Lords Sitting of 6 February 1958

Preamble
The House met at half past two of the clock, The LORD CHANCELLOR on the Woolsack.
Prayers
  SOUTH LANCASHIRE TRANSPORT BILL [H.L.]
  Read 2a, and referred to the Examiners.
SURREY COUNTY COUNCIL BILL [H.L.]
Read 2a, and referred to a Select Committee.
TYNE IMPROVEMENT BILL [H.L.]
Read 2a, and referred to the Committee on Unopposed Bills.
WALTHAM HOLY CROSS URBAN DISTRICT COUNCIL BILL [H.L.]
Read 2a, and referred to a Select Committee.

ISLE OF MAN BILL
2.38 p.m.
Order of the Day for the Second Reading read.
LORD CHESHAM: My Lords, this Bill marks an important stage in the constitutional development of the Isle of Man. It is now over ninety years since the passage of the United Kingdom Statute which to this day largely governs the financial relationship of the United Kingdom and the Isle of Man. Under that Statute—the Isle of Man Customs. Harbours and Public Purposes Act, 1866—control over most expenditure in the Island and over customs duties and harbours rests ultimately with the British Government; and the small measure of control over surplus revenues given to Tynwald, the Island's Legislature, is subject to the veto of the Lieutenant Governor and the approval of the Treasury. Matters have not stood still during those ninety years. In the pre-
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sent century, an ever increasing control over the insular revenues has devolved in practice upon Tynwald, and it is now very rare for the Lieutenant Governor or the Treasury to disagree with Tynwald's decisions. Apart from two Acts passed in 1887 and 1955, which gave Tynwald power to impose and alter customs duties subject to confirmation by Order in Council, the position established by the Act of 1866 has remained basically unchanged.
Further development cannot very well take place so long as this is so, for there is a limit to the extent to which what happens in practice can be allowed to diverge from what is prescribed by the law. Talks have been taking place for some time about what should take the place of the Act of 1866, and these discussions resulted last year in two agreements, which were laid before your Lordships last November. This Bill implements the main agreement. Its principal provision is the repeal of the Acts of 1866, 1887 and 1955. This removes the Treasury control over the Island's finances, and enables Tynwald to regulate its own finances and customs. The agreement provides for continuance of the existing arrangements whereby the customs of the Island are administered by the Commissioners of Customs and Excise. The Bill also enables Tynwald to regulate harbours and mines and quarries in the Island.
In conclusion I should like to emphasise that this is a Bill which affects only the formal and legislative arrangements for control over the finances, customs and harbours of the Isle of Man. It does not directly affect the way in which the Manx revenues are spent. For many years, control over the spending of the Island's revenues has rested de facto with the Isle of Man Government; and the long experience which the Island Government possesses of controlling its own expenditure is one reason why Her Majesty's Government feel that the time has now come to give de jure recognition to this position. I am sure that the House will wish to join me in welcoming this Bill and the reforms of which it is a part, and in giving it a Second Reading. I beg to move that the Bill be now read a second time.
Moved, That the Bill be now read 2a.—(Lord Chesham.)
VISCOUNT ALEXANDER OF HILLSBOROUGH: My Lords, we certainly should like to join the noble Lord in the welcome he has given to this short but important Bill. Perhaps your Lordships will excuse me if I take this occasion to tell a story against myself. It is an old Parliamentary story, which I like to remember. When I was in another place, the Opposition had occasion one night very late—or rather early in the morning—to take up the Government's time, and so I was put up to obstruct the usual annual Bill dealing with customs and excise in the Isle of Man. I made a quick and violent research in the Encyclopædia Britannica into the true form of the rights of Manx citizens. I came to another place and made what I felt was an excellent speech, on good authority—leaving out the points I did not like, of course. The then Financial Secretary of the Treasury, the late Mr. Ronald M'Neill, when he replied, said that he had enjoyed my speech very much, especially my quotations from the Encyclopædia Britannica on the Isle of Man, because he himself had written all that I had quoted. I was thoroughly torpedoed. I thought your Lordships might like to hear that story. I wish to welcome the Bill.
LORD REA: My Lords, I should like to join in welcoming the Bill from these Benches, and to thank the noble Lord for the clear and capable way he has presented it to your Lordships. I take it that he will be able to assure the House that the Bill does not establish any precedent for the Isle of Wight, the Isle of Malta or any other island.
LORD LATHAM: My Lords, I should like to ask the noble Lord, Lord Chesham, this question: who settles the bank rate in the Isle of Man?
LORD CHESHAM: My Lords, I am grateful to noble Lords who have spoken from the Front Benches opposite. Had I known earlier of the experience of the noble Viscount, Lord Alexander of Hillsborough, I should certainly have seen to it that the appropriate volume was temporarily removed from the Library. So far as the question posed by the noble Lord, Lord Latham, is concerned, I think it would be better to leave it to be dealt with in a few moments by my noble friend Lord Hailsham.
LORD LATHAM: Can the noble Lord say whether, under this Bill, any change in the authority for changing the bank rate is contemplated or intended?
LORD CHESHAM: As I said earlier, this Bill affects the internal revenues of the island which are to do with customs and excise, harbours, mines and quarries, and I do not think that the bank rate would come within its scope.
LORD LATHAM: Is it the case, then, that expenditure is not affected by this present Bill, or by the present Statutes? Because expenditure does comprehend the bank rate.
LORD CHESHAM: May I make myself quite clear? I thought I had already. This Bill confines itself to formalising the legislative aspect of the present method of controlling expenditure which is incurred by the Island. It is merely a measure to enable the Island to manage its own affairs without reference to us, instead of our having a final say in the matter. As I understand it, that is as far as the Bill goes, and I do not think the bank rate has very much bearing on it.
On Question, Bill read 2a, and committed to a Committee of the Whole House.

MATRIMONIAL PROCEEDINGS (MAGISTRATES' COURTS) BILL [H.L.]
2.46 p.m.
THE LORD CHANCELLOR (VISCOUNT KILMUIR)THE LORD CHANCELLOR (VISCOUNT KILMUIR) rose to move, That the Order of the 19th of November last, referring the Bill to the Joint Committee on Consolidation Bills, be discharged, and that leave be given to withdraw the Bill. The noble and learned Viscount said: My Lords, I am sorry to trouble your Lordships with this Motion, but it has been rendered necessary because of difficulties which have arisen regarding the proper interpretation to be placed on certain of the enactments which the Matrimonial Proceedings (Magistrates' Courts) Bill was designed to consolidate. Your Lordships may remember that the Royal Commission on Marriage and Divorce recommended that the law with regard to the jurisdiction and powers of

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magistrates' courts in matrimonial proceedings should be codified. The Consolidation Bill which is the subject of this Motion was introduced on November 13 last, and on the 19th of that month was referred by order of the House to the Joint Committee on Consolidation Bills. While the Bill was under consideration by the Joint Committee, questions were raised with regard to the proper interpretation of certain of the enactments consolidated in the Bill, and, in particular, as regards the Summary Jurisdiction (Separation and Maintenance) Act. 1925, and Section 11 of the Matrimonial Causes Act, 1937.
After careful consideration we have reluctantly come to the conclusion that these difficulties cannot be surmounted in a Consolidation Bill, in which, as your Lordships are aware, only minimum changes of the law can be made, and there is, therefore, no alternative but to withdraw the Bill. However, my right honourable friend the Home Secretary is conscious of the importance of replacing the complicated and scattered existing enactments on this subject by a single up-to-date enactment, and he proposes to set up an expert Committee to advise him on the steps which can best be taken for this purpose. He also proposes to seek the advice of that Committee on the best method of incorporating into any such new measure certain recommendations of the Royal Commission relating to the jurisdiction of magistrates' courts in matrimonial proceedings. As I say, I am sorry that this difficulty should have arisen, but I assure your Lordships that the work of consolidation will not be allowed to flag. I beg to move.
Moved, That the Order of the 19th of November last, referring the Bill to the Joint Committee on Consolidation Bills, be discharged, and that leave be given to withdraw the Bill.—(The Lord Chancellor.)
LORD SILKIN: My Lords, I am sure the House will agree that this Motion should be accepted, and I rise only for the purpose of getting some information. I take it I am right in my understanding that the reason for not proceeding with the consolidation is that if we had done so we should have been re-enacting two rather obscure clauses in two separate Acts of Parliament which have,
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in fact, been in operation for some twenty years without any great hardship to anybody. Nevertheless, it is desirable, if at all possible, to remove the obscurities, and I take it that the intention is to introduce legislation to remove the obscurities in the two Acts of Parliament to which the noble and learned Viscount referred and, at the same time, to take advantage of that to introduce further legislation arising from Reports of Committees; and that when that has been done the consolidation can be proceeded with. If I am correct in that assumption. then I think that it is a satisfactory way of proceeding, and I would ask only whether the noble and learned Viscount thinks that that is all that can be done in the present Session of Parliament.
THE LORD CHANCELLOR: My Lords, the noble Lord, Lord Silkin, is exactly right as to the situation. I do not think I can give an absolute undertaking as to the time because, of course, it depends on how long the Committee which my right honourable friend the Home Secretary proposes to set up will take. But I give him the assurance that I am anxious to see the law on this subject consolidated, and I shall press on as quickly as I can. I am glad to have the noble Lord's support, as he realises that to consolidate an equivocal position would be a bad step, and we must do our utmost to put it right as quickly as we can. I am grateful to the noble Lord for what he has said.
On Question, Motion agreed to, and ordered accordingly.

SOLICITORS (SCOTLAND) BILL [H.L.]
An Amendment reported (according to Order).
BRITISH NATIONALITY BILL [H.L.]
Returned from the Commons agreed to.
ENTERTAINMENTS DUTY BILL [H.L.]
Returned from the Commons agreed to.
IMPORT DUTIES BILL
Brought from the Commons, endorsed with the Certificate from the Speaker that the Bill is a Money Bill, within the meaning of the Parliament Act, 1911; read 1a, and to be printed.
OVERSEAS RESOURCES DEVELOPMENT BILL
Brought from the Commons; read 1a, and to be printed.

STABILITY OF THE POUND
2.53 p.m.
Debate resumed (according to Order) on the Motion moved by Lord Mills on Tuesday last: 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, and on the Amendment, moved thereto by the Lord Pethick-Lawrence, 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 LORD PRESIDENT OF THE COUNCIL (VISCOUNT HAILSHAM): My Lords, now that we have got, as I might say, half way, I must be permitted to say that this is one of the strangest debates on a censure Amendment that I have ever heard. The words of the Amendment are ferocious enough. I suppose in those words we may trace the rough hand of Esau, and perhaps before the debate is over the stentorian voice of Esau may be heard giving us one of the tirades which we have come to expect and enjoy from him. But the mover of the Amendment, the noble Lord, Lord Pethick-Lawrence, proved himself to be a vertitable Jacob of debate. He could hardly have spoken in silkier or more dulcet tones, and, it seemed, lost even any undertones of censure in a complicated series of interrogatories about the exact relationship between the Governor of the Bank of England, its Court and the Chancellor of the Exchequer, which I think I can best
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answer by saying that they are exactly, so far as I know, as they were left by the Government of which the noble Lord himself was such an ornament.
The noble Lord, Lord Rea, in an endeavour to explain why his Party was not going to vote at all—a situation in which they not uncommonly find themselves when they are unable to make up their minds—plumped for a Royal Commission on trade unions, a subject which I should be happy to debate with him if only it had the remotest relevance to the question under discussion.
LORD REA: My Lords, if the noble Viscount will forgive me for interrupting, will be not admit that the present industrial position has some relevance to the Motion under discussion?
VISCOUNT HAILSHAM: But not a Royal Commission on trade unions. At any rate, apart from these two speakers, and apart from the speech of the noble Lord, Lord Grantchester, to which I will return in the course of my remarks, there was little enough that could be described as censure in the debate.
In this connection, I hope that I may also be forgiven if I make a slightly sardonic comment on the diversity of counsel which we have received in recent months from various elements in Parliament and outside. My former colleague and right honourable friend described the nation as being on the road to ruin. But are we on the road to ruin? And if so, why? "Because we are trying to do too much," said my right honourable friend and former colleague. "Not a bit of it," said the Leader of the Opposition in another place, "the economy is stagnant"—which means, if I understand the English language, we are trying to do too little.
The Socialist Press is running a campaign designed to establish that the Government are seeking to destroy the Welfare State, but an Independent Member of Parliament, in a public print prior to his departure for Australia, on the ground, apparently, that his friends are scuttling the ship of State said that we are determined to treat the Welfare State as a sort of Sacred Cow which may not be touched. The Leader of the Opposition claims that we are waging war on the trade unions, and there was some reflection of this suggestion in the speech,

