or of censure), do we think that the purposes we all have in mind would be better served by the continuance in office of the present Government or by its replacement by what would be the alternative? I should like to put before your Lordships a few reflections on each of these three questions.

First, I believe that it would be easier to find the answer to the question about Mr. Thorneycroft's resignation and his difference with the Cabinet if I knew more exactly what were the real issue and the real difference. It is perfectly obvious that a resignation of this kind cannot fail to some extent to "rock the boat" and affect the future prospects of the Government which Mr. Thorneycroft definitely wishes to remain in office. Quite obviously, therefore, it is only an important question of principle that would in those circumstances justify a resignation. On the other hand, we have to bear these considerations in mind. First, it is quite clear that the proper working of our system of government makes it of great importance that Ministers should be ready to resign on something which is to them a sufficient issue of principle. Secondly, of course, we have to remember that in this case—and I believe it is without precedent in our financial history—it was not only the Chancellor of the Exchequer who resigned but both the other Ministers at the Treasury. I think I might add, because I know that a number of your Lordships heard the ex-Chancellor of the Exchequer's speech of resignation, as I did, that we all not only deeply admired his personal and political courage but were impressed by the obvious sincerity of his conviction that the real issue was deep enough to justify, and indeed require, his resignation.

Those of us who are not in the Cabinet cannot, I think, judge exactly what the issue was. I think the first announcements made us believe that it was a difference of only £50 million, or about one per cent. of the total. It became clear a little later that the difference between them was not one of a £50 million increase over last year, but of a £50 million increase on the Estimates of last year as increased by the subsequent Supplementary Estimates. That is a very much greater difference. One cannot but get the impression, from all the debates that have taken place, that what the Ministers were really protesting against was a general attitude towards the drastic policy which they recommended. I am bound to add this, as I think, an interesting. reflection: it looks not improbable that the present Government's actual future policy will be rather nearer to that which Mr. Thorneycroft desired than either that for which he was able to obtain approval at the time or, perhaps, that for which he would have been able to secure approval had he remained in the Government. That. my Lords, seems to me the case for the resignation. For the reasons I have mentioned, and in the absence of knowledge which none of us who were not in the intimacy of the Cabinet discussions can have, I do not put forward that opinion as dogmatic or conclusive.

I turn to the underlying question: should we be mainly concerned at this moment in trying to counter inflation or in safeguarding ourselves against deflation? I am afraid that there cannot be any simple diagnosis of our present situation as being one of either inflation or deflation. The real fact is that you can have simultaneously—you do have—forces making for, and continuing to make for, an increase in prices, and other forces, including those of the recent measures of policy, that are making for deflation, a reduction or restriction of production, and to that extent, therefore, tending, by diminishing the supply of goods, to push up prices. It is a complex situation and a complex balance of considerations that any statesman, I think, has to have in mind.

It is, of course, unhappily the case that all fiscal measures and monetary measures of the kind that have recently been resorted to are bound to have, to some extent, while countering inflation, on the one hand, this kind of off-setting effect in reducing the supply of goods on the other. And we must also remember that it is quite possible that a recession, which may extend into a serious depres- sion originating in other countries, may cause a deflation here and may therefore change the balance of competing and conflicting considerations on which policy must be determined in this country. But I do suggest that in any weighing of the balance in this way, either now or in the future, it is of the utmost importance to bear in mind how essential it is that the external value of the pound, and therefore in relation to the currencies of other countries the internal purchasing power of the pound, should be maintained stable. Not only is that essential; its importance is unique in our country as compared with all other considerable industrial trading countries in the world.

VISCOUNT ALEXANDER OF HILLSBOROUGH

My Lords, I am following the argument closely on the adjustment between countering inflation and deflation. I think the noble Lord was with me in another place when the new Chancellor of the Exchequer made his speech of explanation, and I seem to remember that twice he mentioned, not countering inflation, but supporting deflation. That seems to be indicated in the agricultural policy which has been so far pursued.

LORD SALTER

I do not recall that particular distinction being made by the present Chancellor of the Exchequer. I do not think the Government for a moment want deflation as such. The objective of their policies, as I understand them, is to counter the continuance of inflation, to counter the rising and continuance of the rise of prices; but not, surely, to inflict the kind of deflation that would, for example, reduce prices absolutely and, in the course of doing that, cause great increases of unemployment and a great reduction of employment. I do not understand that to be the purpose of the Government at all, under the recent or the present Chancellor of the Exchequer.

I was saying that I think it is important to bear in mind that it is of unique importance to this country that we should avoid the kind of deterioration of currency that other countries have suffered in the history of this century. I would add this: that in present circumstances I do not think it is possible to contemplate another devaluation like that of 1949 from the present fixed parities then go on even with such measure of success as we did after that devaluation. I do not think we can expect that, in present circumstances, the pound could go on fulfilling its essential rôle as the basis of a very large proportion of the trade of the world if it were now forced into another devaluation. Nor is there any solution, even apart from our Bretton Woods obligations, in a departure from parities and having an indefinitely floating pound. We have seen what happens when you get a serious strain on a currency floating without fixed parities which you devote your efforts to maintaining. It is only too easy to fall into an accelerated depreciation that may make that currency impossible as a serious medium of world trade.

We have, as I say, with those considerations in mind, to remember also that we in this country, to an extent that no other great industrial country does, depend absolutely, for the maintenance of our factories in full work and our labour in full employment, upon the purchases with foreign exchange of essential raw materials. If our currency did go to pieces, then indeed there would be the gravest danger—in fact, it is not only the most serious danger but perhaps the only serious danger—of mass unemployment and continuing mass unemployment. Any statesman, in weighing alternative policies, must have that fact in the forefront of his mind.

Of course, the fall of a currency at any moment, such as the fall of 1949 and the fall which was perhaps only narrowly arrested in 1957, is in part the reflection of internal weaknesses in the economy or policy of the Government and in part the reflection of external events. I think I may say, without offence, looking back over the years of the Labour Government's regime, that it would be fair to say that the strains that caused the fall of the pound in 1949 resulted from a long period of over-lax policy. There had been, for example, the application of the kind of policies associated with Maynard Keynes, who was thinking of a very different situation. It would be very unjust to accuse him of the mistakes of policy in the 'forties—as unjust as it would be to take the prescription of a doctor who had given a medicine designed to remedy low blood pressure and apply that without change to a patient suffering from precisely the opposite trouble—high blood pressure. I think that that is what happened in the years preceding the fall of the pound in 1949, and it should be a warning to us now.

What I have said will have indicated why I think that when we have a crisis such as we had last summer, we must give priority to those measures which will defend and protect the pound from a fall. They may not long continue. I greatly hope that our situation may be sufficiently improved to make it possible to lower the bank rate again, a bank rate which necessarily imposes great charges upon the Budget and tends to aggravate any dangers there may be towards real deflation and not merely the arrest of inflation.

In regard to the criticism made by the noble Lord, Lord Pethick-Lawrence, who accused Treasury officials of failing to take advantage of their opportunity to fund the floating debt at a low rate, I am not sure to what period the noble Lord was referring. I am not saying that there were not lost opportunities of that kind. I suppose that the greatest opportunity for funding at a cheap rate was during what I might call the Dalton period of finance. I am not going to argue whether or not there should have been a great refunding then, but I would point out by way of comment that had the floating debt been funded then successfully at a low rate, the result would have been to save the present general taxpayer, over whom the burden is spread, from a charge which now rests upon him, at the expense—concentrated and disastrous—of the unhappy persons who would have subscribed to the bonds issued at that time. Funding in such conditions is not such a simple and just policy as the noble Lord seemed to think.

Before I pass from this question, I should like to emphasise one other long-term weakness, not so much in our system but in the world system, in addition to the organisation of the trade union world, to which I have already referred. When we have such a system of payments and exchange as we now have in the world and such a preponderatingly strong and dynamic economy as that of the United States, impinging upon and causing strain on the balance of payments in many other smaller or weaker countries, I do not think it will be possible for countries whose balances of payment, and, therefore, currencies, are under the greatest strain to meet the situation solely by their own efforts, though, of course, their own efforts (such as those we are making here) are essential.

I think it is of the utmost importance that it should be recognised doctrine and accepted practice for countries who have a chronic and powerful positive balance of payments to regard it as their duty to take complementary measures so as to lessen the strain upon the countries with weaker balances. We have had some recognition of this principle both in words and in practice among members of the European Payments Union. It was agreed policy, at the time when Belgium had an embarrassing surplus, that she should proceed further and faster with a liberalising economic policy than other countries whose balances were weak. In the recent crisis it was also interesting to notice that at the time when we put up our bank rate from 5 to 7 per cent., West Germany, a surplus country, and America were reducing their hank rates and rates of interest. That was a recognition of the principle I am advocating, but on a very small scale it has not been recognised adequately in doctrnie, still less in practice. And I was extremely glad that this doctrine should be advocated, with all the authority both of his personal record and his present position, by Sir Oliver Franks, in his recent annual statement.

That is all I have to say, except for a few concluding remarks upon the vote of confidence aspect of the Motion. I think that it will be apparent from what I have said that, like the last speaker, the noble Lord, Lord Balfour of Inchrye, I shall vote with the Government. I think that if the alternative Government replaced this one, their mere advent would so affect the judgment of world opinion on which the stability of the pound so much depends that, however moderate and wise their subsequent policies might be in fact, they would scarcely be able to withstand the strain that would fall upon the pound. Apart from that, I prefer the present Government to the alternative because of the policies which the Opposition have recommended—in particular, that of spending our way out of the crisis by stimulating production, and that of reinstituting a system of controls. I cannot believe that in such a crisis as we have seen in the last six or eight months, having regard to the considerations which I ventured to put before your Lordships it would be possible to spend our way back to a sufficient increase in production to enable us to avoid on the way another, and I think fatal, devaluation of the pound.