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of the noble Lord, Lord Pethick-Lawrence, on Tuesday. But my Conservative correspondents cry out to me, "You are always trying to give in to the trade unions." The economic journals tell us that the time is coming when we ought to deal with a recession. But the noble Lord, Lord Grantchester, and the noble Lord, Lord Douglas of Barloch, sternly say that inflation is the true enemy, and I rather agree with them. The noble Lord, Lord Grantchester, told us that we ought to spend a great deal less money, but coyly resisted our invitation to advise us how. My noble friend Lord Brocket agreed with him, but said, "Do not forget to give a favourable Price Review to the farmers." There are very few Peers that I see around me who have not at one time or another in the last eighteen months espoused one or other projects especially dear to their hearts which would have cost, each one of them, a few million pounds.
In this Babel of discordant counsels I beg the House to reflect for some moments on my own thesis, which is that the Government are not nearly so unsound in their economic policies as seems to be so commonly assumed. Let us get this straight first of all. We are not on the road to ruin. That is an intemperate, one-sided and inaccurate phrase. Ruin can overtake us in the event of war. Ruin, I suppose, could overtake the country in the event of some other international disaster. But as my noble friend Lord Hawke said, the fundamental economic strength of a nation is measured by its productive capacity and by the skill, enterprise, industry and moral fibre of its people. Our productive capacity has never been so high as it is this year and at this moment, and though there have been many factors undermining the moral fibre of the people, I do not believe that any of them has succeeded. We are, of course, facing many real difficulties, most of which have been described in the course of the debate and to some of which I shall have to refer. But the evidence is that we are facing these difficulties. We are getting through them, and we shall get through them if we pursue a resolute and logical course of action without panicking in either direction.
Are we trying to do too much? There is no doubt that we have been trying to
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do a great deal. We have, of course, had to face an international situation of unprecedented gravity, involving us in vast expenditures in defence. We have deliberately built up a system of social services which is comparable with any that the world has ever known. We have been building up our industrial investments at a tremendous rate, both as a result of public and private saving. No doubt, if we lived under a dictatorship we should be subjected to harsh laws curbing the power of ordinary men and women to spend even the amount of money they do at the present time on their enjoyment. But, my Lords, the fact that we are in a free country imposes some limits upon the legal restrictions that we allow, and the evidence has been that the restrictions which we have been compelled to impose in recent months and years are bearing fruit and are carrying us through the difficult time. With a buoyant national income and increasing productivity, our difficulties can be reduced or remedied, provided we do not increase the proportion which public spending bears to private spending.
It is not true, in my judgment, that we are actually attempting too much at the present time. We have put into investment something of the order of £2,500 million. As was pointed out in another place, the index of our actual production has during the same period remained more or less constant. It follows from that that there is, in fact, certain room to manœuvre between our productive capacity and our actual production. It was this circumstance which led the Leader of the Opposition in another place to argue that our economy was stagnant—another ill-chosen and intemperate phrase. My Lords, if this economy is stagnant the Niagara Falls are a millpond. It is, of course, capable of some greater expansion, but I wish the Labour Party would make up their mind whether they want a series of severe controls, which is what they seem to be advocating, or whether they are going to say that the economy is stagnant, which means that we are imposing controls which are already too severe; because at the moment their economic case makes no kind of sense at all.
I know it will be asked what is the purpose of having any gap at all between our productive capacity and our actual production. Ought we not to run the

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whole machine flat out? The answer in present circumstances to a question of that kind depends on the extent to which you take seriously the rise in the internal price level: that is to say, the cost of living. Of course, if you do not take it seriously and do not care whether or not prices rise, or how much wages rise either, and if you are prepared to forget about the interests of the export trade or the fixed-income groups, the conclusion that we ought to run the machine flat out would follow as a logical consequence. I dare say that noble Lords opposite would like to see that conclusion follow. I strongly suspect the Leader of the Opposition below would like to see it follow. But the Government do take the cost of living seriously and are concerned about the export trade, for reasons which I will explain in a moment. They do care about the fixed-income groups and the people with large families. In the last debate we had upon this subject we pointed out how wages were pushing up prices, and I showed that it could be proved statistically that this was so. At that point this appeared to be a controversial proposition, but I understand that it is now accepted by all responsible opinion. It was manifest that unless we acted as we did the internal price level would get out of control, and this must be stopped if only because of the result it would have upon our export trade and so upon the crucial question of our gold and dollar reserves.
On one side of the political fence there are those who have accused us of extravagance. Their argument, some expression of which I detected in the speech of the noble Lord, Lord Grantchester, runs something like this. "Do not tell me," they say, with an assumption of common sense, "that in a Budget of some £5,000 million a year you could not knock off a penny here and a halfpenny there and so save £50 million, which is, after all, less than one per cent." The argument goes on, "If the sum of £50 million is so very small, this only underlines your ability to save without doing anybody any harm." I must say to the noble Lord quite seriously that this argument is wholly without foundation. To do Mr. Thorneycroft justice, he never pretended that there was anything in it, and never would, because it would be quite dishonest for anyone with any knowledge of
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the situation to do so. There is not the smallest validity in this argument. After six years of Conservative Administration, this particular ground of economy has, in fact, been thoroughly ploughed over and harrowed and sown, and has given some very fruitful crops. But it would take some years of the extravagance we have come to expect from the other side to act as manure before we could expect to get very much more out of that particular line. However, we plough and sow the same ground year after year and get the small gleanings that we can.
The £50 million which caused the unhappy dispute between my former colleague and ourselves, noble Lords should realise, was arrived at after, and not before, the process of economy, in the strict sense, had been completed for this year. If the difference had been taken before the process was complete, the gap would obviously have been much larger. Noble Lords really must assume what both the parties to the disagreement have stated quite plainly, that the gap could have been bridged in its entirety, not by what can be called economies in the true sense of the word at all but only by really serious changes of policy, both in the realm of defence and in the realm of social services. I could give examples of the sort of way in which such a figure could be met, but I invited the noble Lord, Lord Grantchester, to indicate what his policy would have been. He declined to give us any kind of guidance.
LORD GRANTCHESTER: My Lords, I think that is a little unfair. We were not discussing detailed measures of expenditure. If I were to say to the noble and learned Viscount., "I am quite unable to meet the expenditure that I desire to make because of the amount taken in income tax", he would not say to me, "You must save so much on rent or on some other particular item". He would say, "You must keep your expenditure within what you have got to spend". And that is what I said to Her Majesty's Government. When they have made up their mind what we can afford to spend they must spend it as they think right and best.
VISCOUNT HAILSHAM: I think that is really a very irresponsible line to take in present circumstances. The noble Lord belongs to a Party which is putting candidates in the field with some pretence of

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hoping one day to form a Government. If they wish to put a policy before the nation they should state what it is. I must ask the noble Lord to accept from me that, it is impossible to find this sum of money by the meritorious process of saving candle-ends. It involves changes of policy, and I am about to tell the noble Lord the kind of selection he can make. Then we should know what the policy of the Liberal Party is.
LORD GRANTCHESTER: I quite admit it involves changes of policy to make any great reduction in expenditure, but I did compare our defence expenditure with the defence expenditure of Germany and France, and the implication was that by making those comparisons our expenditure on defence, for one item, is too great.
VISCOUNT HAILSHAM: I am going to show in due course that the noble Lord's figures were quite inaccurate. I am only inviting the noble Lord to declare what the policy of the Liberal Party is. We could, of course—and I make no concealment of the fact—if we abandoned our declared intention of doing away with compulsory military service by 1962, save a very large sum of money—not all, but a very large sum. We think that such a declared abandonment of this policy would be in absolute terms inflationary in effect, but I invite the noble Lord to say whether we should look in that direction for it.
I turn now to the noble Lord, Lord Rea. We could, of course, by abandoning any attempt to make a nuclear weapon of our own, save some money. That I understood him to advocate in the course of his speech. If, of course, he means that the Government are anxious to avoid duplication with the United States, and on every possible opportunity will urge that policy upon our Allies, then he will receive our wholehearted agreement and assent. But if he means, as a certain Liberal candidate indicated on television last night, that his idea would be to leave the entire burden on the United States without such an amendment of the law, and to make this country either the satellite or the parasite of the United States, instead of an Ally, then I am bound to say that we should not agree. Nor should we agree with those people who say that we should
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arrange it in such a way as to render this country completely at the mercy of Russian conventional weapons.
But we must, after all, know where we stand. All these policies have their advocates, except among the Liberal Party who are not really inclined to venture to say what their policy is. We can save £50 million or so by cutting off the children's allowance in regard to the second child. Is that their policy? Do they wish to save money by cutting off the welfare foods and the welfare services? Any of these chances and choices are open to their disposal and selection. I commend them to put their choice in the mouth of their candidate at the current by-election if they really have the courage of their convictions—which, obviously, they have not. But if they have not the courage of their convictions, and are quite unable to say which of these important changes of policy they are going to advocate, then, in my submission, they are being neither constructive nor helpful, nor even responsible, in putting forward vague allegations of over-spending and demands that we should reduce our expenditure.
LORD REA: My Lords, perhaps it would be better to defer further argument on this point until the result of the Rochdale by-election.
VISCOUNT HAILSHAM: I certainly will not defer further argument until then, because I intend to put this argument at the Rochdale by-election.
LORD GRANTCHESTER: I do not want to interrupt the noble Viscount again but, as he is being so challenging, I think that it should be made clear that we have advocated a common defence budget. If we had a common defence budget, for instance, in Europe, I do not believe that our expenditure would be at the level that it is at the present time. As regards the Welfare Society, I think we have made it clear that there is extravagance in giving subsidies to people who do not need them; that we believe in the Welfare Society in helping those people who are in need; that the dividing line might be payment of income tax, and that the right way to help people who pay income tax is not by subsidies but by a reduction of income tax.
VISCOUNT HAILSHAM: Well, I still do not know what the noble Lord intends. But if he intends what he said he meant by a common defence budget I say that Her Majesty's Government in this country do not favour duplicating services, so far as we are now duplicating them, or paying more than our fair share to the common defence. But it would be wholly wrong and irresponsible of us to write into our Estimates for the year what we anticipate getting, or what we hope to get, from other people as the result of agreements which have not yet been concluded.
My Lords, I turn now to the social services. It is said that we are planning some kind of attack on the social services, and it is said on the other side, and in the same matter, that we are treating them as an untouchable Sacred Cow. Neither proposition is correct.
When I first came back from the Army at the end of 1942, in order to resume my functions as a Member of the House of Commons, I joined a group of persons whose particular object in life was to popularise within the Conservative Party the main steps of what has now come to be called the Welfare State. And I believe—I say so with some confidence—that it was largely due to our efforts that the Coalition Government were able to introduce the series of White Papers upon which lo-day that State is founded, and that the caretaker Government were actually emboldened in their short term of office to introduce the family allowance for the second child and subsequent children. I know that Mr. Butler, except upon one memorable occasion when we supported equal pay against him, relied very largely upon our support, both in the debate and in Division Lobby, for the passage of the Education Act, 1944. I have never regretted the part I played in these proceedings and I, for one, am determined not to turn back along the road which we then deliberately took; and I believe that this is the true view inside the Party of which I am a Member. Our doctrine is; privately owned industry, publicly organised social service.
Yet it would be wholly false to suggest for an instant that we were committed to the view that the State so organised, and the service so organised and financed as came to be the case in 1945, 1946 and thereafter, should be wholly untouchable in every respect.
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None of us then, from Lord Beveridge downwards, knew to what extent we should be able to count on full employment after the war. I venture to say that no one had thought what the implications of this would be upon the services which we were then creating or upon the internal price level.
We had been living for all our lives in a system of under-employment and unemployment; and this meant that men and women over a great range of the population were quite unable to save against old age, or other contingencies of life—if they were unemployed, because they were not earning; or if they were employed, even all the time, because in the market the reward of their services was depressed by the unemployment of others in the, labour market. But we have not known unemployment on this scale since 1939., nearly twenty years ago, and it does not follow that social services of a type which presuppose a wage level unnaturally depressed by under-employment and unemployment are necessarily financed in exactly the right way, or that the services are of exactly the right extent or exactly the right type in a world of increasing prices, when the population throughout its working life may be able to expect conditions of employment wholly different in kind.
It is easy to say that contingencies, which the wage-earner is unable to afford out of his wages, ought to be made up out of the revenue and paid for by others who pay taxes. This may in the circumstances be no more than social justice. But it by no means follows that the same services ought to be financed out of other people's pockets in a system where wages are constantly rising and the conditions of life of those who pay at any rate a substantial part of the taxes are constantly falling. I said no more than that these, amongst other matters, should be reviewed, but it would be utterly wrong to suggest, and we have never suggested, that there is any service which is immune either from the scrutiny of economy or from political review of those who desire policy to conform with social conditions.
In the meantime, a new problem has emerged. In the old days, Government spending (and this phrase, although the figures that I shall give are mainly for the Central Government, I would remind noble Lords, ordinarily includes the extremely expensive local services as well)