In the second place—and I went into this closely when I was last in office—I became convinced that, though there are occasions when some restriction on imports as a complement to other measures of policy is possible and desirable, the extent to which we can limit the strain on our balance of payments by that method is very limited, and the price that is paid in the long term is very heavy. Therefore, having to choose, on this third part of the Motion I shall myself on Thursday go into the Government Lobby. I support the Motion of confidence and oppose the censure Amendment, though I should like to couple my support with the comments I have ventured to put before your Lordships.

5.0 p.m.

LORD DOUGLAS OF BARLOCH

My Lords, the noble Lord who has just sat down has made an interesting contribution to our discussion, as he usually does. I am not saying that I agree with all that he has said, but I do agree with what he said about the dangers to our economy of any further progressive inflation. Let me return to the speech with which this debate was opened. The noble Lord, Lord Mills, as usual, spoke with a great deal of confidence, and I certainly would agree with the tribute which he paid to British science, inventiveness and technological achievement; and that is no doubt a background to the discussion. But I was a little puzzled to find out what contribution he was making to the discussion on the problem of inflation, which is the one with which we are immediately concerned. The political journalists, I understand, say that he was the leader in the Cabinet of the opposition to the late Chancellor of the Exchequer, and, if that is so, that may explain the leading rôle which he is playing in the debate to-day.

I can understand that the noble Lord is very much concerned about this problem, because he is the Minister who is responsible for a massive programme of investment in the development of power, and particularly of nuclear power, which is going to involve this country in the expenditure of many hundreds of millions of pounds. The noble Lord certainly ought to be concerned about the problem of inflation, because that programme will never be financed if inflation is allowed to continue. No competent and prudent adviser would recommend any investor to invest in the securities of the nationalised industries or in Government securities so long as inflation and the prospect of it continues. Nor is it possible to find the finance for that programme by means of further taxation; I do not believe that the noble Lord, or the Government of which he is a member, conceive that to be possible.

Contrary to the popular view that inflation encourages investment and economic expansion, exactly the opposite is true. My noble friend Lord Pethick-Lawrence, in the course of his speech, gave some figures which illustrated that point. Inflation is a bar to the progress of the economy; it defeats all rational economic calculation. It is impossible for the manufacturer to foretell what the level of prices will be in the future; it is impossible for him to determine with precision what reserve he ought to make for replacing his plant and machinery when it wears out, because he does not know at what prices he will have to replace it; and it is impossible for him to calculate at what price he is going to buy the raw materials which he requires. Consequently, he is frequently induced to stock far more of them than he actually needs in order to safeguard himself against a possible future increase in price, and that overstocking helps to aggravate the variation of prices and to make the effects of inflation still worse. So I say once more that our economy will prosper far better if we are able to stabilise the position and to avoid the inflation from which we have been suffering for so many years.

Nor is it true that inflation helps to increase real wages. It is the case, no doubt, that monopolistic industries are able to pass on the increase in wages to consumers; and if it should be that the trade unions in such industries are strong, they will exact considerable increases in wages, and perhaps in excess of the increase in prices, but they can do so only at the expense of other members of the population who are not in such a happy and privileged position. So far as the mass of the people is concerned, inflation is an evil: it injures pensioners and people of that kind who depend upon fixed incomes. Only this morning there was in the Daily Telegraph a striking article emphasising that point. I will not repeat it; I think the facts are patent.

It seems to be impossible to finance a major war honestly and without inflation. The Napoleonic Wars, the First World War and the Second World War have all shown the same experience of increase in the monetary circulation, increase of prices and inflation in the most aggravated form. In the first speech which I made when I became a Member of the other place in 1940 I drew attention to the increase in the note circulation which had already taken place, to the enormous increase in the floating debt and to the increase in prices. All the classic signs of inflation were then already apparent. In one of the last speeches which I made before I left the other place in 1946 I drew attention to the same thing. The note issue then had risen to some three times the pre-war level. But I little dreamed that, the war being ended, inflation was going to continue progressively for twelve more years, and that we should reach a position in which the level of the circulation was four or five times the pre-war amount, and that the level of prices would have risen correspondingly.

It is certainly time that we called a halt. I have some sympathy with the late Chancellor of the Exchequer, because he seemed to me to be the first Chancellor of the Exchequer we had had for some time who possessed both the determination to stop inflation and the knowledge of how to do so. Perhaps, however, his very resignation has stiffened the Government to further effort. I do not feel quite certain about it. I noticed in the last Bank of England return that the note circulation was £95 million more than it was twelve months previously. This is a point which I have not seen mentioned by the present Chancellor of the Exchequer or by any of his colleagues in the Cabinet. I think it deserves attention.

I repeat that it is not true that it is necessary to have inflation in order to have increase of trade. It is possible—and it is demonstrated by experience that it is possible—to have an economy in which production is expanding, without having an increase in the quantity of money in circulation and the level of prices rising year after year. It is not only possible, but it is far more beneficial for the mass of the people, because it means that the benefits of industrial progress will be reflected in lower prices and a more abundant supply of commodities available to the mass of the people, and that consequently the benefits of industrial progress will be diffused to even those who are weakest economically—the ones who are exploited and penalised by a continuous course of inflation.

5.3 p.m.

LORD MELCHETT

My Lords, I hope the noble Lord, Lord Douglas of Barloch, will excuse me if I do not follow him carefully into the detailed analysis of inflation which he has given us this afternoon. There have been two main aspects of all our economic crises since 1947: there has been the problem of rising prices at home, and the strength of the pound abroad, coupled with our balance of payments difficulties. During the economic debate in your Lordships' House last May, I was rash enough to call into question certain aspects of our recent policy in regard to the use of sterling as an international currency. It was therefore encouraging to find so eminent an authority as Sir Oliver Franks taking this as the main theme of a remarkable and important statement which was circulated to the shareholders of Lloyds Bank about two weeks ago.

The small contribution which I should like to make to the debate this afternoon is mainly on this question of sterling abroad. However, the question of the value of the pound abroad and the value of the pound in this country is so intimately bound up that perhaps I might be permitted to touch just for a moment on one or two questions of our domestic policy. Mr. Thorneycroft, speaking in another place after his resignation, recalled how successive Chancellors of the Exchequer, during the last ten years, had failed to master the problem of inflation. He summed the position up quite simply by saying that we had been trying to do too much, and that however compelling the reasons had been for the various projects we had embarked upon, in both the domestic and the international field, the plain fact of the matter was that we had been trying to live beyond our means. The new Chancellor of the Exchequer, in his speech the same afternoon, said that the first object of policy was to control inflation and restore the value of the pound abroad, and then we could turn our attention to increasing production.

The suggestions which I should like to put before your Lordships are based on these two statements which, after all, are statements of the same policy. The Government's policy is one of deflation, in order to achieve the joint aims of stable prices at home and a strong pound abroad. If we are living beyond our means there are two alternatives open to us: to cut our spending, or to increase our income by increasing our earnings. Surely, we should reconsider whether there are not, if not as great, certainly very real dangers if we continue to pursue a policy of overall deflation for too long. I make this suggestion for two reasons. The first is that I believe we can go a long way towards isolating the present extremely vulnerable position of transferable sterling—isolating it from our own internal problems. Secondly, I fear that if we pursue a policy of overall deflation in the whole economy for too long by using such weapons as a high bank rate and restriction on capital expenditure, there is a general tendency to restrict all enterprise, the important and the less important equally. If, however, we could to some extent isolate the vulnerable position of the balances of sterling held by people overseas from our own internal position, it would go a long way to improving the problem of safeguarding the currency, without our having to take, on that account alone, such drastic steps as proved necessary during the course of last year.

Some of the undesirable aspects of a movement towards deflation have already become apparent. We are beginning to see that our level of industrial production is not increasing, while that of some of our main competitors overseas has increased steadily, particularly our competitors in North America and the Continent of Europe. Perhaps the most disquieting result of, so to speak, our putting on the brakes in this country is the current low level of investment in plant and equipment. There seems no doubt that we shall be prejudicing our whole future if we fall behind in the modernisation and re-equipment of industry. It is essential that we should look carefully now at the dangers which are inherent in general deflation of the whole of our economy. My own conviction is that the greatest danger now—and I am not saying that we should not have taken drastic steps at the time—lies in the underemployment of our existing resources and manpower.

The point I should like to put to the Government here is this: would it not be possible to re-examine some of the alternatives which have been suggested from time to time for controlling our internal inflation? Rather than the rather blunt weapon of bank rate, which tends to attack all and sundry, whatever the merits of their case, could we not look for some precision tools which could be used to adjust the very delicate mechanism of our modern economy? Many well-informed people are not yet convinced that we have exhausted all the possible means which are available to us to control our economy.

LORD SILKIN

Would the noble Lord agree that every word he has said about the level of the bank rate applies also to restriction of loans from banks? That also operates unevenly.

LORD MELCHETT

I think I should agree with the noble Lord that, generally, all monetary restrictions applied universally to the whole economy—although that is not absolutely the case with bank loans, because there has been a certain amount of selection there—are restrictive and tend towards deflation; and I was trying to establish the point that within this there are dangers of which we need to take account for the future.

On the question of controlling our own internal inflation by other means, I have in mind two specific instances—and perhaps I should apologise in advance to the noble and learned Viscount, Lord Hailsham, because the points are much the same as those raised by my noble friend Lord Balfour of Inchrye during the debate on the Address, when we discussed the economic situation. First, it appears to me that anyone who examines carefully the import side of our balance of payments accounts cannot fail to be impressed by the number of unessential, from the strictest point of view, imports which are increasing year by year. I recognise the difficulty in applying direct controls, but it seems to me that, however desirable some of these commodities may be in themselves, or to certain sectional interests, there is no doubt they are being imported to-day at the expense of the general national interest and stability.

I have in mind such items as American tobacco, certain foods, timber, and animal feeding-stuffs, which could either be obtained elsewhere or produced from our own resources. If we controlled these imports, in face of a crisis as acute as that which we faced last summer, is there really any serious risk of countervailing restrictions being imposed by other counttries? We see the United States, Germany, Australia, France and many other countries supporting their position, in times of temporary difficulties, by imposing import restrictions. Although we may be vulnerable, I think (I should like to press the point again) the question should be reconsidered of whether, in extreme circumstances, such restrictions on our own imports might not be preferable to having a bank rate at the level of 7 per cent., or general deflation, which could do permanent damage to the whole fabric of our economy.

The second point on the control of the internal situation which I should like to raise is the question of low priority capital investment. Here I have in mind such things as petrol stations, office blocks and the like, which could wait for a year or nine months if the general pressure on the economy were too great. In this field at the moment we rely on a combination of high rates of interest and the physical control of the Capital Issues Committee. There seem to be two important points here. The first is that the high bank rate has meant hardly any increase in the long-term lending rates to industry: since the last increase in bank rate there has been only a very small increase in long-term lending rates. The second point is that only about one-seventh of the total capital expended by industry is affected at all by either the level of interest rates or the Capital Issues Committee. That is, only about one-seventh of all capital expended by industry is found by issues of shares or debentures or borrowing from banks.

LORD GREENHILL

Where do the six-sevenths come from?

LORD MELCHETT

The six-sevenths come from depreciation, profits ploughed back, taxes unpaid, increase in trade credit and so forth. So, however high interest rates, or whatever controls are exercised by the Capital Issue Committee in the field in which it operates at present, six-sevenths are left entirely to the discretion of the people who already have the funds in their hands. I think here is another field in which we should consider whether some direct control might not in the long run be to our benefit.

There is another point which should be borne in mind, if the Government are going to rely on high interest rates to restrict demands for current finance. With the present level of taxation, for a company that pays profits tax, there is no deterrent to borrowing until the rate of interest reaches 9¼ per cent. So far as the owners of the company are concerned, with interest at 9¼ per cent. the position for the equity holders would be the same as remunerating share capital at 6 per cent. Therefore, the rate alone if the borrower is creditworthy and in a strong position, is not sufficient to deter him with the present high levels of taxation. This implies a bank rate of at least 8 per cent. before it acts as a real deterrent.

My Lords, I am sorry to have gone into such detail on this matter, but I am trying to establish the point that the Capital Issues Committee and a high bank rate, as we operate the two systems at present, are not necessarily an effective way of controlling capital expenditure, particularly on major projects. If the pressure on the economy, as Mr. Thorneycroft said in his speech, has come partly from the fact that we are trying to do too much at once, I think there may be a case for considering whether we should not programme out some of the major projects over a period of years; and this would imply, in my view, some form of licensing or control by a Government Department. I suggest this would not be so impracticable as has been suggested in the past if we took a level of, say, £100,000 and above as being the level at which projects would qualify for programming, particularly when we consider that at the moment the Capital Issues Committee has to look at all projects in excess of £10,000. So I cannot see that the staffing requirements and other difficulties would be so enormous.

It may be thought that, when one complains that the monetary controls are not working very well, it is not reasonable to complain of their damaging effects and their deflationary results. But that is not the point. The point is that in spite of the defects the existing monetary controls nevertheless have a general depressing effect on the economy; they affect the whole level of activity, and have a tendency, if we operate them for too long, to destroy confidence. They particularly attack the smaller businesses and the small man, and under present conditions they tend to leave the big people insulated. If import controls, used judiciously, and programming of major capital projects would relieve some of the pressure, it might then, always assuming that the Government kept their own expenditure under control, not be necessary to risk depressing the whole economy with a continued credit squeeze and high interest rates for too great a period.

Before I sit down I should like to say one word on the question of sterling overseas, because that seems to be the other aspect of our problems which has necessitated the drastic steps which we took last year. As I understand it, the position is that sterling as a currency is carrying 40 per cent. of the world's trade, and for this purpose we have available 4 per cent. of the free world's reserves. This has to be measured against the United States and Germany, who between them hold 50 per cent. of the free world's reserves. In addition, as Mr. Thorneycroft pointed out in his speech to which I referred earlier, we have during the next eight years to repay debts which together amount to more than the whole of our existing reserves. That is in a very short period of time—during the next eight years.

The simple fact of the position is that there is little chance of establishing the reserves that can make the pound a stable international currency. The inadequacy of the reserves at present can hardly be challenged. We have had continuous crises with sterling during the last ten years, which have been years of good trading conditions in the world, with a high level of production—in fact, boom years. Can we look forward to such good years in the future? The fall in world commodity prices has already reduced the earnings of the sterling area and, as the Chancellor of the Exchequer pointed out in another place, some of our best customers have had their incomes severely cut as the result of the recent fall in prices. So possibly the more difficult years are already upon us. Suppose for a moment that it were possible to increase our reserves by the painful process of adding to them from current surpluses. That could be done only at the expense of the economy of this country and of our investments overseas. Such a policy is in itself deflationary and, in conditions in which world trade was not expanding, could be to the detriment and the disadvantage of all the members of the sterling area as well as to ourselves. The proposition that I should like to leave with your Lordships this afternoon is this: is it possible to struggle on with the existing machinery, trying to support the fabric of the sterling area with small reserves, moving from crisis to crisis, holding off difficult positions, with policies which strike at the very root of our own economic life?

I tried earlier to make the point that if this strain could be taken off our own economy it would go a long way to relieving both our immediate difficulties and our potential difficulties in the future. Could we not therefore take the lead in setting up an international Central Bank, holding all the available reserves of the free world, those of the United States and Germany, pooled with our own and those of other nations? Such an organisation, possibly as an extension of the International Monetary Fund, could take over the responsibility for a large part, if not all, of the transferable sterling account area. Why should the headquarters not be in London? Could not all the knowledge and expertise at present used to manage the sterling area be used on an international project of this character? Only by some far-reaching step shall we ever get the necessary reserves behind a large part of the international means of exchange in which we are so vitally interested.

I should like to ask the Government whether they would consider that our efforts in the future might not be fruitfully directed towards exploring this sort of possibility. The idea is far less revolutionary than either the International Monetary Fund or the European Payments Union would have seemed at the beginning of this century—and, of course, the general idea of a clearing house was actively discussed at the time of the Bretton Woods Conference. I hope that I have not detained your Lordships for too long, and that I have not overstated the case I have tried to put before you. Although I believe the machinery badly needs modernising, I am nevertheless glad to give my support to the Motion before the House.

5.36 p.m.

THE FIRST LORD OF THE ADMIRALTY (THE EARL OF SELKIRK)

My Lords, we are examining the internal and external value of the pound, and I would differ with the noble Lord, Lord Melchett, only in saying that I do not believe they are different; they are fundamentally the same: and my regret is that the noble Lord, Lord Pethick-Lawrence, to whose speeches we always listen with such attention, did not deal a little more fully with that particular question and, in particular, with the alternative proposals which he obviously had in mind, because I take it from this Amendment that there is no difference between us in regard to the need to maintain a stable value of the pound. I am sorry he did not deal with it, because it is a complex subject—a currency which we use in this country, which is in fact used by so many millions, particularly overseas, and which it has been said finances very nearly one-half of the international trade of the world.

It is difficult to analyse the benefits which come to us, but one thing of which I am quite certain is that if we were to lose that, we should lose a very great deal indeed. We in this country are in fact in the position where our interests, individual, economic, and as trustees, are that we should maintain this currency. It is a currency whose value depends on the way we use our money. I agree with the noble Lord, Lord Salter, that there are compensatory methods which can be used by other countries and which can help us in that.

I am not quite clear whether Lord Pethick-Lawrence or Lord Melchett think that we are doing too much, or too little, but I gather that the noble Lord, Lord Pethick-Lawrence, seemed to be under the impression that we are not expanding sufficiently. Well, if we look momentarily at our history since the war, we can point to the development of the Welfare State, which has been a good deal more expensive than we originally anticipated; the rearmament programme which we have undertaken since the time of the Korean War, and our investment programme. At the present time we are investing 1 per cent. of our gross national product overseas, which is more than any other European community is doing; and the proportion of our national income which at present goes to investment in all its forms is greater than that in the case of the United States of America. These are substantial achievements. At the same time we have raised consumption in this country by the order of 12 per cent. since 1951. I believe the blunt answer is that we have set our sights pretty high, and if we are not expanding rapidly at the moment I am not the least hit sensitive to that fact. What is important is that we should maintain our standards, if I may give an illustration, rather like a gyro. We have to maintain the speed of the gyro in order to preserve our stability, but if our speed is too fast we shall fall apart.

I should like to take one or two examples of what is happening at the present time. First, may I quote from that model of accuracy, the Board of Trade Review, an almost dreary book which becomes nearly emotional when it speaks of last year's trade returns. It says: … thus ending a most successful year in a brilliant fashion "— that is in regard to December, and goes on to say: On both sides of the account in 1957 exceeding that in any previous year by a considerable margin. That is simply the trading position at the present time, and anyone who talks in terms of stagnation is not respecting the facts.

May I turn momentarily to reserves. I thought that the noble Lord, Lord Pethick-Lawrence, passed those off a trifle lightly. He said we invoked the waiver and borrowed money. The waiver was in respect of money which the noble Lord borrowed when he was in the Government ten or twelve years ago; and he certainly borrowed a great deal more than we have had to borrow in the last twelve months. In October, November and December there was a total rise in the reserves of 423 million dollars. I am now able to announce the figures for January. That month shows a further increase of 131 million dollars, making since the end of September a total of 554 million dollars. That is a very considerable improvement, and there is no doubt that, whatever may be the fundamental causes, the position which this country occupies at the present time is greatly improved. Moreover, as is generally known, the pound is very nearly at the upper limit and is getting near to the figure of 2.82 dollars.