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represented a relatively small proportion of the national income. I myself do not accept the view that this way of looking at it is wholly irrelevant, as I felt the noble Lord. Lord Grantchester, in one part of his speech, seemed to think. On the contrary, it is a very fair way of assessing the burden of expenditure upon the taxpayer.
At the time when the Labour Government ended their six years in office, however, there was a very different story, even on central spending alone. Ordinary expenditure above the line by the Central Government amounted to no less than 32 per cent. of the gross national product, and I am told that if the local services were added the figure would come to something like 41 per cent. And it is idle to pretend, except for the ignorant or the partisan, that a substantial portion of this was not raised from all classes of the community and not simply from the rich. Sir Stafford Cripps did his best during his lifetime to educate the Labour Party on this point, but they obstinately refused to learn.
Since we have been in office, the figure of 32 per cent. has been reduced to under 27 per cent.; and this alone disposes of the view that we have done nothing to relieve the burden of taxation. In terms of the present-day value of the pound this reduction amounts, I suppose, to something like £900 million every year for which the taxpayer can thank Conservative finance. Speaking personally, I am satisfied that at 26·9 per cent., as in 1956, the proportion is still too high, and substantially too high, for peace time. I look for further reductions in the future, provided that these can be reconciled with the strength of the economy.
I got into serious trouble the other day (I find I frequently do) because I suggested that the real choice which the public might have to make might lie between an adequate system of roads, internal transport and other public services and some of the more expensive services in the welfare field. I make no apology for having raised that issue. There is a limit to taxable capacity, and therefore, since the taxpayer's capacity is limited, there is a relationship between apparently disconnected services which fall upon the Consolidated
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Fund. Of course, the limit of taxable capacity has not been, and I suppose never can be, accurately ascertained; but I know that a contemporary of mine at Oxford, Mr. Colin Clark, has fixed it at something like 25 per cent. That figure has to be read in conjunction with the 32 per cent. at the end of the Socialist Government's régime—41 per cent. at the end of that régime, if one takes into account the local services. Mr. Clark's thesis is that if this taxable capacity is exceeded, the same kind of evils begin to manifest themselves in the body politic as manifest themselves in the human body which is subject to excessive processes—distortion of economy, unanswerable wage demands, significantly extravagant expense accounts before ascertainment of profits, inflation, disincentive, despondency and frustration. I am not prepared to say in the present circumstances that these serious symptoms had not appeared in Britain under a Labour Government or have wholly disappeared to-day.
The noble Lord, Lord Grantchester, in his speech here on Tuesday compared our record on government spending unfavourably with those of France and Germany. Comparisons of this kind, of one country with another, have to be treated with caution, and despite some research I cannot say that I have been able to trace the source of the noble Lord's figures. I am bound to tell the House that my own inquiries lead to very different conclusions. Let us look first, as the noble Lord, Lord Grantchester, did, at the gross national products of the three countries. That of West Germany, according to my information, is 23 per cent. lower, not 10 per cent. lower, than ours and that of France is 11 per cent. lower, which is hardly "very similar," as he put it.
LORD GRANTCHESTER: My Lords, I got my figures of gross national product from the statistics of the International Monetary Fund.
VISCOUNT HAILSHAM: Then I fear that the noble Lord must have misread them. At any rate, we will put our respective figures before the House and seek to reconcile them afterwards, as I know the noble Lord too well not to realise that anything he says has to be taken with the greatest respect.
LORD GRANTCHESTER: My Lords, I said that I gave my figures with some words of caution as I had not the facilities that the noble Viscount obviously has for checking figures.
VISCOUNT HAILSHAM: My Lords, may I say that I am always interested in anything that the noble Lord says, and in differing from him, as I shall do, I do so in the knowledge that he has taken a great deal of trouble, and the House is much in his debt for having given us these particulars. I hope that if the course of the debate is of a polemical character the noble Lord will not allow that fact to diminish his realisation of the esteem in which I regard his contribution, for that would be a disaster from my own point of view.
I find that the noble Lord's figures for expenditure are even further from mine. The noble Lord is reported in Hansard as having said that Government expenditure in France was certainly not more than one-third of ours. I believe he corrected that later to "one-third less," which is not quite the same thing. But whichever figure he meant (and I assume the latter was the true one that he intended) his figure falls short, for I am informed that the combined local and central Government expenditure in France is about 76 per cent. of ours. The West German figure. which the noble Lord would have us believe was about one-half of ours, is, I am informed, about 96 per cent. of ours. If we take Government expenditure, including central and local, as a proportion of the gross national product in each case the figures are: United Kingdom 37 per cent., France 32 per cent., and West Germany 40 per cent. I must repeat that numerical comparisons of this kind are full of difficulty and can provide only an approximate answer, but clearly I should have thought that they refute the impression which the noble Lord, Lord Grantchester, left with the House, that this country was in this respect in a much worse position than its neighbours.
I now turn to the question of reserves, for in my mind this is the crucial feature in any economic debate at the present juncture. The crisis which led to the measures last September and must, I think, have been uppermost in the mind of my former colleague when he made his unfortunate reference to a road to
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ruin, was undoubtedly the question of our gold and dollar reserves, and the small size of these is, in my belief, by far the most serious difficulty with which we have to contend at the present time. There is no bank in the world, however well founded, that can meet all its obligations at once if creditors put in their demands for cash simultaneously, and I would agree with the noble Lord's observation—I think it was the wisest of a great many wise things he said—that confidence is more important than reserves.
But experience shows that people never put in their demands on a bank simultaneously if the banking business is properly conducted, and banks therefore have a certain ratio between their liquid assets and their obligations, determined largely empirically, by experience. It is manifestly a dangerous matter to seek to run the gigantic banking business (if we can call it that) of the sterling area on a reserve of liquid assets, by which I mean gold, dollars and other acceptable currency, rather less than those of the Ford Motor Corporation. To attempt to do so is not, in my judgment, the road to ruin, but at least it is certain to lead from time to time to the recurrent crises which have caused so much inconvenience and frustration and have threatened to cause a depreciation in the value of our economy in the markets of the world.
The figures for our current trade do not justify the view that the pound is over-valued, and although on a number of occasions it appears to have approached the mark at which devaluation would seem likely, events have proved that, except under the Labour Government and then only once, it was much more resilient than had originally been thought. Nevertheless, I fully agree that we cannot afford these recurrent crises, and it was for this very reason that, speaking for once individually, I felt myself bound to accept the firm and unpleasant measures proposed by the Cabinet in September last year. But here again we are faced with an inconsistent criticism. The Amendment accuses us of taking measures which destroy the possibility of national unity. That is its purpose. Some Conservative critics, on the other hand, say that we have not the courage to take unpopular measures. Both criticisms can hardly be

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true. If measures are going to be unpopular, there cannot be a complete degree of national unity. But I would say to our Labour critics that if measures are going to be effective, there must in those circumstances be a degree of unpopularity to be faced by a courageous and honest Government. If the measures are to be popular but ineffective, the national unity that they will create will be similar, both in nature and consequence, to those which animated the Gadarene swine.
I now come to the references which have been made from time to time to the possibility of a trade recession. It is true that there has been a sharp fall in industrial production in the United States of America, and commodity prices have tended over a number of months to fall as well; but these are obviously trends which cause a Government to watch the situation with great care. In this connection I am glad to say at once that the policies to which we are committed are obviously capable of reversal at short notice. Naturally we shall follow the situation continuously in the light of the advice we receive. But whatever may be the situation in six months' time or in twelve months' time, and whatever may be the situation in New York or in the world of international commodity prices, we have not yet succeeded in beating inflation here. To reverse our policies now would be to assert what is not true. it would be to assert that the dangerous inflationary tendencies which we have been combating for years, and against which we announced our measures in September, have been driven off the field; and that would not be correct. I would respectfully agree with some words of Mr. Thorneycroft when he was Chancellor of the Exchequer to the effect that we must make up our minds at any given moment which evil we are trying to combat.
It seems to me that some noble Lords of the Party opposite have been using the supposed or real threat of a trade recession as an argument for using inflationary measures in a period of inflationary tendency. They would become appropriate only should the tendencies reverse themselves. I do not wish to leave the House at all under the impression that either in the view of the Government or in my
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own view a trade recession is either imminent or unavoidable. The American Government is alive to the dangers involved in rising trends and anxious to avoid them. Experience since the war would indicate that this is well within their powers. And it may be, therefore, that the recession anticipated by noble Lords opposite may never take place at all. If it does, our policies will require adjustment to them, and we shall adjust them; but let no one suppose that we can pull ourselves out of a world trade recession simply by the force of our own bootstraps. An international trade recession would have to be dealt with nationally as well as internationally.
I would only say in this connection that the Labour Party's insistence, and I would say respectfully the insistence of the noble Lord. Lord Melchett, in this connection, in the falling world market. upon the desirability of import licences and building controls makes very strange reading indeed. I can imagine nothing more likely to encourage the tendency of a trade recession than a system of import licences imposed by this country. And as regards building controls, I notice that the deputation of labourers proved reluctant to shake hands with a right honourable friend of mine on the grounds that in the building trade their jobs were to sonic extent in jeopardy. I wonder what they would have done if they had been told that the Leader of the Opposition wanted to impose building licensing.
I should like to close on a note of some confidence and hope. It is true that we have been compelled by the rise in the international price level to pursue policies which have been correctly described as tough: and we shall go on pursuing them so long as is necessary. Nothing could have been more significant either of the importance or of the success of this policy on international sentiment, upon which, like all traders, we rely, than the course of events which followed Mr. Thorneycroft's resignation. So long as it was considered possible that there might be a change of policy in the direction of relaxation, prices faltered, and the inflow of gold and dollars, which had been good, hesitated momentarily; but this was only for a few days. The firm statements by the new Chancellor of the Exchequer reassured opinion, and an inflow of gold and dollars was thereafter

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resumed. Let anyone who wishes us now to reverse or criticise our policies at the present time ponder on these significant facts.
But at the same time I would say, let no one lose sight of the ultimate philosophy upon which we wish to build. We are not a Party and we are not a Government of restrictionists. We believe in an expanding economy, and this course to which we have committed ourselves in the interests of sound finance and stable currency is only a pause and not a change of direction in that sense. We look forward to the time when it will be possible to resume our onward march, and I am sure the whole House will join with me in wishing that that time will not be unduly delayed.
In the meantime, I have to deal with the motion of censure. In the main I have dealt with it already. The theory that you can pursue necessary but unpopular financial measures and hope to create thereby an atmosphere of universal goodwill is not one which I can accept. There will always be people who, when tough financial measures are taken, will prefer to oppose them through inability to see their public necessity. I am sorry that the Labour Party should have given official comfort and encouragement to such elements. But it is surely one of the most audacious pieces of impudence committed for some time for the Party that devalued the pound in 1949, after living as the pensioner of the United States for four years. to introduce an Amendment declaring a lack of confidence in the present Government. They proved unable over more than six years of power to dismantle the system of rationing or of war-time controls in peace, and I can remember that the noble Earl opposite, while Prime Minister, gave words to the pearl of wisdom that rationing which had been good for the country during the war could hardly be expected to be bad for it in peace.
EARL ATTLEE: Nor was it. The noble Viscount seems to have forgotten the conditions prevailing immediately after the war. There was a shortage everywhere of goods and very great difficulties in foreign exchange. And we were told by the former Prime Minister, Sir Winston Churchill, that we were bankrupt. No one suggested you could
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do without rationing. It was good: the condition of the people showed it.
VISCOUNT HAILSHAM: No one suggested that immediately after the war rationing was avoidable, and I hope I did not give that impression. What I was criticising was the inability of the Labour Party over six years of peace-time to dismantle the system of rationing or wartime controls in peace. The Labour Party left us with the deplorable figure of 32 per cent. of the national income devoted to central expenditure, and 41 per cent. if local government expenditure is included. For those noble Lords to move a vote of no confidence in the economic measures taken by this Government is surely the extreme of audacity. They left office rather than face an economic crisis of their own making, which we spent the first nine months of our period in dealing with.
When they talk of national unity, as they do in their Amendment, they should remember their leaders describing one-half of the population of this country as lower than vermin. They antagonised whole classes and interests, and the marks of their incompetence and malice are seen deep upon the face of the economy to-day. That is the Party that talks about unity and confidence in the economic measures of the Government. Nor is there the smallest evidence that they have learned anything by their defeat or by the disorders which they brought about. Their present policies, so far as they can be described as policies at all, can certainly be said to break up the sterling area. The import controls favoured by their leader would destroy international trade. Their pensions proposals, besides being actuarially grotesque, are actively inflationary. Their policy of confiscation of privately-owned housing is directly calculated to raise the internal price level and unsettle the economy. The removal of Health Service charges and other measures to which they are committed would cost hundreds of millions of pounds. Their general philosophy appears to be one which would exploit enterprise, qualification, skill and industry in the interest of shift lessness and mediocrity. They would drive the young to migrate in despair of their future, and the old into penury to meditate upon the loss of their savings through the depreciated currency.

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There are those who consider that the differences between the Parties are nugatory. Of course, in a country in which the Parties contest for the support of the marginal voter there is a sense in which the difference between the Parties is marginal. That is as it should be. But the difference between Socialism and freedom is ultimately the difference between hope and despair; and on the Government's side we are on the side of hope.
We on our side shall go into the Lobby against such effrontery in the knowledge that the stability of the Government which we shall be supporting is one of the main factors guaranteeing confidence in the pound, and that if anyone thought that the Party that moved the Amendment was in the least likely to secure office the pound would start to fall like a plummet. for nobody in the world has any confidence in their policy. The Liberals, we are told, will stay quietly in their seats.
LORD REA: My Lords, I am sure the noble Viscount does not wish to misrepresent me, but I do not think I said quite what he thinks. I did not say I would abstain, but I could not support the Government's substantive Motion. That gives me two other lines in respect of the substantive Motion, and three lines in respect of the Amendment.
VISCOUNT HAILSHAM: From our experience of the Liberal Party, I am sure that they are likely to follow all three. But we shall see. I was misinformed about the course that they are likely to adopt. I received a false impression. But I am bound to say that in another place the noble Lord's Party pursued a less honourable line than that which they seemed to be contemplating here. In all sincerity, I would ask them, if they do consider abstention on either the substantive Motion or the Amendment, to consider a certain passage in Dante's Inferno. When Dante approached with Virgil the gates of the place of punishment, they found outside, excluded, a number of unfortunate individuals who were pursued eternally by wasps. "Who are these?", asked Dante of Virgil; and the poet replied,
"These are they who are neither for God nor against him, but only for themselves. Therefore they are excluded from this place of
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torment lest even the damned should triumph over them."
Far be it from me to describe the Government Lobby as "a place of torment"!
3.41 p.m.
LORD FARINGDON: My Lords, before the Christmas Recess I went into the Lobby on an Amendment to the Life Peerages Bill, the object of which was to enable the successors of noble Lords who did not desire to take their places here and preferred to take or retain seats in another place to do so if they wished. I am sure that the whole House will agree with me that, had that Amendment been carried a few years ago, we should have lost an interesting and an entertaining speaker from your Lordships' House.
Like the noble Viscount, Lord Hail-sham, I hope that we are not on the road to ruin. On the contrary, it seemed to me that the noble Viscount's description of our present economic situation was unduly rosy. Such optimism, such buoyancy, such complacency, gave rise. in my mind, at any rate. to certain anxieties. It seemed to me that the noble Viscount was disclaiming too much, or claiming too much, and that there are far fewer primroses on the primrose path than on the one he described. He referred to recurrent crises, which seemed to show that perhaps the road on which we are travelling has its pitfalls in the future, as it had in the past.
I was sorry that the noble Viscount did not say more about the profoundly interesting speech made on Tuesday by the noble Lord, Lord Melchett. The noble Viscount mentioned it, but in no way dealt with what to my mind were the profoundly important points which the noble Lord raised. It seemed to me a speech of the highest possible interest and importance, and like other noble Lords I am grateful for it, since it enables me to speak much more shortly to-day. There is only one thing in it with which I disagree, and that is the last sentence, which seemed to me to be curiously inconsistent with the rest of the argument.
The Government's efforts to save and support the pound are, unfortunately, all short-term measures, and I think it is certain that unless some long-term measures to strengthen our economic position are taken it is inevitable that the crises which the noble Viscount foresees