Employment remains very high and it is about average for this time of year, taken over quite a number of years. Also, over the last six years we have invested £1,000 million overseas. The noble Lord, Lord Wise, mentioned agriculture, and I agree that the agricultural industry is to-day more efficient than it has been in any period in the past and makes a considerable contribution to what would otherwise require to be paid for in dollars. The noble Lord, Lord Rea, very kindly re-wrote the Motion for us, but even when he had re-written it he did not like it at all and went on to tell us that he did not know what our proposals were. I thought the criticism was that we had told too many people what our proposals were, and told them too early. I had thought they were extremely well known. Most people are complaining indeed at the various forms of squeeze that we have imposed. I find it difficult to understand how the noble Lord—who was clearly against taxation—could be happy in finding himself voting with noble Lords opposite who, though they have not yet said so, are, I expect, very much in favour of higher taxation. We have not yet had that out of them because we have not had the advantage of any material proposals of any kind.

The noble Lord, Lord Pethick-Lawrence, who I regret is not here at the present time, was not quite certain of the position of the Governor of the Bank of England. I can say that it is exactly the same as when noble Lords opposite were in office, and it is a matter substantially governed by an Act of Parliament which they themselves passed. The second thing which I could not understand was whether the noble Lord, Lord Pethick-Lawrence, wanted the Chancellor of the Exchequer to take more, or less, advice. He seemed to think that he had taken too much advice last September, but he went on to say that he should take advice from someone outside the Treasury.

At this stage I should like to confirm what was said by the noble Lord, Lord Salter, in case there should be any doubt. There is no question of pursuing a deflationary policy. What we are seeking to do is to counter any signs of continuing inflation; I think there is no question about that, and the Chancellor of the Exchequer has never said anything which had any other meaning. I should like to take up a point which is important in estimating the progress we have made. Sterling in the transferable market is now very free, and I believe most people feel that that is right, for we do not believe that sterling can maintain its value for any length of time unless its value is realistic. It is no good pretending that sterling can be bolstered up, except temporarily. To do so one would have either to accept devaluation or to isolate sterling from the outside world. If we want to keep the sterling area then sterling must be retained on a realistic basis.

As we know, we are doing that to-day in a highly competitive world. In recent years there has been the growth in Japan and Germany particularly and in other countries of very strong competition, but in spite of that we are maintaining our position, and I believe we should be glad of that. There was a time after the war when one could sell abroad almost anything that was made, but that is no longer the case to-day, and, as the noble Lord, Lord Melchett, has said, we are doing that with only 4 per cent. of the total world reserves at our disposal in sterling. I am sorry that noble Lords opposite have not given us a better idea of what they intend to do, but my impression is that in practice the policy they intend to pursue almost conspires to undermine sterling at every turn. I am not saying that they would deliberately pursue such a policy but that that would be the effect of it.

There is first the question of import controls. I would not be against import controls as a temporary measure, but nothing is more likely to undermine sterling than to retain such controls, for that would inevitably promote retaliation and make it more difficult for people in this country to sell. After all, we import, substantially, raw materials. The noble Lord might like to abolish the import of tobacco and perhaps he will get up on a public platform and say that he wants to impose limitations on tobacco imports. With that exception, almost all our imports are essential requirements, either for food or for the manufacturing industries.

VISCOUNT ALEXANDER OF HILLSBOROUGH

My Lords, is that really so?

THE EARL OF SELKIRK

It is very nearly so. I regret that I have not the figures.

VISCOUNT ALEXANDER OF HILLSBOROUGH

My Lords, we have already made front these Benches the point that barley is stacked on our farms, unable to be sold, and unemployment is rife in agricultural areas, while Her Majesty's Government continue to import cheap barley which is made up into expensive concentrate products to go out to the farmers.

THE EARL OF SELKIRK

I have not an answer to that particular point, but what I said was that substantially our imports are food and raw materials.

LORD MELCHETT

My Lords, the noble Earl has been good enough to refer to what I said about import controls and tobacco. What I had in mind was that we could probably get a commodity such as tobacco from other areas in increasing amounts over a period, rather than import it from the United States of America, which puts a particular strain on our dollar position.

THE EARL OF SELKIRK

Of course, we do a considerable overseas trade in that respect and I should have thought they knew where to get their stuff.

Let me take the next point, nationalisation. It appears, so far as I understand the noble Lords opposite, that their next policy of nationalisation is to go into industries engaged in foreign trade. If that is so, we should like to know. My own feeling is that foreign Governments are not very keen on dealing with Government-controlled industries, and I should be very surprised if they were to find that that was a satisfactory way of proceeding. But if I may take the matter further, nothing makes countries more unwilling to invest in this country than the danger of nationalisation.

LORD GREENHILL

Does that include China and Russia?

THE EARL OF SELKIRK

I know of nobody who has invested willingly in China or Russia. If the noble Lord knows of any firms which have done so willingly, I shall be interested to hear of them.

LORD GREENHILL

To trade with them?

THE EARL OF SELKIRK

You trade with them, but you do not invest money with them.

VISCOUNT ALEXANDER OF HILLSBOROUGH

You invest money to produce stuff you are very anxious to sell to them.

THE EARL OF SELKIRK

But I referred only to investment. The other point is this. The policy which the noble Lords opposite want to pursue, as I understand it, is high expenditure, which inevitably means loading our resources here and, in a sense, reducing the incentive for taking action by exporting overseas, and, moreover, by reducing real savings. For all these reasons, I suggest that the policies they wish to pursue are most likely to undermine sterling both abroad and at home.

I would say only this to the noble Lord, Lord Melchett, who says that he wants to see building controls imposed. Somewhere about 85 per cent. of building represents houses, industrial building and buildings required for public authorities. I should think the 15 per cent. miscellaneous and private building would hardly justify establishing vast controls. I never think that petrol stations are worth quite the political attention which they sometimes get in this country.

We have sought deliberately to check expansion over the whole field—and by "expansion" I mean development in what are, frankly, welfare services, and in defence, in investment and in consumption, to see that they do not rise any further. There has been a general rise in consumption of the order of 12 per cent., so the consumer's market is extremely active. There are now something like 7 million television sets where there were none before; consumption of something of the order of 50 per cent. more electricity than in 1951; the number of motor cars and motor-cycles on the road has very nearly doubled; and productivity is higher than in the great majority of countries in Europe. So I think we can claim to have a pretty active industry which is basically sound.

I should like to turn to examine for a moment what we are trying to do. We are restricting hire purchase, restricting Government capital expenditure and ensuring a limitation and a keeping down of the level of current Government expenditure. This is, of course, very largely to counter what is called "demand inflation". Some people, however, think that the dominant inflationary question is what is called a "cost inflation". It is sometimes said that we are doing too much. I do not know whether we are or not, but what is quite certain is that we are paying ourselves too much for what we are doing, and I think the most salutary way of meeting that is by increased competition. We have dealt with that by the Monopolies Commission. There are the imports of raw materials from all parts of the world, and the well-stocked retail stores do, I think, give a very fair reflection of what is available in this country at the present time.

What we have done does not entirely overcome the elements of cost inflation or what is generally known as the spiral of wages and prices. This process can go on, I suppose, interminably in a self-supporting country; but we are an exporting country, and it cannot go on without seriously damaging the value of our currency. If it did, either we should be driven out of the foreign markets or, alternatively, we should have to devalue. This is a matter which cannot be entirely within the control of the Government. I doubt whether anyone thinks that it should be, and I agree with what the noble Lord, Lord Balfour of Inchrye, said: that the whole country has got to appreciate the significance of this matter.

In Germany, they had a full-scale inflation about thirty years ago, and they have a full sense of the dangers and of the difficulties which will arise in that respect. I agree that the full significance of what is involved in this problem is still not fully appreciated here. People do not realise that it is not so much a rise in prices as a fall in the value of money itself. And, if I may say so, the remark which the noble Lord, Lord Pethick-Lawrence, made about the Rent Act, which is a clear case of a rise in prices, has nothing to do with inflation as such at all.

VISCOUNT ALEXANDER OF HILLSBOROUGH

If the Rent Act is going to provide steady increases of rent for controlled houses occupied by the working classes, does the noble Earl think that is not going to make a difference in productive wages and, therefore, to cost inflation?

THE EARL OF SELKIRK

What I said was, that there is a difference between a rise in particular prices and a fall in the value of money. Inflation is a fall in the value of money, and a rise in rent is clearly not a fall in the value of money. One way is to allow inflation to take place until we have to devalue, and in this way to allow the force of economic facts to be borne home on the country. That has not happened. The other way is to encourage (and to realise that it is difficult to do so by controls) all those who are responsible throughout the country to show by word and deed that they value the currency which they use; that they attach importance to maintaining its value, and that if there are any increases in salaries, wages or profits those increases should be in real values and not in inflated values. I know that this requires some adjustment, but I believe that the people of this country are quite prepared to face the adjustment which is necessary. I do not think this country at the present time shows any sign of recession. In any case, I believe it never helps a threat of recession if people exaggerate its extent. So far as a recession may exist at the present time in the United States of America, I am confident that that country will show it is fully competent to deal with it.