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will continue to fall on us at regular or irregular intervals. I submit that a long-term solution of both internal and international problems must be found. I believe that such a solution is well within our reach. The noble Lord, Lord Melchett" has already suggested part of what I am going to put before your Lordships. I believe that it is essential that we should change our economy from a loan to a high investment economy. At present we are unable to protect ourselves against adverse terms of trade, nor are we able to take advantage of low prices. We have the worst of the bargain on both sides. I believe that if the need for high investment was explained to them the people of this country would be prepared to make the sacrifices which, at the beginning of such a policy, would certainly be necessary.
The present policy of Her Majesty's Government is intensified deflation in a time of falling prices and industrial—I beg the noble Earl's pardon, but I am going to use the word—"stagnation."
SEVERAL NOBLE LORDS: The noble Viscount!
LORD FARINGDON: The shape of the future—we all hope so. Such a policy cannot fail to intensify, rather than cure, our ills. We require a positive policy of development and progress. It is essential that we cure the basic causes of weakness. The slowing down of our economy must be stopped and reversed. It is useless to deal only with the monetary symptoms of our ill. Until 1950 this country was the leader in European recovery. Since 1953, Austria, Finland, France, Germany, Italy and Yugoslavia have increased industrial production by between 40 and 66 per cent. The British increase is 16 per cent. If the pre-1950 rate of increase had been continued, the present rate of productivity in this country would be 15 per cent. higher and we should have something like an extra £3,000 million a year in goods and services of which to dispose. It is true that we have been, and are, attempting too much for our present economy, but it is too much only because we have failed to increase productivity.
The Government's policy has resulted in a combination of inflation and stagnation. The rate of economic expansion should be doubled from 2 per cent. to
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4 per cent. The need is to raise net productive investment to about double the present rate. This is not a superhuman task. It is equivalent to 5 per cent. of the national income, to slightly under two years' annual increase under the Labour Government. I suggest that increased investment could be financed from any or all of four sources: from the unused national productive capacity; from inessential investment; from private consumption, or from defence.
The first possibility is, of course, the most attractive, because it gives one the idea that perhaps this investment policy could be undertaken without causing anybody any discomfort or trouble. Unfortunately, such a scheme is not in the initial stages feasible, I fear, because any scheme, to be successful, must avoid an increase in imports or a cut in export capacity. Moreover, supposing an attempt was made to get the whole of what was required from this particular source, it would. I believe, be inevitable that there would be a most adverse effect on the balance of payments. Of course, the control of imports. about which the noble Viscount, Lord Hailsham, was so scathing, but of which I think the noble Lord, Lord Melchett, approved, could help. I do not, however, share the noble Lord's optimism as to the immediate efficacy. or even the possibility of immediately operating such a control. I would agree with him that it is desirable, but it is difficult, and its administration is complicated. I believe it to be desirable but not immediately practicable.
Secondly, there is inessential investment. Control here is easier, but the major control in this sphere—and again, the noble Viscount, Lord Hailsham, poured scorn upon the suggestion—is the control of building. Unless we are to go back on our policy of building more working-class houses, a very small net gain is all that could be expected from this particular source. Since I believe that in any such policy the co-operation of the nation, as a whole, is absolutely essential, I do not think it would be practicable or desirable, either politically or economically, to cut working-class housing.
Thirdly, there is the reduction of private consumption. This might not seem too difficult. A fall of 5 per cent. in private real consumption in the first year could thereafter be stabilised; that

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is to say, the remaining 95 per cent. of consumption could be stabilised and investment increased. But such a reduction is possible only with the free and willing co-operation of the trade unions. Since the war, the trade union movement has shown most statesmanlike qualities, and its leaders have been moderate in the extreme. I do not doubt that a Government which had the confidence of the trade union movement could, in fact, operate such a policy.
I deplore the fact that in the last few months, in particular, Her Majesty's Government seem to have gone out of their way to alienate the trade unions. I do not believe that it would be possible now, and it is becoming increasingly less possible, to get their co-operation. Any Government, to get that co-operation, would need to have the confidence of the unions and be able to guarantee to them that, when the fruits of increased investment became available, they would be evenly shared amongst all classes in this country.
THE SECRETARY OF STATE FOR COMMONWEALTH RELATIONS (THE EARL OF HOME): Would the noble Lord, for my information, give me one concrete example of where the present Government have alienated the trade union movement?
LORD FARINGDON: I would say that Mr. Macleod's recent statement was hardly a friendly one.
THE EARL OF HOME: Is that what the noble Lord is basing his accusation upon?
LORD FARINGDON: No; I think there are many other cases. I should like to think that I was wrong. Nothing could be more deplorable than that the Government should find themselves at variance with the trade union movement, but I am afraid it is my impression that their recent policy and behaviour have been such as to make that co-operation extremely and increasingly difficult. The second difficulty in the way of getting resources from private consumption arises from the fact that the well-to-do are always able to defeat any such policy by drawing upon their capital; and, moreover, one has to remember that high taxation, or the threat of higher taxation, tends to produce additional spending.
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There remains defence. The noble Viscount, Lord Hailsham, poured scorn on the suggestion of the noble Lord, Lord Grantchester, in this connection, and he would no doubt do the same to mine. My suggestion is that Her Majesty's Government should press for at least a temporary distribution of N.A.T.O.'s burdens. They could argue that a strong and solvent ally is preferable to a bankrupt ally. When investment has increased, and is increasing, inflation is, I suggest, controllable. Post-war inflation was due to a combination of two circumstances: the premature abolition of controls (the noble Viscount would disagree passionately with this particular item, but none-the less I believe it to be true) and a worsening of the terms of trade which pushed up prices. Neither of these two circumstances operates at the present time. It would be necessary, as I have already said, to have the co-operation of the trade unions; it would be necessary to budget for a surplus; it would be necessary to control investment; and, finally, I would say that investment should be encouraged by tax remissions, loans, buildings and any other methods. Once domestic problems are solved, as I believe they can be, by increase in investment, external problems will also become soluble. But the present situation is, it seems to me, alarmingly reminiscent of that after 1925. Now, as then, we have a high bank rate and a stagnating industry. What shall it profit us if we save the pound and destroy the economy?
3.59 p.m.
THE EARL OF SWINTON: My Lords, I think that economic debates in this House have a peculiar value—for two reasons. In the first place, there are many speeches of varied, informed and practical experience. If I may respectfully say so, I would say that, while there was a good deal I did not agree with in the speech which we have just heard, it was in tone, and as a constructive contribution, well worthy of the traditions of economic debates in this House.
I think these debates are valuable also for another reason, that a large proportion of the speeches delivered here are inevitably more detached from Party controversy than the speeches that are made in another place. For that reason, I think debates here, whatever Party is in power, are often constructive and helpful.

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I suppose that this Motion must go to a Division. I am rather sorry that that is so, but if it does I shall certainly support the Government, because on the whole I believe that what they are doing is right and necessary, and because I believe they are sincere and resolute.
A great deal has, naturally, been said in the debate about the resignation of the Chancellor of the Exchequer. It was, of course, a sensational event, though I think a great deal more sensational than the Chancellor of the Exchequer himself would have wished. If I may say so with respect to an old friend and colleague, I think he has shown exemplary dignity and restraint since he retired. In his disinterested attitude, and his constructive speeches since, he has certainly done all that he could to minimise any adverse effect his resignation may have had. I would say only this about the resignation. It must, of course, be a matter for a man's own conscience, but collective responsibility and teamwork are, I think, so important that a Minister should resign only when he feels he can do no other. I remember Lord Balfour—Mr. Arthur Balfour as he then was—saying to me many years ago: "The Cecils have superb political qualities, but they suffer from one serious political defect: they all have resigning minds." If a Minister regards something as vital—I do not know what happened in this case—I am sure it is wise that that Minister should make his position plain to the Prime Minister, and have it out with him at the earliest possible moment and then, in agreement with the Prime Minister, if possible have the matter out with his colleagues. For my part, the lesson or thought that I would draw from the Chancellor of the Exchequer's resignation is riot only the need for a united team but the need for a united nation.
I want to speak with deep sincerity on what I feel about this matter, because my view is that unity is more possible than the noble Lord, Lord Faringdon, thought, although both he and the noble Lord, Lord Pethick-Lawrence, have emphasised—the one in his Amendment and the other in his speech—its importance, and indeed the necessity, for it. Surely there can be no doubt that the national interest and the common interest of us all is that the currency should be stable: that the pound should maintain its value internally and externally, at
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home and abroad; that our reserves should expand; that our production should increase without inflation; that our standard of living should be maintained and, if possible, improved. All these objectives—and they are inter dependent—are, surely, the common interest and, I would say, the common purpose of us all.
It surely cannot be doubted that all are much more difficult to attain unless there is behind them a united effort. The noble Lord, Lord Pethick-Lawrence, has endorsed that in his Amendment—indeed, he censures the Government for not producing that kind of unity. I must admit that, having heard his interesting and agreeable exposition, and the rather inconsequential conclusions which he drew at the end of his speech, I could not help being reminded of the controversy between the two divines which ended by one of them saying to the other, "We each serve the same Master, you in your way, I in His." But I wonder whether it is not possible to attain this unity, for I feel sure that continuity in economic policy is to-day at least as important as continuity in foreign policy.
I believe that, fundamentally, and in our hearts, we are not so far apart. I think it is perhaps easier for a supporter of the Government to say what I want to say in this speech, because naturally the Opposition want to get the Government out and take their place. Nobody can criticise or complain of that. The whole essence of political democracy is that you should believe in your Party, believe in your leaders, believe in your policy and believe with conviction that you can do the job better than the other people and that you should try and get the job. In the past we managed to fight political battles—and I fought more than half a dozen contested elections, some against Members who are on that side of the House now—but we were able to fight them and fight them hard without destroying a broad unity over quite a considerable field; over practically the whole field of foreign policy, and over quite a wide field of defence.
Ernest Bevin was, I suppose, the chief architect of N.A.T.O. All his successors, from whichever Party they came, have held firmly to that faith and sustained that policy. Is it impossible to do the

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same with economic policy? Surely we have plenty to fight about in the domestic field. There are all those controversies—the noble Viscount the Lord President of the Council retailed some of them to us towards the end of his entertaining speech, and there are plenty of them—which form the staple fare of many Parliamentary debates and on every political platform. I do not believe that the Socialist Party would lose politically by a sincere attempt to try to get agreement on economic policy.
I have got a feeling—a "hunch," if you will—that there are many people who are critical of the Government to-day but who are not greatly enamoured of Labour policy, and I am pretty sure that these critics would welcome a genuine attempt at national unity on economic security, because it is economic security. After all, it is the floating vote which wins elections. My Lords, if we could get down to it in that spirit, should we find ourselves so very far apart? I think there is a lot on which we could agree. We should all agree that we must hold the pound; we should all agree that we must increase our reserves, so that a world confident in sterling can continue to do world trade in that currency. The fact that 40 per cent. of the trade of the world is to-day conducted in sterling with only 4 per cent. of the world's reserves behind it is a remarkable tribute to and a proof of the confidence of the world in our mercantile and financial institutions.
I think we should all agree that we should aim at an expanding economy while keeping prices steady. We should agree, I am sure, on the enormous advantage it would be to the Commonwealth and to the world if our reserves could be fortified by a large loan to back sterling, and I think we should certainly agree that the knowledge that there would be continuity in our economic policy, just as there is continuity in our N.A.T.O. policy, would be the best chance of getting a loan of that kind. I think that in our hearts—and I believe the noble Lord who spoke last would not disagree with this—we should agree that an expansionist policy is inconsistent with the straitjacket of controls. We should also agree, I am sure, that wages and prices chasing each other are bad all round and that in difficult times we
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must try to get a measure of stability in both. Yet at the same time I think we should agree that we want to avoid stagnation in either pay or production.
I come back to something I brought before the House, I think the last time we had a debate of this kind. It is not my own idea. Would it not be possible to agree on something like Lord Chandos's plan? Production was up last year, not as much as we should have liked to see, and admittedly unevenly in different industries. I know it is said, and said with force, that wages should be linked to production. Well, you can look at productivity, broad and large, and see, broad and large, whether it is going up or down; but is it not almost impossible to devise a productivity index by which you could regulate automatically all wage rates? There are many jobs that cannot be related directly to production. But, my Lords, I have little doubt that agreed stability over a period of years would give us an increase in production, an increase in efficiency, and, above all, an increase in good will that would justify a modest but regular rise in wage rates.
I do not want to be dogmatic, but at any rate here is a concrete basis for discussion, and I am pretty sure of this: that the British people are much more interested in that kind of approach than in aphorisms or general principles. I have been encouraged to speak in the way I have to-day by other speeches made in this debate: by those of Lord Balfour of Inchrye, Lord Lawson on the other side, Lord Salter, Lord Melchett, and, not least of all, by the objective and impressive opening speech which we had from the Minister of Power. My Lords, need we weaken ourselves in barren controversy when all our interests are one, where we all stand or fall together, and when we remember that more than once in the past, in hard and difficult days, we have found in unity our strength?
4.18 p.m.
LORD BRAND: My Lords, I feel perhaps a bit out of place in this debate, having listened to the coruscating performance of my noble and learned friend, Lord Hailsham, and having listened to what I regard as the highly imaginative picture painted for us by the noble Lord, Lord Faringdon, and to the political

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wisdom of my noble friend, Lord Swinton. My task is a prosaic one today, as an ordinary banker to set before you what. I regard as the main outlines of our problem. I shall divide my remarks into comments on our internal problem and our external problem. Of course they are not separate, but I shall take them as separately as possible.
First of all the internal problem. I recommend your Lordships to study an article written by a well known and highly competent professor of economics, Professor Paish, which appeared recently in the Financial Times. From that article I propose to take a few facts and figures. Take the first point, the real national income of this country. He divides it into two periods, one the Labour Party period and the other the Conservative Party period, the years 1946–51, and the years 1951–56. Industrial production increased much quicker in the first than in the second period. But it has to be remembered that industry itself employs only about half our labour force and produces only about half the annual total of goods and services, the other half representing distribution and many miscellaneous services. Taking this into account, in 1946–51 he estimates that our total production increased by 15 per cent. and in 1952–56 by 14 per cent. Industrial production, it is true, increased more quickly in the first period owing to the very favourable change in the terms of trade. Real national income increased 18 per cent. in the latter five years as against 11 per cent. in the first five.
VISCOUNT ALEXANDER OF HILLSBOROUGH: My Lords, could I ask a question on the figures, just for clarification? Are those figures based entirely upon value or upon volume?
LORD BRAND: They are pounds sterling.
VISCOUNT ALEXANDER OF HILLSBOROUGH: That explains a lot.
LORD BRAND: But it is important to realise this: that money income is shown as growing in both periods much faster than real income. The ratio of money income to real income rose by nearly 33 per cent. in the first period—that is, under the Labour Government—and retail prices rose by nearly 32 per cent. In the second period, the ratio of money to real income rose by 20.5 per cent. and retail prices
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by 25 per cent. In both periods you see the working of the wage-price price-wage spiral. Inevitably, this all means inflation. As Professor Paish remarks:
"Inflation is essentially a condition where national money income rises faster than the flow of goods and services."
The question is, what are the influences which enabled or forced money incomes to increase faster than real incomes? Inflation may be due to a shortage of goods, as at the beginning of the war, when money was plentiful and goods very scarce. It may be due to a rise in prices of imports, as after the Korean war. It may be due to the effects of devaluation. Cripps's devaluation certainly intensified the rise of prices very much, and perhaps its effects are not yet fully worked out. Or it may be due to claims for wages and salaries granted by arbitrators which may go a long way beyond the increase in the real national income. Nevertheless, inflation is almost a world-wide tendency since the war—in the United States, Canada, Australia, India and almost everywhere—and there must be some underlying influence.
I believe that the underlying influence is that all nations have been trying to do more than their capacity allows them to do, and that one of the main reasons for inflation is the tremendous capital expenditure since the war, particularly in countries like America. An American economist told me recently that in consequence the total expenditure in the United States during peace time was above what it had been in war time. I think that we are seeing now in America a reaction from all this. An enormous amount of capital has been raised at high rates of borrowing, high rates of interest; and meanwhile demand begins to fall off because of the rise of prices due to inflation, and in consequence you begin to get a depression. All this made me a little nervous when the noble Lord, Lord Faringdon, proposed at one nice, fell sweep to double the total capital expenditure of this country. I think that would lead to the most roaring inflation and to an immediate withdrawal by all our creditors of sterling balances.
I am doubtful myself of the attempt by economists to distinguish sharply between demand inflation, meaning too much money chasing too few goods, and cost inflation, to which Mr. Gaitskell referred and which, rather to my surprise, he

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seemed to think was the real factor in inflation, because it seemed to me to implicate the trade unions as well as the employers—though he absolved the trade unions altogether in another sentence of his speech. I am entirely sceptical of Mr. Gaitskell's thesis that most of the rise in prices here has been caused by the present Government's slashing of food subsidies, increased insurance charges and the Rent Act. They may have had some slight effect on some trade union negotiations, but can we suppose, for instance, that the corresponding inflation in the United States and other countries was also due to these three actions of the British Government? I cannot think so.
VISCOUNT ALEXANDER OF HILLSBOROUGH: Will the noble Lord tell us why he cannot think so?
LORD BRAND: Well, does the noble Viscount think that the reduction of subsidy here affected the American price level? I am pointing out that there was the same amount of inflation in the United States as here, and yet that country had no food subsidies to reduce. I am still more surprised at Mr. Gaitskell's statement that "We on this side of the House will not have it that the trade unions were responsible for a rise of prices". Of course they were partly responsible, as no doubt were the employers, and as were particularly both the Labour and the Conservative Governments.
The fact is that inflation is caused in all countries by an attempt to do more, particularly as regards capital expenditure, than the savings and labour supply justify, taken together with consumption demands and other demands on resources. Everybody knows the effect of total expenditure outrunning savings and if there is more demand for labour than can be satisfied by the existing supply. By this time we all know that over-full employment equals a wage-price spiral. It is hardly worth while then to ask whether it is the fault of the employer or the trade unions, if wages rise. Both co-operate to raise wages, and so prices, so long as inflationary conditions exist and inflationary profits can be made. In such circumstances, Governments clearly have great responsibility for not having restricted earlier the supply of money and credit and also their own expenditure.
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As I say, in such circumstances employers are also responsible because, inevitably, if inflationary profits continue they will be willing to pay higher wages and bonuses to secure labour in times of over-full employment.
In this connection I should like to support what my noble friend, Lord Salter, said the other day about trade union organisation. The difficulty of settling wages questions fairly for the employed, the employers and the community, seems intractable in conditions of full employment. Take the system of arbitration. There is one vitally interested party which is not represented at arbitration meetings: that is, the community. The union puts forth its claim and the employers resist. If 20s. is asked, the arbitrator probably gives 10s. When times are good and inflationary profits are possible, employers may agree. There is no chance for the community to say: "This means inflation; we shall suffer and in the end no one will gain". Yet the arbitrator cannot say, "I am not going to give you anything because that would cause inflation." That is nothing to do with him. He will usually say, "You asked for 20s. I will give you 10s."
The only alternative is for Her Majesty's Government to create conditions where it is not worth while for the unions to demand a rise and where it would be ruinous for employers to pay more: that is, by a policy of restriction. There is one alternative: that the unions and the community should get their due by greater production and greater efficiency leading to a reduction of prices, instead of an increase of wages. By that means all would gain. There is another not attractive alternative, as in the United States of America now, that ultimately if inflation continues we shall have falling employment and reduced output.
It is usually thought that if wages are compensated by increased production, no harm is done, but we should stop for a moment and consider whether that is so. As Professor Paish points out, half the labour of the country is in non-industrial employment, and there is no means of measuring whether those people produce more or less. The only people who can measure their production are the industrial workers. If industrial workers

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claim and get the whole amount of the increased production of industry, nothing is left for anybody else; but all other wage earners will get a rise too. They will go to an arbitrator and claim that as industrial workers have got this extra sum, they should have it also. In the end, a wage award which apparently gives back only the extra value of production becomes definitely inflationary and does not lead at all to stability.
Mr. Gaitskell sees the remedy in stepping up production by all means possible—I suppose by relaxation of nearly all restrictions and controls, except controls on imports and perhaps on building; and I suppose by reducing the bank rate and softening the credit squeeze This would be a mistake, unless he can guarantee that employers, the trade unions and nationalised industries, under conditions of over-full employment, which might temporarily return, will not again produce the wage-price spiral. On the other hand, I accept the view that a 7 per cent. bank rate and the restriction of credit must not last longer than is absolutely necessary.
The world looks to be entering a period of deflation which might seriously affect our exports, and we have to be ready to alter course. Mr. Gaitskell quoted some figures of production in different countries, and the noble Lord, Lord Faringdon, has given mainly the same figures. I would point out that both the noble Lord and Mr. Gaitskell omitted to say what was the increase in production from 195.3 until 1957 in the United States of America. It is true that other countries, like Western Germany, greatly increased their production, but it so happens that the United States of America increased its production by only 7 per cent., as against our 16 per cent. in those years. So that if we compare our situation with that of the United States of America, it does not look at all bad. We increased our production by more than double the United States increase, and they are supposed to be the greatest country in the world for increases in production.
Inflationary conditions in the United States have been similar to those here, but they seem now to have been curbed; or possibly, as I think, inflation has curbed itself. We should have had still more inflation here but for the really striking improvement in savings,
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especially personal savings. I believe that this is an important point. I quote again from Professor Paish. Taking 1948 prices as a basis,
"We produced savings in 1946 of £437 million and in 1957 of £2,780 million."
I certainly find this very surprising. I never foresaw such an increase. I do not know exactly in what form these savings are made, or by whom. But they must come from the great mass of the people, for I feel sure your Lordships will agree with me that saving is not a virtue that can be practised to any great extent in other classes at present.
LORD LATHAM: My Lords, would the noble Lord say whether, so far as he knows, investment has gone up proportionately to the increase in savings?
LORD BRAND: My Lords, I should say that investment has gone up by the same amount. A man may buy a house, perhaps, but otherwise he will certainly invest his money somewhere. He does not put it in his pocket.
LORD LATHAM: My Lords, that does not necessarily follow. Witness the period between the wars, when there were considerable savings.
LORD BRAND: I do not quite know where the investment has been made, though it must have been made. It has not gone much into National Savings. It does not strike me that the great mass of the people can be feeling the pinch very badly, if they can save these enormous amounts of money. Our consumption did not increase in proportion to our real national income because of this huge saving. In fact since the war our consumption has fallen from 75 per cent. to 67 per cent. Personally, I should be all in favour of the suggestion of the noble Lord, Lord Faringdon, that consumption be decreased a little more to allow, not so much for capital expenditure (although I should like to see that in other circumstances) but for exports which we shall want very badly. As a result of this saving, we have been able greatly to increase our fixed capital investment. We have been able to finance £200 million a year in growth of stocks and have also made room for a considerable increase in exports, so that over the years 1946 to 1957 we have added some

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£1,000 million to our balance of payments surplus. Saving, Professor Paish calculates, would not only finance each year our fixed investment and increased stocks, but would allow us a surplus of £400 million a year.
In fact, while we have had a balance of payments' surplus of £1,000 million over the past ten or eleven years, practically none of it has gone to increase our reserves. We have lent abroad a great deal of it—about £200 million a year. We have also repaid a large amount of debt. Our true reserves now, as your Lordships all know, are ridiculously inadequate. As the noble and learned Viscount, Lord Hailsham, said, this is our absolutely central problem. If other countries cease to inflate, and their prices remain steady or fall, while inflation continues here, the situation will become extremely critical; and, with our reserves and external liabilities as they are, this would be very serious. Our balance of payments and our reserves—that is, our external difficulties—are the hub of our problem. We are a bank in a totally illiquid position. I believe I have laid stress in every speech I have made over twelve years in your Lordships' House on this particular point of our reserves, and on our Governments having concentrated on other subjects and not on this vital means of maintaining a stable currency.
It is not true to say that we could not restore our position. I would take the example of Germany. Germany, in three or four years, has built up gold reserves of £1,200 million, far beyond anything we have. She has been able to do it perhaps for several reasons. She had very little defence expenditure. Ten million immigrants came in from East Germany to West Germany. But particularly relevant is this, I think: that the Germans have been through two terrible inflations and the German worker knows what inflation means. Moreover, the Germans are consuming less of their output than we do. I think their consumption is about 10 per cent. less than ours. That means that much more is available for exports. No doubt their currency is under-valued, as ours was greatly under-valued owing to the Cripps devaluation. But a great difference is that we lend a lot abroad, and the Germans lend practically nothing. I agree
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entirely with what my noble friend Lord Salter said yesterday: that we have to persuade these creditor nations which build up big balances that they must play the game and use their surplus to some effect, lend it abroad or buy more abroad. They must not go on building up great reserves at the expense of the debtor countries. Nevertheless, Germany is an example to us, which we might follow.
I now come to one final point, the problem of our reserves, and what we actually do about them. I have no doubt that nearly all your Lordships have seen Sir Oliver Franks's admirable analysis of the problem to Lloyds Bank shareholders, to which, I think, the noble Lord, Lord Melchett, referred yesterday. Sir Oliver made two main suggestions. He suggested that after we have brought about a substantial increase in our reserves by our own efforts—and that is the primary need—it might be possible to obtain a dollar stabilisation loan from the United States; or, as an alternative suggestion, that the structure of the International Monetary Fund which was created at the Bretton Woods Meeting should be recast—that the International Monetary Fund might be converted into an international supra-central bank with larger international balances. I happen to have some personal knowledge of both these subjects, as I took part in the negotiations on the American loan in Washington and was also a member of the British Delegation at the Bretton Woods Conference.
I should like to say, first, that I think it is far better—of course, everyone would agree with this, and Sir Oliver Franks would certainly agree—that a country should learn to stand on its own feet rather than borrow stabilisation loans from elsewhere. A stabilisation loan would be expensive, and once you have borrowed you have to repay it. Moreover we have huge debts already. Sir Oliver knows Washington very well indeed and was there more recently than myself, but I think he would agree with me that to get such a loan approved by Congress would be a matter of considerable difficulty.
I sat for a little time on the Executive Committees of the Fund and the Bank with many other directors from most of the other countries in the world, and I would say, from my experience, that international organisations of this kind without an international Government behind