My Lords, we have the dual task here of trying to do our share to keep the level of world trade high, but at the same time of not taking on more than we should. What I am quite certain is that we cannot fight our way out of recession without regard to what happens outside. For all these reasons we have at once an interest and a duty to those who use our currency abroad to see that we maintain its value; and it really is no use blaming hard-faced bankers for actions which they took as a result of any unwarrantable lack of discipline in the way in which we managed our affairs. Meanwhile, the policy of stable currency may well make necessary unpopular action from time to time. I can assure your Lordships, however, that this will not deter the Government from pursuing the policies which they have undertaken—I have no doubt that whatever may arise from them will be well worth while—rather than leave indefinitely the problems which we are facing now and which will not become easier with the lapse of time.

6.0 p.m.

LORD HAWKE

My Lords, a number of good hares have galloped across the course this evening and it would be nice to give them a chase. We have heard my noble friend Lord Melchett on sterling area reserves. I think that if only Lord Keynes had survived, we should have seen some such system as my noble friend was advocating in operation at this moment. Noble Lords opposite produced a hardy old hare known as "trade with Russia and China". I have always wanted to know what exactly they want to get from those countries. There are plenty of goods that they want to get from us, and if they would pay in gold it would be greatly to our advantage; but if it would strengthen sterling currency, I do not see the Russians offering to pay in gold. I should be happy to debate the Rent Act with the noble Lord opposite at any time. I think that if he referred to a speech made by one of his supporters in another place in the debate on the Address—he is a leading trade unionist—he would find that the honourable Member gave a great number of statistics, from which he will find that the number of people affected is not so vast as some make out and the degree to which they are affected is not so great.

The last time we debated this subject confidence was in a state of crisis. On this occasion it has gone back to its proper place of being merely a problem and it has been put there by controls. I have often heard the noble Viscount, Lord Alexander of Hillsborough, at the Dispatch Box opposite saying that the Tories had thrown away all controls. Of course, with all due respect, that is nonsense. We have very powerful controls indeed. We have control over the costs of credit and to some degree over the volume of credit. We have control over the cost of hire purchase and to some degree over its volume. And I hope that after the Radcliffe Committee Report we shall have better control over both the volume of credit and hire purchase. Another control is how we use the floating debt.

VISCOUNT ALEXANDER OF HILLSBOROUGH

My Lords, if that is the argument that is going to be made about controls, it seems extraordinary, after the use of this system for six years, that we should be in such a crisis and that the Government should be appealing to the country on the present basis. Why have not the controls the noble Lord referred to been effective? They seem to have been complete failures.

LORD HAWKE

My Lords, I was going on to say that I think the Government have been a little tardy in using these controls because they were really of an expansionist frame of mind and they took the risk in an expansionist direction. The use of these controls has been remarkable. We have a far greater atmosphere of economy, far more than my noble friend Lord Melchett would admit—ask any local authority. Our overall demand has been more or less restricted to the supply, and the great Government problem of attracting to themselves sufficient borrowed money to finance the public sector has greatly eased. In fact, gilts are much less tarnished than they were some months ago. Retail prices, particularly of foodstuffs, are dropping. The inflationary factors are not quite dead because there is a possibility that increases of wages in public utilities will have to be passed on to the consumers, and overtaxing of higher incomes (a subject I mentioned in our last debate) is still leading to extravagant spending "on the firm."

In the outside world the actual or potential supply of raw materials and food is at record levels. In the United States the "brinksmanship" of the Federal Reserve Board has been a little less deft than usual, with the result that there is a recession with the danger of a slump. This combination of plenty plus the United States recession threatens, I believe, to reduce our exports in 1959 and 1960. That is one of the reasons why I would not agree with my noble friend Lord Melchett that import restrictions are a good idea at the moment. If anything, we ought to do the very reverse.

The stage is rapidly being set for higher consumption and improved standards of living in this country, based on cheaper raw materials and foods. The only problem is when and how it should come about. In the economist's dream world there is a master figure who presses the right buttons at the right time, fed by statistics by his myrmidons. In real life, as we know, nothing of the sort happens. The figures are stale by the time they are written on paper and completely out of date by the time they reach the Treasury. The result is that controls have to be worked out more by instinct. We have to know what is passing in the minds of men to-day, even what will pass in their minds next week and affect their judgments in months to come. What the Prime Minister described as "looking up trains in last year's Bradshaw" is no good. That is one of the reasons why it is so important that there should be part-time Governors of the Bank of England. I am glad to see that that system has survived, completely unscathed, from the Labour £7,000 frolic in Church House, when respected men were dragged through the arena in the hope of making a political holiday.

The problem of when to relax has two schools of thought. One school says: "Finish the job of stopping inflation now, even if you risk a recession. It will be worth it in the long run." That school is supported by those who say that it would remove all doubt about the strength of the pound. The other school says: "We have to act in advance of circumstances. Unless we act fairly soon there can be serious under-employment in this country later on." I agree with the latter school, with certain reservations. My reasons are, first, that I believe it is impossible finally to exorcise inflation from a democratic community; secondly, that controls are there for use and we might have to use them one way or the other, and we must be prepared for a flexible policy on bank rate and so on if we want to steer between inflation and deflation; thirdly, that the price of deflation at home is very heavy, as we are a debtor nation with high Budget commitments, and abroad a world deflation would be disastrous. The only people who would benefit would be the Russians.

Fourthly, we are the head of the Commonwealth, and it is our duty to consume as much as we can of the Commonwealth products. Millions of people depend upon the purchasing power of our markets, and a perpetua17 per cent. bank rate is most discouraging to the carrying of stocks or to stocking up, which might well be the right policy at the moment. Fifthly, I should say that it is impossible fianally to solve the problem of confidence in the pound by any economic means, because it is not an economic problem: it is a political problem. So long as the majority of our creditors are capitalist countries, so long will they always have doubt about the security of their balances whenever there is fear of a Party coming into power in this country which is at best anti-capitalist and at worst near-Marxist.

The long-term solution, of course, would be to increase our reserves—and my noble friend Lord Melchett dealt with that matter at great length. I believe that the recent crisis of confidence in the pound was just as much a product of unfruitful Conservative by-elections as of any criticism of the financial policy of the Government. So that, in the light of the above reasons, I believe that the time has come very near to relax. But my reservations are these: first, that the Government, unless we are actually in a depression, do not commit themselves to spend above and below the line more than they can tax or borrow from genuine savings; and secondly. that wage increases are not passed on to consumers, thus causing a rise in the cost of living, and are not passed on to the Government by reducing the taxable profits of industry. Of the two schools of thought I have mentioned I suspect that the ex-Chancellor of the Exchequer belonged to the first; that is to say, "Exorcise inflation at all costs by still stronger deflation". If I am right in my surmise, then I disagree with him in his view.

The pound is now looking up. But we live in a world of publicity, and I do not think our psychological warfare on behalf of the pound is very good or very effective. We have to remember that a great many of the humbler people in the world who use pounds—not the great economists and bankers, but traders—regard devaluation as a smart commercial trick, as, in fact, it was used by the Japanese in the 'thirties. You buy raw materials, heavily stock them up, devalue your currency and then proceed to flood the world's markets. As I say, they regard that as a smart commercial trick. And as they never trust politicians very much anyway, they regard it as the sort of thing that could be done, perhaps even with advantage to Britain. I do not think we bring out sufficiently to the world how utterly disadvantageous devaluation would be to a nation in our trading position; what a world of harm it did the last time, and how completely disastrous it could be this time, leading to the complete break-up of the sterling area. Arguments of that sort ought to reassure such people that we should never dream of devaluing if we had anything to put in the breach to stop it.

Then, as to what we have to put in the breach, we all see the first-line reserves, and we know that they are pretty attenuated. But there are the second-line reserves, some of which the Chancellor of the Exchequer mobilised in the crisis. Are there not also third-line reserves? Do we not as a nation own large stocks of foreign securities which are readily negotiable, and so on? Let us hear more about the reserves behind the pound; and let us have a little more boost for the pound from the people who make their living out of it. Some City men always see an Eldorado in every country except their own. Yet if you look at the globe, at some of the Eldorados of the past—the Argentine, Brazil, China, South Africa—where are they now? How do we know that the Eldorados of today will not meet the same fate as the Eldorados of yesterday?

The strength of the pound lies in the industrial capacity of Britain, and it is a delusion to suppose that we can face our creditors with confidence unless we are employing that capacity to its utmost and providing for its proper expansion. The greatest safeguard for sterling balances that could exist would be the certain knowledge that in twenty years we were going to double our production, which I believe we surely will do. But we must expand without inflation; and expansion without inflation is a delicate and difficult task. In the last year or two Her Majesty's Government have probably been too slow in putting on the brakes; but that, at any rate, shows their good will towards the expansionist policy. When the crisis did come, I consider they handled it extremely well, and I think the Government, as at present constituted, believe in expansion without inflation. They already have powerful controls, and I hope and believe that the Radcliffe Report will make suggestions to reinforce their hand there. But do not let the Government be frightened of flexibility, To expand without inflation may need frequent adjustment of the controls. You must have the brake and the accelerator, and, in such circumstances, flexibility is not a sign of indecision but a sign of strength.

6.18 p.m.

LORD GRANTCHESTER

My Lords. perhaps I may begin by saying a word or two about the Motion, for our complaint against the Government is not on account of what they have done, but on account of the fact that we think that in the matter of the bank rate the action taken was too late, and in the matter of curbing their own expenditure their deeds have not matched their words. When it comes to the Amendment, in spite of the charming and disarming way in which the noble Lord, Lord Pethick-Lawrence, moved it, the real issue is, as the noble Lord, Lord Salter, pointed out, whether we think an alternative Government could face up to the problem more effectively than the present Government. Of course, unity is desirable, but I feel that the unity that is envisaged by the Opposition is a unity in austerity: we should be united in one way only—that of suffering deprivations, whatever the intention. So I agree with the noble Earl, Lord Selkirk, that the Amendment moved by the Opposition should not be supported.