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them are not easy to work. Nevertheless, as one of our greatest problems is the lack of international central liquid resources, I should think myself that this suggestion is worth considering. It will take a long time, of course, to get a meeting of all the representatives of the Bretton Woods organisation together to see whether anything can be done to increase the liquid resources of the world, but it is a suggestion well worth following up.
I have made before now one suggestion which I will venture to mention again: one simple way of adding something to international reserves is to increase the price of gold. The Americans have not liked this idea at all. But as I asked your Lordships recently, and repeat it, is gold valuable? Is gold thought by the human race to be valuable? I think that the answer is still Yes. Why, then, has the price of gold, which is a mineral, not been allowed to go up, although the price of every other mineral has gone up in the same way as all other prices have? The answer is that the United States is the only buyer, and the United States does not want the price to go up, because it has always been thought to be inflationary. If they are going to suffer from deflation, it may be possible that they will consider with more good will the idea that the price of gold should be increased. If gold were increased in price relative to the price of other materials it might add hundreds of millions a year, I should think, to the amount of gold available.
I would end merely by saying that, while these plans are all worthy of being looked at, I feel that as a sovereign State we must do everything to pay our own way. We can do that only by making sacrifices. In circumstances as they stand, we cannot succeed simply by trying to add greatly to our production at this moment. The world is going the other way, but I feel sure that in the end we shall be able to succeed in our efforts.
4.50 p.m.
LORD SHEPHERD: My Lords, may I remind your Lordships of the important words which appear in the Government's Motion. The Government ask us to support them
…in their resolve to maintain by every effective means the internal and external value of the pound sterling."
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This Motion has been carefully worded, and I do not expect that Government supporters will find a great deal of difficulty in supporting it in the Lobby this evening. May I say, with clue respect, that I thought that the speech of the noble Lord, Lord Mills, was much in keeping with the Motion, and that the speech of the noble Viscount, Lord Hailsham, showed that he believes that attack is the best form of defence. I was thinking, while he was speaking, that possibly he imagined that he was in Roch-dale. Noble Lords on this side will equally have no difficulty in deciding into which Division Lobby they will go.
The noble Viscount complained that the Opposition have not pressed their Amendment of "No confidence." There are not many of us who have the noble Viscount's eloquence, but I can assure him that we know exactly where we stand. We have no confidence in the advisers of Her Majesty's Government or in their policy—and particularly their economic policy. I believe that this lack of confidence exists throughout the country, and possibly in the Conservative Party. The time is getting short and I am going to resist the temptation of making a Party speech. I will come immediately to the point on which I have risen to speak this afternoon.
We are told that our present inflation is brought about because we are paying ourselves too much in comparison with our production. I do not complain of that diagnosis, but I honestly do not believe that a high bank rate and severe credit restrictions are the cure to our troubles, although I must admit that they appear to be a sedative. We are told, further, that if we are to maintain our present standards of living and improve the lot of those who are less fortunate, and also play our part in the defence of Europe, we must increase our production and earning capacity. Again I agree; but I would submit to your Lordships that to obtain this increase in production is relatively simple compared to the problem we shall face in the disposal of that production. To increase production, we shall have to increase our imports, and we shall have to pay for these imports by increased exports.
I believe that one of the greatest weaknesses in our economy is that we are not earning enough foreign currency through

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physical exports. It is perfectly true that our exports continue to rise, but I think it is also perfectly true that we have failed to maintain our share of the world export markets. The noble Lord, Lord Mills, mentioned that our exports since 1950 had risen by 53 per cent., but we find that during the same period the exports of our severest and most dangerous competitor, Germany, trebled. Germany is fast reaching a dominating position in Europe and has achieved this not only through a great deal of financial assistance from America but also largely through hard work and sacrifice and dynamic salesmanship. In spite of increasing competition, some industries have maintained their position in the export markets, but much of our industry and trade find it more remunerative to sell their products in the home market and in those export markets where we enjoy preferential duties.
Much of our profits and prosperity since 1951 have been brought about, I believe, because we have concentrated on sales in the home market, which until 1951 had been deliberately starved by the policy of the then Chancellor of the Exchequer, Sir Stafford Cripps. The policy of exporting to the maximum degree was necessary, and as our resources in production were limited, it was necessary to have a system of priorities. The need was for foreign currency to pay for our raw material to keep our factories going. I believe that the policy then adopted was right, and I believe that to some degree it would be right to-day. I do not advocate starving the whole market of goods, but I strongly suggest that, while our present production is limited to a degree, we should divert a larger percentage of our production to the export markets. The adverse trade gap must be closed, just as surely as we must build up our gold and dollar reserves.
My experience in business has taught me that trade will always go where there is a profit and where there is little risk. To many companies, export is no longer an attractive proposition. The capital and credit risks are greater than those on the home market. An export department, if properly conducted, is a costly item in a company's overheads. Competition is keen, profit margins are small and business is often frustrating.
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This country lives by its exports, and I believe it to be essential that the Government take a lead in a great export drive. Speeches, dinner parties, and conferences are not sufficient: the Government must give some assistance or some inducement to the exporter. If they do not do that, eventually they will have to resort to regulations.
I have said earlier that credit restriction and a high bank rate are not the cure for our troubles. These controls hit the exporter and the export manufacturer far more than they hit the home trader and the manufacturer for the home market. Credit restrictions tend to extend delivery date, and high interest charges have to be passed on to the overseas buyer. The disposal of our production is going to be our major problem in the years to come. We should note that manufacturing production throughout the world is expanding. Countries which were never manufacturing countries are now setting up manufacturing plants. Many countries have set up tariffs and quotas to protect their own industries. Great export markets before the war, such as India, Pakistan, Indonesia and China, are practically closed to us. In many parts of the world purchasing power is at a standstill, and in others it is declining.
My Lords, I hope that I have made my point. I do not wish to be alarmist, but I believe that our greatest problem has yet to be faced, and that will be the disposal of our increasing production. If production is the key to our prosperity, we must open the door to many more export markets. I believe that it will be not only from the factory that success will be gained, but from the salesroom. I therefore call upon Her Majesty's Government to take the lead in a great export drive; to find some method of giving encouragement and assistance to industry and to exports. The present Government policies, as they are put before us to-day, will not bring an expansion of trade; and there is no indication that the Government have any other plans. It is for that reason that I am glad my noble friend Lord Pethick-Lawrence has moved his Amendment, and I shall be pleased to support him.
5.1 p.m.
VISCOUNT ASTOR: My Lords, I was most interested in the last speech because, although it started with a short Socialist

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prologue, it wound up with a long series of orthodox Conservative arguments, all of which we have deployed in the past in fighting our own elections, much different from what we have heard from our opponents in election days. I congratulate the noble Lord on a fine orthodox Conservative speech.
I fought the last two Elections in a very marginal seat, and if there was one thing in which the Conservative supporters of this Government were interested it was the problem of inflation: the continuous steady rise in prices under the Socialist Government; the diminishing of the value of savings and of pensions and benefits received under various welfare schemes. The sad fact is that that process has continued at almost the same rate under the present Conservative Government. We are getting a high degree of disillusionment in the voters who voted Conservative, because this steady process of inflation has continued, not so badly but still intolerably.
I think that many people showed great patience during the premiership of Sir Winston Churchill and Sir Anthony Eden; in the former case because of their respect for the age of the Prime Minister, and in the other case because of sympathy with the health of the Prime Minister. But they looked forward to a real courageous tackling of the inflationary problem by this Government, and it was with the greatest sadness that they recorded the resignation of the first Chancellor of the Exchequer who seemed to have the "guts" to tackle that problem, although it might involve considerable temporary unpopularity. The steady elements of this country have realised that inflation is not like alcohol, of which you can go on taking a moderate amount without irretrievable harm. There are elements in the country which can never be compensated.
Take the clergy, for a start. The clergy, upon whom the spiritual health of this country depends for leadership, are being steadily downgraded in their standard of living; and no compensation can possibly be visualised which can save them from the steady rise in prices. Then one can take schoolmasters, or the mass of retired people, on pensions, who do so much voluntary work that keeps local government going in
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this country: they can never catch up if this inflationary cycle is continued. There is, therefore, a considerable cynicism in regard to both Parties in the country at the moment. Is it not for all Parties a rather worrying thing that between 100,000 and 200,000 expensively and highly educated young people are migrating to the Commonwealth every year, to be replaced by roughly the same number of under-educated coloured people from the Commonwealth? Surely, it is not a sign of a healthy social situation when we are losing a highly educated element and taking in a much lower educated element.
I have a connection with a small foundation which has started to send British scientists to the dollar area. When it was first founded I was surprised, on going with other members of the committee to talk to the heads of science departments at different universities, to see their apprehension about it. Why? "Oh", they said, "if our young scientists ever get to America, they will never come back. The opportunities and the incentives are so much greater that they will not return. "So this foundation takes great care to send only middle-aged scientists, married, and, if possible, with two or three children at school in England, who have a strong stake in returning to this country. Surely, it is not a healthy situation when taxation has reached the point of diminishing incentives the whole time. How can people want to stay here unless we make it attractive for those who have earning capacity, or who have capital, to feel that by remaining in the sterling area and in the United Kingdom they will get as fair and square and good a deal as they have in other parts of the Commonwealth or in the dollar area? We shall have the continual pressure of migration of skilled individuals and of capital so long as taxation remains at its present level.
Must we accept the fact that the taxation of capital is to be permanently at anything like the present level? I can understand well that during the war income tax and sur-tax had to be at the highest level in order to prevent excessive consumption at home. But I was never able to understand how the war effort could possibly be helped by ruining the estates of people who either

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were killed in the war or had the misfortune to die during the period of hostilities. I could never see why any soldier should fight the better for the knowledge that some other family's ancient estate was going to be ruined, or that it had any relevance whatever to the war. We still see now, twelve years after the war, a continuation of the steady process of the elimination of large and ancient estates. Houses are pulled down; ancient, historical and beautiful houses are now turned over to others to become rather unsuitable and inconvenient schools and institutions, Whether that gives any satisfaction to the working class in general, I do not know, but very seldom does it do so to the people who live in that particular neighbourhood. The result, naturally, is inflation, because people with large fortunes tend either to try to "blow" the money in their lifetime or to move it to other parts of the world where there is a lesser rate of death duty prevailing, both of which are bad things.
Surely, if we are to have a healthy economy taxes on capital must be of an incentive nature. Before the war, when we had a maximum of 50 per cent. death duties, the ordinary person who inherited from his father probably had a twenty-years' expectation of life; and if, by wise investing and saving, he could increase that by 5 per cent. a year, then he could pass on to his children what he had inherited and, at the same time, pay a substantial duty to the Exchequer on his death. That provided a real incentive for people to use their capital in an expansionist and constructive way which helped British industry.
I wish to ask the Government: do they regard the present level of taxation on capital as a desirable thing in itself, and have they accepted it as a permanent feature of our national life? It certainly has no economic relevance. Only a few pennies in the pound of our national expenditure is paid for out of death duties—4s. 5d. in the £. Yet for the sake of that we are ruining the capital, increasing inflation and destroying the social structure around which so much of our national life has been built. I can understand a Socialist Government doing this. At the end of several years of a Conservative Government, one begins to wonder what their fundamental
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philosophy is, because where is the capitalist of the future to come from? Like the noble Lord, Lord Brand, I find it hard to see where the capitalist of the future is to come from.
A friend of mine, a doctor who is at the head of his profession, wants to open a particular clinic. But however hard he works, he cannot, under the present rate of taxation, save enough to buy a house and start a clinic. Another friend of mine is a solicitor, also at the head of his profession. There is nothing he can do, however hard he works, to save enough to safeguard the future of a wife who is a good deal younger than himself. How can a capitalist system work if the middle classes cannot save, and the upper classes are being ruined by death duties? I do not see how it can work (because the small saver is not investing in equities) unless we do what they do in America, which is to allow and encourage stockbrokers on the Stock Exchange to advertise and encourage small savers to come in.
The working classes in America are largely interested in equity investment on the stock market. We shall not have any flow of equity capital in the long run in the future. We shall have merely the savings of profits ploughed back by companies themselves. We shall cease to have any form of personal capitalism and shall have instead a purely managerial society, in which we have paid managers dealing with the funds of institutions. The paid manager who deals with the funds of institutions, like the civil servant, is a fine individual, but he is no replacement of the individual enterpriser—the person who has in the past taken the risks and built up the great overseas and risky investments on which the greatness of this country has been built. Is it a coincidence that the countries which have the highest standard of living, and which have made the most extraordinary recoveries since the war—the United States and Germany—are countries where the capitalist system has had its freest run? Those are the fundamental questions to which the Government must give their supporters an answer if they are to have the real heartfelt support of their supporters in future electoral campaigns.
May I say one last word about the value of the pound? People talk as if it depends on gnomes in Zurich. Gnomes,

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these small dwarfs in Zurich, are part of that race of imaginary dwarfs which we know so well—the "small businessman" and the "little women round the corner" who are always being invented. It is not these imaginary dwarfs who make a run on sterling and who suddenly decide to have a gamble here or there. It is a large number of business people who are trading with other people's money, who all the time have to think whether they are doing their duty to their depositors, their shareholders and their premium buyers by keeping their money in sterling if there is a serious danger of that sterling losing its value. There is no way, by increasing controls, of preventing the responsible foreigner—not a gambler, but a responsible businessman—from expressing his confidence, or rather the lack of it, in sterling by hurrying to get money out of this country, instead of leaving it to fructify in the banks here.
We are trying to do it on a gold reserve no bigger than the gold reserve of the Ford Foundation in America. There is no possibility of doing it permanently on that basis. I am one of those who believe, like the noble Lord, Lord Melchett—whose interesting speech I did not hear, though I read it with great care—that we shall need a different international system and international central bank if we are to have stability of exchanges in the future. But, surely, nobody is going to come in with us unless we are strong ourselves. If we can have that stronger financial discipline we have a hope of getting a stronger international institution.
Finally, may I say one personal word, and that is how sorry I was that Mr. Thorneycroft resigned. I knew him; admired him, and I worked with him during the 1945 Parliament. He is a person not only of ability but of legitimate ambition; and that a person with that strong strain of legitimate ambition should have resigned on a question of principle is a fine thing, I think, in our political life, for which we can respect him. I, for one, was a little sorry at the rather acid tone of the Prime Minister's letter accepting his resignation, but we hope that the period of strain will be only a short one, that the harmony between Mr. Thorneycroft and the rest of his former colleagues will be restored, and that he may shortly come back to the councils of this Government.
5.20 p.m.
EARL ATTLEE: My Lords, I shall not be expected to follow the noble Viscount, Lord Astor, in his lamentations over the decay of the capitalist system or the decay of the class society. I shall not therefore (the noble Viscount will excuse me) follow his speech in any detail. I admit that I am sorely tempted to make a few remarks about the speech of the noble and learned Viscount, Lord Hail-sham. His speech, it seemed to me, was divided into three parts. The first was a general glorification of Britain, which I might say he did not do quite so well as the noble Lord, Lord Mills. The second part seemed to me more directed to the Rochdale by-election than anything else. It was a violent attack on the Liberal Party, with which, of course, I agree to a large extent; but I thought that was rather flogging a dead horse. The third part seemed to be composed of bits and pieces collected from pamphlets by the Conservative Central Office, many of them rather out of date, and to be designed as an attack on the Labour Party. I must say that I admire his effrontery; he went back to the American Loan. And this from a member of a Government which is not paying interest on the American Loan—a thing we always did—a Government which is cadging everywhere, from the International Monetary Fund and everywhere else! I will deal with a few of his points a little later.
I do not intend to intervene at any length. There is really only one point that I want to make, and that is to follow up the admirable speech made by my noble friend Lord Shepherd, on the importance of the export trade. He speaks from the practical experience of a business man. I can only take it at secondhand from what I have been told by experienced people who are engaged in the export trade. I want to deal particularly with the dollar area. The noble Lord is engaged in bringing American buyers into contact with British firms, and he has found an immense lassitude among British industrialists in going for American orders. We have to face very severe and increasing competition from Germany, Italy and Japan. Those countries give their exporters various incentives. The complaint here is that very little help is given to our exporters, and in taking American buyers round to these firms one finds them not willing to

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take any trouble. They say, "Oh. our books are full of orders for the home market; we are not going to look at the export trade ". And while there is a keenness for our goods in America, you will find they cannot supply them. The noble Lord found that in trade after trade —grocery, cotton, knitwear, confectionery and various others. The firms will not deliver; or, if there is delivery, often it is only after very great delay.
There is also a great lack of new ideas. The American market is essentially composed of people who are always seeking something new. We are content to give them the old models. We are beaten in style by Italy; we are beaten in price by Germany; we are beaten in price by Japan. Why is this? In the first place, of course, as my noble friend Lord Shepherd pointed out, it is both more risky and more tiresome to meet these overseas orders—they involve trouble about invoices, and about this, that and the other. There is a lack of incentive to do it; and there is a lack of Government support. On the question of Government support, it is true that we have Ministers going over to America. I understand that Sir David Eccles has been over, and I am told that he is a very great showman. But what is needed is for the Government to make it easier for representatives of firms to go over and see for themselves and look into the markets.
We should do advertising where possible. There is a very big store in New York which has stores in many of the leading cities in America. It is called Macey's. They have reached their one hundredth anniversary; they are having a great exhibition this year and all the leading States in Europe are buying window space, because it is going to be a great exhibition. They are paying 5.000 dollars. But not Britain; we cannot afford it. The Government are always talking about £50 million in relation to everything and nothing else. But why cannot we take advantage of this opportunity to sell our goods there?
Why should this state of affairs exist? Well, I am not attacking the British manufacturers because they do not fill these orders. There has been an interesting discussion lately in another place on a Report of a Tribunal sitting under a
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learned judge. One of the points brought out there was divided loyalties. The particular question raised was of someone in a responsible position who had to decide between what he believed was his patriotic duty and his duty to the organisation which he represented. That faces very many people to-day. The men running big business to-day are seldom acting as individuals; they are people managing a large amount of capital belonging to other people, and their first duty is to their shareholders. It is not their job to indulge in patriotism or philanthropy; they have to get the money, and therefore they go to the easier and safer option. There is no direction by the Government on this matter, except a little vague exhortation.
The noble and learned Viscount, Lord Hailsham, animadverted on the action of the Labour Government in keeping controls. We had to. At that time there was a grave shortage of goods. We had to build up the export trade. It was unpopular. We had to forbid people to sell at home. The shops, you remember, were full of goods "for export only". It was very hard on our people, but it was essential. We should never have recovered if we had not done it. We did not get much support from the other side: oh, no!—"Cripps' austerity" and all the rest of it. There was not much encouragement for people who took the hard way then. But we did it in spite of all the difficulties of continually rising prices and of a Korean war undertaken on behalf of the United Nations—not a Suez expedition undertaken against their will.
But when the Conservatives came in we got another tune altogether. They were not going to have austerity; they were out for freedom. A few controls and a little self-restraint were to be translated into red meat and I.T.V. Everybody was encouraged to spend. The thing was to have a good time. They said, "You are free now from these wicked Socialists." The result is that there has been this drain on the home market all the time. What can these poor people do who are responsible to their shareholders? Where are they going to make most money? There we come into one of the prime difficulties of running a State in our position, under the capitalist system of which the noble

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Viscount, Lord Astor, was speaking: there is this difference of interest between duty to the country and duty to the shareholders. Unfortunately, a Conservative Government came in with profit as the main incentive. In the war we had to damp that down. Private profit and private interest had to give way to what the community wanted, and the country responded magnificently. Has it ever struck your Lordships how little profiteering there was in World War II as compared with World War I? Far be it from me to say that it was due only to the efficiency of that Government of which I was a member—partly, perhaps. But I think it was due also to what I should call a gradual acceptance of Socialist ethics.
I am old enough to remember the South African war and the scandal afterwards. Most of us can remember World War I and the horrible scum of war-time profiteers that rose to the surface. War-time profiteering was not thought to be so bad. Some of those concerned penetrated to the House of Commons, and may even have penetrated here. In World War II the nation braced itself, and we put the community first. I have often been asked: "How was it that you managed to agree with your Conservative colleagues during the war?" I said that it was simple: it was that the advantage of the community must be put before private, selfish interest. In the war everyone accepted that, and that carried on into the years of peace. I would say that in those years after the war not only labour but industry responded magnificently to the very heavy task put upon them. We told them that they were going to have a difficult time, and they responded.
The trouble is that the Conservative Government came in and we had a different ideology altogether. We had the gospel of hedonism; and if you complain now of the slackness of management and staff and everything else, it is always because that is the line that the Government has set. I am not advocating any particular controls, but you will not succeed only by exhortation. You can have incentives to export. As my noble friend Lord Shepherd said, unless you can keep up your export trade it is a grim look-out for this country. I see no prospect of doing it under the present
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Government. "We must have confidence," they say. With great respect to the noble Viscount, Lord Hailsham, I thought he pressed us a little far when he talked of the great confidence in the present Government. A Government which has had three Prime Ministers, four Chancellors of the Exchequer, half a dozen Ministers of Defence, and one in which Ministries change their personnel almost as quickly as they do in France, cannot be regarded as very stable. But unless this Government can produce some policy which is going to make a real drive, you are going to have these continual crises.
When we were in office we were told that the trouble was all due to the Labour Government. Everyone knows the frequency of financial crises; they have increased greatly in the last six years as compared with the six years previously. We had one every two years; this Government has one every year or more frequently, and will continue to have them. As the noble Viscount, Lord Astor, pointed out, the fact is that we are in the condition of a decaying capitalist society. I do not think you will be able to set it on its feet again. Without a Socialist impulse, without direction and an objective, this country will slip down, because the Government cannot do anything else about it. They had better give way to those who have more faith in their own ability to do so.
5.36 p.m.
THE EARL OF DUNDEE: My Lords, the speech of the noble Earl to which we have just listened was perhaps mainly in the nature of a rejoinder to the opening speech from the Government Bench this afternoon, and I do not think it will be necessary in this debate to pursue any further either the ancient or the modern history of Party conflicts. My own memory certainly does not go back to the profiteering in the South African War, nor does it go back nearly so far as the memory of the noble Lord who moved this Amendment, Lord Pethick-Lawrence, although I hope that if I live to be as old as he is my memory will be as fresh as his is now.
I was greatly interested by the noble Lord's reminiscences, which illustrated the profound change which has taken place in British monetary policy during

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his lifetime. I do remember the financial crisis of 1931 to which the noble Lord referred, when all Members of Parliament suddenly began to take an interest in monetary problems which few of them had ever bothered to do before. We used to have meetings upstairs, to which we invited all the leading economists in the Kingdom so that we might hear what they had to say. I think the conclusion that most of us came to was that when you had five different economists together in one room you would always have six different opinions, two of which would be the opinions of Mr. Keynes.
I myself happened to agree with some of the opinions of Mr. Keynes, although it was difficult to agree with all of them at the same time. I was very glad when, during the war, he became the British Government's representative at the International Monetary Conference with a seat in your Lordships' House. I think he was mainly responsible for the Government White Paper of 1944 which was accepted by all political Parties and which has since been the basis of British monetary policy—or, at least, when the 1944 White Paper was debated in your Lordships' House the Minister in charge used sometimes to ask Lord Keynes if he would mind getting up and explaining what it was all about. Of course, he made some errors of judgment, as everybody does. I think he took the view that the dollar exchange problem was not likely to last for very long and that it could probably be solved by an American loan followed by early convertibility. The result was that the whole of the American loan went "down the drain" in about six months, and the dollar scarcity problem became worse than ever.
But I think that since the war all political Parties have honestly done their best to reconcile full employment with a reasonably stable price level. We have succeeded in the first object, but we have failed so badly in the second object that we are in continual danger of losing full employment—because that is what will happen if domestic inflation makes it impossible for us to buy what we need from abroad. I am optimistic enough to think that our failure is much more due to inexperience than to stupidity, and still less to any kind of political turpitude. It
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seems to me that the methods followed by successive Governments have not always been distinguished from each other by Party differences; indeed, sometimes differences of method between Parties have been less marked than differences between the methods pursued by the same Government at different times. I suppose it is inevitable that these endeavours on our part to learn how to control the managed currency of a country in the peculiar situation of Great Britain—which is a very difficult thing to do—should be the subject of continual Party recrimination, votes of censure and so on, although I agree very much with my noble friend Lord Swinton in feeling that this is a great pity.
It seems to me that those endeavours are very like the attempts of two children who are both trying to learn to ride a bicycle. The child on the bicycle wobbles about from one side of the road to the other, always turning to the left when he means to turn to the right and vice versa and falling off every now and then; and his education is not helped very much by the other child who stands on the pavement screaming, "You can never learn how to ride it. Get off at once and let me have a turn instead!" Then, when the first child falls off, the other child gets on and exactly the same thing happens all over again.
There seems to be one most important point on which there is fairly general agreement: that at all events our present inflation is due to the fact that we are paying ourselves a great deal too much money for what we are doing. That was stated by the Minister, the noble Lord, Lord Mills, in his opening speech, and in my view it has always been true. The Leader of the Party opposite, Mr. Gaitskell, in a debate in another place, said that he did not think this had been so before 1951, but he argued that after 1951 inflation in this country was a cost inflation which he described by a double adjective—a wage-price price-wage spiral. He went on to argue that it was the duty of Her Majesty's Government to seek an understanding with the trade unions on the basis of all-round restraint applied to all incomes, dividends, salaries and everything else, as well as wages.
Your Lordships will remember that in the latest Economic Survey which we