With due respect, I do not think salvation lies in the way that the Opposition propose. I believe in better methods, in greater production, in more in the pockets of every individual, in more saving and so more reliable security, more personal responsibility, in growing up and getting rid of a nursery atmosphere—in fact, in the Government doing less and, above all, doing less spending, and more being done by the individual citizen with the extra money in his pocket. Imagine for a moment—if we could let our imaginations have a little play—the transformation which would take place if, for instance, purchase tax were abolished. Consider the immediate effect that it would have on the cost of living. Or imagine the effect on incentive if income tax were down, say, to a maximum of five shillings in the £—an incentive to go out in the world and play an important rôle in development, with resources available to invest.

These dreams, of course, are dependent upon the level of Government expenditure, and that is why we come back all the time to this question of the level of Government expenditure. I think most of us who looked at the Motion on the Order Paper to-day must have blinked a little. In the six years during which the Party in power have been responsible for Government, the value of the pound has fallen by 20 per cent. So we are entitled to ask: What sort of resolve is this that we are to support? I think it is not unfair to say that the record, certainly until last September, shows a lack of resolve to maintain the value of the pound or, if the resolution was present, it was an ineffective resolution. In fact, the resolution of the present Government, measured in terms of depreciation of the pound sterling, was no more effective than the professed resolution of the previous Labour Government which they were elected to correct.

In September last, pressure upon sterling became critical largely as one or two noble Lords have already said, because of distrust of our money. Such a crisis could be countered if reserves were adequate, which everyone knows they are not. But we must not forget that you want to call upon reserves only when it is necessary to restore confidence which has been lost. Confidence is, therefore, more important than reserves. In the days when all the world respected the pound, the gold reserve of the Bank of England was minute. In September last, the Government had a Chancellor of the Exchequer who was resolved to take a stand. But, as we know, he was thrown out. What to us is particularly distressing about this is the reason for his being thrown out. He stood firm, as he has explained, in favour of Government economy in their own spending. As he emphasised, overspending is the road to ruin just as much for a nation as for an individual. Too much money poured out becomes cheap money. Cheaper and cheaper money gradually becomes worthless money. Our money became 25 per cent. cheaper, 25 per cent. less in value, under a Labour Government between 1945 and 1951. Our money has become 20 per cent. cheaper still, another 20 per cent. less in value, under Conservative Governments between 1951 and 1957. A halt had to be called.

In September last we thought that the Government had accepted the fact that, whatever factors contribute to the whittling away of the value of the pound, and whatever measures could be taken in respect of those contributory factors, such measures would avail nothing if the Government continued to increase its expenditure. Neither the raising of the bank rate, nor the curtailing of demands for increased wages, nor the restricting of incomes, nor anything else that could be suggested, will avail if the Government continue to increase their expenditure.

As I have mentioned the bank rate, I would suggest that talk of the bank rate as an instrument of policy has led to some misleading assumptions. There is all the difference between an adjustment of the bank rate to meet the short-term conditions in the money market and the appropriate level of interest for longer terms. There has been in Germany a low bank rate, but there has been also high longer-term rates of interest. I do not think it ought to be assumed that longer-term rates of interest will necessarily move in line with the bank rate which takes account of the short-term situation.

Government expenditure covers such a wide field to-day that it is a factor of overriding importance and influence. There is—and the former Chancellor of the Exchequer made clear that this was his view—no way out from the necessity and duty to reduce expenditure. Nor can the Government escape from the duty of containing expenditure by pleading that it is entitled to spend more in total because of an increase in the gross national product. I do not propose to go into any detail on this question of the ratio of Government expenditure to the gross national product, or even to national income, which I think would be more appropriate.

LORD HAWKE

My Lords, before the noble Lord goes on, I think it would be appropriate if he would tell us what type of expenditure the Liberal Party would propose to remove or cut down.

LORD GRANTCHESTER

No, I do not think so. I think the position is that the Government alone determine the projects on which they will spend. The responsibility for apportioning expenditure that can be afforded is theirs. All I am saying is that there is a limit to what they can spend, and that they are entitled to choose the projects which they think most appropriate on which to spend it.

THE LORD PRESIDENT OF THE COUNCIL (VISCOUNT HAILSHAM)

My Lords, may we not have the noble Lord's advice upon the matter?

LORD GRANTCHESTER

We may make certain suggestions.

VISCOUNT ALEXANDER OF HILLSBOROUGH

Would it be like what was suggested in Rochdale—that there should be freedom from the cost of living, freedom from the fear of dying, or one shilling off the income tax?

LORD GRANTCHESTER

They all seem most appropriate aims.

My Lords, I was referring to this question of Government expenditure, the ratio of Government expenditure to the gross national product. If we were to go into that matter it would involve considerations of comparative value in money incomes as well as in money expenditure, and also, I suggest, of the weight of taxation, which has never been mentioned, on the contributing incomes. But for the purpose of my argument now, all I need say is that I think it is rather ridiculous that we should have to argue a case like this at all with noble Lords opposite, a case for a reduction in expenditure. The Times printed an article, I think it was a couple of days ago, in which these words appeared: It has been the declared intention of successive Conservative Governments since 1951 to reduce expenditure, not solely as a means of reducing inflation but in order to stimulate the economy by greater freedom. An intention to reduce expenditure was meant, and was understood by the electorate to mean, a reduction in the amount of money spent, not in the ratio of their expenditure to the gross national product. It does not inspire confidence in the resolution of the new Chancellor of the Exchequer when he indulges in special pleading in percentages, as he did, in order to justify increased expenditure. I am sorry that the noble Lord who introduced this Motion also referred to that aspect of it as a justification for spending, and indulged in the same special pleading.

No, my Lords, if the resolve which is referred to in this Motion is to mean anything at all to us, it must be a resolve to reduce expenditure in terms of the amount of money. This is the only way capital for investment can be found, and it is the only way private saving can be increased and any worthwhile security extended. In order to show that I am not exaggerating, may I remind your Lordships that expenditure in 1955–56 exceeded that of the previous year by approximately £200 million, and that the expenditure in 1956–57 exceeded that of the previous year by approximately £400 million, making an increase of some £600 million in two years?

Instead of trying to find reasons and excuses for greater and greater expenditure, it might be as well to have a look at the expenditure of some other European Governments, particularly those European Governments with which Her Majesty's Government is suggesting an economic association in a Free Trade Area. I have had to search for these figures and I should like to quote them with due reserve, though I do not think they are far out. The gross national product of West Germany—I am referring to gross national product now because it gives us a basis of comparison with the gross national product here—may well be some 10 per cent. lower than in this country. It is catching up rapidly. The gross national product of France is very similar to that of this country, so far as I can calculate the figures, using the current rate of exchange. But look at their expenditure, my Lords. In the case of France it is certainly not more than one-third of ours, in spite of their difficulties overseas, and in the case of Germany, not more than about half ours.

LORD HAWKE

My Lords, is the noble Lord making a fair comparison? Are not the social services in Germany and France paid for by the employers direct and not by the Government?

LORD GRANTCHESTER

I understand that those figures include the expenditure for children's allowances in France. And this expenditure of one-third less in France and about half in Germany is true, both overall and in the main sectors, of both defence and civil administration.

VISCOUNT ALEXANDER OF HILLSBOROUGH

Might I ask a question on that point? Do those figures relating to Germany and France include the service by the reigning Governments of the debt interest due to their own citizens? Is that being clone in Germany?

LORD GRANTCHESTER

We know that Germany, through her devaluation, did escape the burden of some debt. We know that there is a charge here on the Consolidated Fund of something like £600 million a year. But the difference is still very marked, even if you allow for the cost of the Consolidated Fund as part of our expenditure. It is still out of line. Both those countries are nearer to Russia and more menaced than we are, and their expenditure on defence is very much less than. ours.

During their term of office, the Labour Government were forced to recognise by devaluation the fall that had taken place in the value of the pound. In September last I suggest that we came very near to being forced to recognise by a second devaluation the further fall which had taken place in the value of the pound. We have to recognise that since 1948 inflation has been going apace. It has been present in more than one country, and it is often said that inflation is a world problem and we are not alone in having to face it. If that is said as an excuse for tolerating what we are suffering from in this country, it is quite untrue, for inflation since 1948 has been six times as fast in this country as it has been in West Germany; it has been three times as fast as in Belgium, two and a half times as fast as in the United States, and more than twice as fast as in Canada. So there is all the difference between the sort of inflation we have been tolerating and the way some other countries have been able to check its rate.

We have had a reprieve because the Government showed determination in September to stop the rot. But recent events have put this determination, I would say, somewhat in doubt. If the Government succeed in presenting to us reduced Estimates we shall hail this as evidence of their resolve to maintain the value of the pound. In the meantime, we note their words and await their deeds, may I say, in hope. Would that we could say we had even a little faith to sustain our hope that when we see these Estimates we shall see the reduction in expenditure of which they have been talking for a long period!

While reviewing the question of expenditure—and this bears upon the question which the noble Viscount. Lord Alexander of Hillsborough, put to me—on some of those development projects to which the noble Lord, Lord Mills, referred, I think this should be said. It is very nice when this country is ahead in important discoveries and achievements. We have had our fair share of being ahead in very important discoveries and in very important achievements, and we are proud and pleased that that has been so. But ability is spread around the world, and we cannot expect to be always first in every field. If that is true, it is of paramount importance to maintain the soundness of the economy and the value of our money, for with sound money you can secure the advantages of other people's inventions. Without it you will always be restricted and you must fall behind in the world race for development. A very good example of that practice by small nations can be seen in the way Switzerland has been able to keep herself up to date because she had sound money with which she could buy the best from anywhere in the world.

As I said, I could not vote for the Amendment moved by the noble Lord, Lord Pethick-Lawrence. There is no evidence that the opinion of the world would be any different from what it was when the Labour Party was in last. In that I agree with what the noble Lord, Lord Salter, said: that there would be a still greater crisis of confidence. If the Labour Party took over the Government, hope would be taken away—that hope to which I referred when I said that we may see the words of the present Government translated into deeds. That hope would be taken away from us, for another devaluation would have become inevitable. And a vote for the Motion, as my noble Leader has said, might be construed as satisfaction with the Government's record. I think our only and our right course is to abstain, in the hope that deeds will follow the words of the Government and that we shall be able to congratulate them on achieving the economies it is their professed intention to secure.

6.42 p.m.

LORD BROCKET

My Lords, as usual we have had a most interesting debate to-day, and before turning to the few points with which I hope to deal I should like to say one or two words about the remarks of previous speakers. As one interested in agriculture, I was very pleased to hear Lord Wise make a number of statements on the position of the agricultural industry. I know how difficult it is, at a time when I am equally as keen as the noble Lord, Lord Grantchester, to see a reduction in taxation, to plead that the agricultural industry shall not be treated too badly in the matter of the February Price Review. But I feel that in the question of imports and exports the agricultural industry has done a wonderful job; and if we had not produced that extra 60 per cent. of agricultural products which has been mentioned earlier to-day our financial position apropos the rest of the world would be a great deal worse. So I hope that the farmers' incomes will be slightly nearer the rise in incomes mentioned by Lord Wise of 24 per cent., and not a decrease of 8 per cent., also mentioned by Lord Wise. I should not like to say anything more about that this evening, but as a farmer I am rather worried at the present time, and I hope that the February Price Review will enable us to continue with increased production.

We have listened to an interesting speech by Lord Grantchester, and I was sorry that he did not give us some detailed suggestions for the reduction of expenditure. It is easy to say that the lump sum must be reduced, but much more difficult when one starts having to go into detail about what special parts of the Budget must be reduced. But arising from his plea, which I thought was most ably delivered, for the reduction of expenditure, I should like to follow on and say that the reduction of expenditure must result, if inflation is going to be retarded or stabilised, in the reduction of taxation.

Some Chancellors of the Exchequer in the past have, I think, been advised that in order to mop up surplus income one must increase taxation. I have mentioned before the subject of Mr. Butler's Autumn Budget of 1955, when purchase tax was increased on various goods such as kitchen utensils and so on. That action, as we know, resulted in appeals for rises in wages so that the housewives could purchase kitchen utensils with the extra incomes which their husbands provided. Therefore, I am quite convinced that high taxation, the levying of purchase tax on the working man and direct taxation on the higher income groups, is definitely inflationary. I feel that the Government, and particularly the Treasury, must make up their minds one way or the other, either on the Butler lines of the Autumn Budget of 1955 or on the lines of those of us who believe that high taxation is definitely one of the causes of inflation.

My Lords, I do not like quoting a large number of figures, but I have in my hand a little book called The Cost of Living, by Mr. Colin Clark, who is Director of the Agricultural Economics Research Institute at Oxford. I believe that he is regarded as a very able economist. It may be of interest that I defeated him in the General Election in October, 1931, so he may perhaps have changed his views a little since those days. But he was a most excellent opponent, and I am glad to be able to quote a little from his book. In his book he says, in effect, if any country takes more than 25 per cent. of its net national income in taxation, this action—I quote: is bound in the long run to lead to a deterioration in the purchasing power of money. He also stated that in 1945, so he has not been wise after the event. At page 2 of the book he gives a table, which shows that in 1946 out of the then national income of £8,311 million, £3,569 million was taken in taxation, rates and National Insurance contributions. That is a percentage of 43 per cent. The last figures he gives in the book are for 1955, and he shows that out of the national income, which he assesses at £15,226 million, the sum of £5,691 million is taken in taxation, rates and National Insurance contributions, or 37.3 per cent. Therefore, in 1955, 37.3 per cent. was taken in various ways of taxation from the national income. I am glad to say that since 1955 that figure has been reduced to a certain extent, and I am sure noble Lords would agree with me when I hope that it will be further reduced in the coming Budget. I think that in those days of 1945 Lord Keynes, as stated by Mr. Colin Clark, agreed with him in his theories.

My Lords, we really come to this: is it possible for this country to go on affording the Welfare State as we have done in the past? I talk to a number of wage-earners, and the situation is rather interesting. I find that, with this latest rise to over 7s. a week in their National Health Insurance contribution to the State, in regard to which the employer also has to pay his 7s. a week, the wage-earners are now beginning to realise what a lot they are paying, apart from the P.A.Y.E. income tax. I was told the other day by one wage-earner that he would far rather have a little more of that money, and not have free doctoring and free everything else and so on. Of course, we get back to the old theories of Mr. Gladstone, when he said that the money should be "left in the pockets of the people to fructify." I see Lord Grantchester nodding his head in agreement. I think that can be expected from the noble Lord, and also from those Benches. But I agree with Mr. Gladstone, and with Lord Grantchester, that it is a fact that in the past investment has generally been made from the top income group, which now has up to 19s. in the £ of its income taken away by the Government.

I feel that this country would be financially far sounder if people of all classes paid much less taxation—which, of course, means less expenditure by the Government. In that connection, I believe that in the last Budget the figure of £400 million was taken in excess of what was required for current expenditure, and this figure is used, as a company chairman might say, to be put to reserve for capital expenditure or other purposes. If the Budget could be reduced by that £400 million and the nationalised industries had to go to the market to borrow money in the ordinary way, that would be much better. It is a debatable point. Let us take the railways as an example. There, I believe, £57 million was lost last year. I am sorry for the railways, because I personally prefer to go by any other means of transport than by train—either by plane or motor car. I feel that many of the railways are becoming as obsolete as some of the canals.

I was very disappointed to hear some little time ago that the sum of £1,200 million was to be spent on the railways. I have since been told that the projected expenditure will not be covered by £1,200 million and that the amount will probably have to be much larger. That is a great deal of money to spend on railways some of which are certainly obsolete. Living in 1958, Her Majesty's Government should consider again this vast expenditure on an organisation which is partly obsolete. As this is the middle part of the century, and the period of the car and the plane, roads should have part of that sum spent on them, in order to modernise them. It might even be better, as some people suggest, to turn some railways into roads. It would be far better, from the point of view of transport and the travelling public, for that to be done rather than to spend so much money on modernising railways which may well not be used when they are modernised. That is just one instance. There are many others which may have to be reconsidered and I hope that the new Chancellor of the Exchequer and Her Majesty's Government will be well able to reconsider all these points.

We have heard a great deal this afternoon about the bank rate. I should like to congratulate Her Majesty's Government on the success of the high bank rate in maintaining the value of the pound. The figures announced this afternoon by the noble Earl, Lord Selkirk, are very encouraging. People who wish to borrow money for industry or agriculture do not like a 7 per cent. bank rate; indeed, I think nobody likes it: it is a bad thing if the credit of a country is on a 7 per cent. basis. I do not see that we can very easily get back to the happy days of Mr. Dalton when our credit was on a 2½ per cent. basis, although I must admit that a company of which I am chairman managed to borrow money at 2¾ per cent. in those days, and we are very grateful to Mr. Dalton. A permanent 7 per cent. bank rate, however, would in my opinion absolutely ruin the country.

We have heard this afternoon from the noble Lord, Lord Wise, that farmers pay £18 million a year in bank interest on their overdrafts. At certain times many of us in our farming operations run into overdraft, and with interest at 8 per cent. that is a serious matter and very bad for agriculture. It also means that the profits of agriculture are less, so that the Treasury get less income tax and even less surtax; and so it goes round and round. For those reasons, I hope that a 7 per cent. bank rate will not be retained for a moment longer than is necessary. Local authorities have to pay a very large amount in interest. I see that the London County Council are borrowing £20 million at 6 per cent. to-day. That means that higher rents will have to be charged for L.C.C. houses than would have been charged had they been able to borrow at 4 per cent. All that adds to inflation, and so I hope that at the very first opportunity, as soon as the reserves are in a sufficiently fit state, the bank rate will be reduced.

I do not intend to keep your Lordships any longer, but I hope that there is not a great difference of opinion between the ex-Chancellor of the Exchequer (I prefer to use that term, though I have heard him called the late Chancellor of the Exchequer) and the present Chancellor of the Exchequer and the Cabinet as a whole, because I feel that we have had enough of expanding budgets and expanding Government expenditure, some of it necessary but some of it wasteful. If we are to get the credit of our country restored to what it used to be in the old days we cannot continue having to attract money here by a 7 per cent. bank rate and I feel that if only expenditure and taxation were reduced then money would be attracted to this country and would finance many projects of which we are greatly in need.

6.57 p.m.

VISCOUNT BRIDGEMAN

My Lords, like the noble Lord who has just sat down I have connections with landowning and farming, and therefore it would be churlish not to accept the invitation of the noble Lord, Lord Wise, although he is not here at present, to comment on some of his remarks on agriculture earlier in the day. I am not going to assist him in providing what the film people call a "trailer" for the Price Review. I would agree with him that it would be a disaster if an unduly inflationary policy damped the progress which has been made in agriculture in recent years. When we talk of productivity the difference between the most efficient and the least efficient farmer is much greater than perhaps it should be. That is where scope for increased productivity in agriculture comes in, and, like the noble Lord, Lord Wise, I look forward to the day when, despite all their efforts to the contrary, more and more farmers will become assessable to sur-tax.

I have in mind now to talk not about agriculture but about one rather particular aspect of the problem which we are discussing this afternoon—the problem from the standpoint of our exports. If is, of course, a commonplace to say that a great deal depends on our exports in securing a proper balance of payments as one factor in the strength of sterling. I am going to leave out those points which do not directly bear on exports as they have been well covered by my noble friends Lord Balfour of Inchrye and Lord Melchett. I should like to speak about a matter dealt with by the noble Lord, Lord Melchett—and I entirely agree with every word he said—the importance of proper control of sterling balances outside the United Kingdom. Secondly, while agreeing with the noble Lord that import control should be used as a last resort, I should hope that the existing machinery of exchange control might possibly provide many of the desired results, without the setting up of new machinery which we have tried so much to avoid in peace time.

The whole export situation is far from good. I do not think it is quite so good even as my noble friend Lord Selkirk made it out to be in the figures he quoted. His figures are absolutely right, but I believe that most of them relate to orders which have now been fulfilled but which were actually being booked a year, and maybe two years, ago. That is certainly the state of affairs in the engineering industry, which I know perhaps better than others. I noticed from the Financial Times yesterday that in electrical exports our percentage was 28.1 of the world total in 1952; 252 per cent. last year and 24.7 per cent. in 1956; and what we have lost has been gained by West Germany. So, just as our need for increasing exports grows and becomes all the more important, so our prospects of increasing our exports are evidently beginning to weaken. I am going to give some reasons for this, not because I want to indulge in unnecessary pessimisms, but because I think we need to be realistic about this and know exactly where we stand.

Let us look at the picture very shortly. First of all, there is something of a recession in America, which cannot possibly fail to have a bad effect on our own affairs. Secondly, we have a poor sterling balance position in Australia, and in New Zealand the position is even worse. That is bound to restrict the number of imports which those two countries are able to take and pay for from ourselves. There is then the European Common Market. I am certainly not taking a pessimistic view over the European Common Market, but I am saying that the moment we are called upon to face the competition which the European Common Market will provide we shall probably have to cut our coat according to our cloth: we shall have to work as hard as we can to maintain, let alone increase, our exports to that area. In addition, there is the point I have already mentioned: the growing economic strength of West Germany. We have aggressive exporting, at intervals, from those countries of which the noble Lord, Lord Greenhill, is so fond, the Iron Curtain countries; and we have other markets which we used to consider a "closed shop", like India and the Argentine, but which, if not absolutely denied to us at the present time, are certainly hard to get. This may appear to be a catalogue of woe, but we also have things like the impact of the United States Import-Export Bank, and when orders are financed through that Bank it is virtually certain that the orders will go to the United States.

Then again—and this brings me back to our monetary difficulties—because there is an increased volume of goods available for export, as against a possibly decreasing number of people who are prepared to order, so the people who order goods from us are in a position to demand more favourable payment terms than they could in the days when business was keener. That, in its turn, means that we are now constantly faced with having to refuse orders, or not to compete for orders, because the payment terms are so difficult that they cannot be financed by the Export Credits Guarantee Department. One is not blaming that Department because one knows that the state of our sterling balance is not sufficient to enable these long terms of credit to be made.

THE EARL OF HOME

My Lords, I think the noble Viscount's statement ought to be corrected. When the International Bank lend money they insist on international tendering.

VISCOUNT BRIDGEMAN

I agree entirely, but I was referring not to the World Bank but to the Import-Export Bank.

THE EARL OF HOME

I thought the noble Viscount said the World Bank.

VISCOUNT ALEXANDER OF HILLSBOROUGH

May we have the noble Earl's remark again?

THE EARL OF HOME

I thought my noble friend was referring to the International Bank; but he was not.

LORD GREENHILL

And since we are dealing with corrections, may I correct the noble Viscount, Lord Bridge-man, and say that I have no fondness for countries behind the Iron Curtain. What I was concerned about was the vast potential markets of China and Russia which were being ignored by us owing to the attitude of the Government.

VISCOUNT BRIDGEMAN

The noble Lord would like to see more trade with those countries.

LORD GREENHILL

Precisely.

VISCOUNT BRIDGEMAN

I think everybody who is connected with exports would say they are as anxious to do as much trade with those countries as they possibly can, provided that the Iron Curtain countries put up the sterling in London. I have, I am afraid, given your Lordships a catalogue of woe, but I thought it was only right to state the position as I see it. The moral is that it is vital to keep up our exports, and if we are to do that nothing must be too difficult or too awkward for us to undergo.

Of course, none of this is new. We have our productivity councils; we have the Dollar Export Group; we have benefited in recent years from new management techniques; we have better public relations and better salesmanship. All those things are to the good, but they will all still fail if we allow any further rise in export prices because of internal inflation. That is only another way of saying that if we have any more rises in wages which are unaccompanied by productivity we shall lose a great part of our export business, even that business which we have succeeded in retaining so far. I believe that this is one of the overriding factors, although I do not think it has been put quite like this in the debate this afternoon. It is not really a question of whether we should like our earnings to keep pace with rising costs. As we all know, they went in for that policy in Australia—and look where it landed the Australian economy until a halt was called to it. It is not simply a question of whether we want, as we all do, to give as much priority as possible to Welfare State projects, bearing in mind that the projects were conceived, and rightly conceived, in 1945, at a time when we imagined we should be able to carry them through with a more or less stable currency, whereas the reverse has been the case. We have to take that into account when we look at the commitments which we have in social welfare.

Let us come back to the farming industry. We have to look and see whether we can really afford to go on subsidising things which are in surplus, such as milk or eggs, because it may be necessary to go on short rations if we are to keep the pound in balance, which is our object, and which is the object of this debate.

VISCOUNT ALEXANDER OF HILLSBOROUGH

On that point, I suppose that what the farmer is really saying is that successive Governments have invited the farming industry to produce X, Y and Z. They have expended capital and used subsidies and the like to do it, and now that the Government have got the production the farmers are told that it is not wanted and to switch somewhere else. If that is so, I think the Government should provide a new policy for the prosperity of agriculture.

VISCOUNT BRIDGEMAN

Not a new policy, but an expedient by which we can avoid having to subsidise surpluses nobody wants. But I do not think that we shall succeed in doing what we want, to preserve the pound, unless we do everything possible to keep our export trade going. We cannot allow indefinite inflation and at the same time keep our export trade. And we shall have indefinite inflation so long as we regard the claims for wages that are put regard as being something which is conducted in a sort of vacuum, as completely unrelated to the strength of the pound—which, of course, would be up to a point and in a sense if we were not so largely dependent upon exports.

That is the sort of situation we have got to face. It is perfectly true that one wants wage claims conducted by arbitration and similar processes; but it is also true that when things go a certain way the Government cannot remain out of the picture. I will give your Lordships an example from something which happened last week or the week before in this House. You will remember the Recreational Charities Bill and how it arose. It arose because a certain judgment had been given in a court of law, and because that judgment had such an impact on various national affairs that the Government were obliged to take notice of it and to state a policy on the subject. We have very much the same position in regard to wage arbitrations. They have such an effect on stability that it is impossible to let them go on as they have done in recent years under different Governments in a sort of economic and political vacuum.

We are confronted with factors which are out of the control of anybody in this country. Exports are under the control of the overseas buyers, and therefore we have to see to it that we maintain our exports by meeting their requirements—quality and price of goods, time of de livery, service after sale, and all those things which go together for successful sales and successful exports. Therefore we are confronted with a situation which has relatively little to do with Party politics, because it is made up of commercial facts which can be testified to by anybody who has to earn his living by selling overseas. That is why I venture to say that the approach made by the terms of the Amendment is not a sound approach. It draws attention to political differences, and political differences are a luxury which we cannot well afford at the present time. That is why my noble friend Lord Balfour of Inchrye was right—and, indeed, why the noble Lord, Lord Lawson, was right, in their exchange of views an hour or two ago. This matter of exports is vital to the whole success of the operation for preserving the stability of the pound. It is a matter which affects everyone, whether he is an employer or a worker, and is not just for us a private war.

7.12 p.m.

LORD LAWSON

My Lords, I intend to take only a minute or two of your Lordships' time to underline the point that was made by the noble Lord, Lord Balfour of Inchrye. Your Lordships will excuse me for saying so, but there seems to be a certain air of unreality about this debate. It may be impudence for me to say so, but that is what I feel, and I thought that the noble Lord, with his knowledge of industry, brought some reality into our discussion. We have forgotten that since the last war ended we have been living under conditions of industrial friendliness which have never before prevailed in my lifetime. I think we failed to appreciate that fact. The trade union leaders are having their difficulties with this matter, but they are facing them with considerable courage and wisdom. I believe the Government tend to assume that this industrial friendliness is going to continue. I hope it is; but I think the Government assume rather too much. They assume that nothing is going to happen anywhere at any time. I want to warn the Government. The experience is that once trouble starts, it breeds trouble, and if that happens, then the last state will be worse than the first.

We have to bear in mind that the mass of workers have to face continually rising prices on almost fixed wages, and when they ask for reconsideration it is not simply because they want to make trouble; it is because their wages have been reduced by rising prices. Watching this situation, I have had the feeling that the Government representatives were taking too much for granted. I think that the negative has been sometimes too abrupt. We must remember that if trouble begins, it is apt to multiply. All those who remember what happened between the wars and compare that with the situation to-day will say that we are a fortunate people in having, on the whole, such reasonable workmen. I notice a tendency to enlarge upon individual troubles here and there. Why, the whole country was in a turmoil almost the whole time between the first and the second wars, and by comparison we are very fortunate to-day. I hope that in handling labour questions the representatives of the Government will see to it that the abruptness is toned down and far more reasonable consideration is given when discussions take place.

THE LORD PRESIDENT OF THE COUNCIL (VISCOUNT HAILSHAM)

My Lords, I beg to move that the debate be now adjourned.

Moved, That the debate be now adjourned.—(Viscount Hailsham.)

On Question, Motion agreed to, and debate adjourned accordingly until Thursday next.