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have, covering 1956, it is reported that in that year the money income of the whole nation increased by the enormous sum of £1,200 million, representing an increase of 8 per cent., but that production increased by only 1 per cent., practically the whole of that increase being in agriculture, although the money income of the agricultural community—even in nominal terms of money and even taking account of all the deficiency payments—fell in relation to that of the previous year. So that if agriculture is excluded, the rest of the country must have been paying itself rather more than £1,200 million extra for nothing. I am not an economist, and if I were to say that I do not think there is very much seriously wrong with the economy of Great Britain except for this fact—that we are paying ourselves a great deal too much—I should no doubt be accused of over-simplifying the problem.
There is one aspect of the problem which is not at all simple. When a wage increase is given in some industry unaccompanied by any increase in productivity or efficiency, that does not have the effect of increasing prices on the following day. There is, and must always be, a time lag, which may be very considerable, between the moment when the wage-cost increase takes place and the moment when the price of a finished product is put up. There is a further time lag before the increase in the price of that particular commodity has its full effect on the general economy of the whole country. I do not think that the price increases which have taken place in 1957 are due to wage increases which have taken place in that year; I believe that those price increases are due principally to wage increases granted in 1956. The difficulty is, therefore, that if we are ever going to put a stop to this wage-price spiral there must be a period of time—perhaps not a terribly long period, but it must be an appreciable period—during which prices will not yet have stopped rising but during which some wage claims at least must be refused. When that happens everybody who has been accustomed, as many of us have in the last seventeen years, to receive some nominal addition to our money incomes whenever prices or costs go up, will be bound to feel that he is being unfairly treated.
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I entirely agree with those noble Lords—my noble friend opposite, Lord Lawson, and my noble friend, Lord Balfour of Inchrye—who feel that a negative policy is not enough. Of course it is not enough; but I do not believe that in a free country it is either possible or desirable for Parliament to attempt to impose on the people a national wage policy. Even if we could get some agreement to link wage increases with production, I believe it would be impossible to apply that to the satisfaction of both productive industry and of the transport and distributive trades which are not direct producers of wealth. I conceive that in a free country it is not the duty of Government to have a national wage policy, but it is the duty of Government to control our currency. Whether one would call that a positive or a negative act I do not know, though I would call it positive; but, as I see it, it is certainly the duty of Government to control the issue of credit money in such a way that it will not normally be possible for an industry either to earn larger profits or to pay higher wages unless that industry either produces more goods or produces the same amount of goods with greater efficiency and economy; and, as I see it, that is the purpose of the present monetary policy of Her Majesty's Government.
I am far from suggesting that Her Majesty's Government are not making any mistakes, and even if I could not think of any it would be a pretty safe bet that they must be making some; but I do not think we should be in too much of a hurry to say that the policy of Her Majesty's Government is having the effect of making our production stagnant. Although the figures which I have given your Lordships for the year 1956 show a temporary stagnation in production, we have not yet got the Economic Survey for 1957; and I notice that the Lord Privy Seal claimed the other day that in the first ten months of 1957 our industrial production had increased by 5 per cent., which is a very substantial increase. I believe that we should wait until we get the full results of the year before we arrive at any conclusion. Nor do I think we should be in a hurry to criticise the Government for their handling of industrial relations. I think that the personal attitude of the present Minister of Labour towards the trade unions has been misrepresented in some sections of the Press,

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and it seems to me that the present Minister of Labour is handling a situation of enormous difficulty and danger with very great ability.
Finally, my Lords, it has been suggested by The Times newspaper and many other people that the Government have shrunk from their responsibility to curb public expenditure. If it is true that our present inflation is a cost inflation rather than a demand inflation, it does not follow that you should not severely curb Government expenditure, because Government expenditure can have an inflationary effect on costs as well as on demand. But you must look carefully at every proposed cut to make sure that it is not going to do more harm than good. I never had any doubt, and I said so at the time, that many of the 1931 cuts, in my view, went a great deal too far, and I think they did irretrievable damage to our national economy, principally by restricting production unduly. It seems to me that it is humanly inevitable that when you tell Treasury officials that it is a kind of heroic national duty to slash Government expenditure, they will sometimes be bound to get a little too savage.
I greatly admire, as I think we all do, the action of the late Chancellor of the Exchequer, who is a personal friend of many of us, in resigning his office. I honour him for that and I would not say a word in criticism of him. But I believe that British responsibilities towards the defence of the free world, both in nuclear weapons and in conventional forces, the continuance of our foreign investment programme, the payment of our debts, and the maintenance of our extremely expensive Welfare State, are not beyond the capacity of British productive power and skill. And I do not think that any of these things ought to be abandoned in despair.
5.54 p.m.
VISCOUNT ALEXANDER OF HILLSBOROUGH: My Lords, we are coming towards the end of a debate on a very important Motion put down by the Government to collect the voices as to confidence in their revised team and the policy which they are pursuing; and we have an Amendment which expresses the Opposition view as to the lack of any confidence of their ability to tackle the general situation to-day. Therefore, I
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think I ought to bring the House back in the first place to this question and to ask once more: What was all this Government crisis of last month about? What is it all about?
The Government to-day may be, as Mr. Macmillan said at the aerodrome on his departure for the Commonwealth, a very strong team; but certainly to the ardent observer the Government seem in many respects to be very much weaker than they were some years ago, at any rate since the Labour Government left office. They have lost in the last few years important personages, one after the other. It was a great loss to them to lose through retirement Sir Winston Churchill, for whom we all have such great respect. It was a great loss to them to lose a person of the experience of Sir Anthony Eden, for whom in his illness we all had such very sincere sympathy, and regret that it occurred in the manner in which it did. But that is not the only way in which the present representatives of the Conservative Party, acting as executives in the Government, have weakened in the past few years.
An enormous change has taken place, and the numbers of the changes which have taken place do not increase my confidence in those who are left. The noble Marquess, Lord Salisbury, who did such wonderful work as Leader of this House has left. They have lost people of the strength of Lord Monckton, Lord Tenby, Lord Cilcennin, and Mr. Antony Head. If I went on, I am sure that I could give your Lordships a list of a dozen names. In fact the present constitution of the Government is far and away removed from what it was on the last two occasions when they sought the suffrage of the electors. I am looking now at a noble member of the Government who is sitting alongside another very important person, one who has been a Leader of the other place and who has great experience of the Treasury—I never know whether to call him by his House of Commons name or some other name, but he will understand who I mean. And I say that the present constitution of the Cabinet, in personnel, compared to the constitution in the days when they appealed to the country for its suffrage is very different. The Government have been greatly depleted. And in the crisis of only just a month ago they lost, in one stroke, a Chancellor

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of the Exchequer, a Financial Secretary to the Treasury and an Assistant Minister for Economic Affairs at the Treasury. That was a pretty heavy loss, and we want to know what it was all about.
I am strengthened in the desire to repeat this question, because the noble Lord, Lord Salter, was obviously still (if I may use his word) perplexed about it. He said that no real explanation as to what had happened was given. It would be so much easier to go into this matter if we were not so perplexed as to what really caused the resignations. Moreover, it has been said, and I think quite truly, that Mr. Thorneycroft could hardly have chosen a worse time to resign, on the eve of the Prime Minister's Commonwealth tour; and that he should have taken such a very serious and important step in those circumstances makes me ask, "What was it all about?"
Mr. Macmillan, apparently, after a pretty frigid correspondence with Mr. Thorneycroft, dismissed the subject very lightly as being just a matter of a dispute over £50 million. I agree with my noble friend Lord Attlee on that point: surely it is not quite of such unimportance as it seems to have been in the mind of Mr. Macmillan. The Manchester Guardian, I note, on January 8 said:
"The Prime Minister minimised the differences which on Monday cost him all the Treasury Ministers. He said at the airport that he had thought it better to settle 'these little local difficulties' and that he was quite happy about the strength and the power of the team that remained."
These little local difficulties! I rather wondered about that description at the time I read it. Mr. Heathcoat Amory could not understand the position either. The Times of January 16 reported his first public speech as Chancellor of the Exchequer, in which he said:
"We are terribly sad about them and I own I am still perplexed"—
I expect that is where the noble Lord, Lord Salter, got his word—
"because we all felt and still feel that such differences as there were between us concerned not our aims or our purposes but the most effective means of achieving them."
Mr. Butler did not take that view at all. I live in Essex, and I was naturally interested to see that his first public utterance on the flatter was made in his Essex constituency. He at least had no
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doubts about where he stood on the matter for in The Times of January 8 I read this report of a meeting addressed by Mr. Butler:
"Raising his voice and striking the table with his fist, he went on: 'It is said that this was a struggle between those who are politically hesitant and weak and what is described as the tough line. It has been said that the courage was all on one side.
"'I should like to state quite plainly and bluntly that other people beside the retiring Chancellor are entitled to their own convictions and entitled to their particular brand of courage. … In the discussion we had very strong convictions were expressed and I for my part am not going to abandon the convictions of a lifetime.'"
Apparently this was not one of these "little local affairs". This was a severe and critical division of a Government which is still such a "strong team", in which those who felt so strongly went to the point of resignation. Mr. Butler continued:
"'If we had bad to readjust and alter some of our social policy in the way suggested we should have had to do so without due regard to humanity or common sense in facing the dual problem of inflation.'"—
I agree with Mr. Butler that there was something very important about this—
"It meant that the Government would have been asked to overturn, in the course of a few days, policies of social welfare to which some people had devoted the service of their lives."
These "little local difficulties"! That seems to me to be an extraordinary way for the captain of this team to seek the renewed confidence of the country by commenting on the situation as he leaves the country for his tour of the Commonwealth.
Of course, there is Mr. Thorneycroft's version, which I cannot deny myself the pleasure of looking at. I hope your Lordships will bear with me. If Mr. Butler's version is correct, important social services were at stake, and so far as I can see from the announcements of the present team, they are no less at stake than they were then. We shall have to wait and see. But in spite of the fact that, like the noble Viscount, Lord Hailsham, they have often spoken about the desirability of the social services, so far there is nothing in their utterances which would inspire confidence in the team that is now in charge. Mr. Thorneycroft gave his own account of the

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affair. In his letter of resignation, he wrote:
"I am not prepared to approve Estimates for the Government's current expenditure next year at a total higher than the sum that will be spent this year."
It was afterwards explained that that included Supplementary Estimates.
"I recognise that in order to achieve my aim some combination of politically unpopular courses would have been necessary. I nevertheless regard the limitation of Government expenditure as a prerequisite to the stability of the pound, the stabilisation of prices and the prestige and standing of our country in the world."
When putting the same views before his own constituents in Newport, Mr. Thorneycroft somewhat expanded that statement. I was extremely intrigued by a short leader that appeared in the Daily Express next day, which I quote from memory. The paper pointed out that Mr. Thorneycroft had put before his constituents that there would be a queue at the Treasury in future, and a long way down the queue would be the pound, although the stability of the pound should be at the head of the queue. The Daily Express said that it was not to be contemplated that the pound should manage the nation, but that it was the nation which should manage the pound.
In 1945 we had to deal with a country that was in a state of bankruptcy as a result of huge war expenditure. As well as spending between £30,000 million and £35,000 million which had been raised by regular taxation, we had increased our debt to £29,000 million—a debt which remains with us—and we tackled the situation by imposing a system of control in the interests of the nation as a whole, including the workers, without whom we cannot survive. The noble Earl, Lord Swinton, in the remarkable speech he made to-day, advocated a continuous economic policy, but since 1951 we have seen a complete change in economic policy, which has not led to the salvation promised the people in the Election of 1951, or to what Mr. Thorneycroft has said must be the centre of our policy, the stable position of the pound. It has led only to recurring crises. There is no cure for the situation along that line. And there is no cure in the nature of the approaches that have been made so far to the trade unions in speeches and by the Conservative Press. Let that be made perfectly clear.
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It seems to me that some noble Lords who addressed the House think that the working class in general, and working class leaders in particular, need some education about the dangers of inflation—as if we had never experienced them. I am amazed, after a political life of thirty-five years, that even people of different political thought should contemplate that as a fact. Coming into your Lordships' House to-day, I saw the son of an old friend of mine, the noble Lord, Lord Riverdale, who, although a political opponent, was always a friend of mine—we often had long conversations, especially at the time when, under a Conservative Government, he was doing his best to report on the state of trade. In Sheffield, which I represented in another place for twenty-four years, there were 65,000 unemployed at the beginning of unemployment, but there were posters all over the city, as well as in every part of the country, urging the workers to increase production at all costs. The posters were signed by Labour leaders as well as others: "More production is wanted!"
Then an anti-inflationary policy was brought in under the Geddes Committee and there were 65,000 unemployed in Sheffield; and at the start the maximum paid for a man and his wife in unemployment relief was £1, when in that year the cost of living was nearly as high as it is now. That is the policy that the Tories want us to be warned about, because we do not understand what inflation means and what happens when deflation follows. We know all about it. We happen to know about it because we are experienced in business, too. I have only to look up the records of my co-operative organisation, now doing a retail trade of over £900 million a year, and the two English and Scottish Societies doing something like £550 million worth of production and wholesaling, and both engaged in banking. Do not think that we know nothing about these matters, because we do.
Nor are we without our evidence about the evils of deflation. We experienced it. I have only one or two figures to quote. I take the figure of the net sales of the Co-operative Wholesale Society in the year 1920, which was the first year in which sales began to decline: it was £105 million worth in wholesale sales. By 1930, ten years after, the figure had gone down to £85 million. That is one of the trading

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organisations least affected by the kind of slump that occurred through pressing anti-inflation too long. Then sales began steadily to climb up again. If your Lordships will take the experience of the wholesale, the factory and the retail shops, every section of industry, you will find that directly a slide in the other direction starts the stability of that industry is upset by the enormous loss to be written off in stocks they hold and for which they get hardly any allowance when they come to deal with their taxation returns. We know what inflation means; we know what deflation means afterwards; and we know who suffers.
I saw a cartoon a short time ago in the Daily Express, by, I think, Cummings. There was a caricature of the Prime Minister standing upon the cliffs of Dover, and he was defending the pound. In the Channel there was a German tank marked "The mark", and on the other side a French tank—"The franc"—was being pushed into the Channel. The German tank was going ahead. The Prime Minister was said to be urging his country: "We will fight them in the bourses; we will fight them in the banks, and we will fight them on the exchanges." There was only one thing missing from the cartoon, and that was with what ammunition they were going to be fought. What is the ammunition of the people who are always for strong anti-inflationary measures? The ammunition they fight with is the standard of the British working class. Every one of the speeches made in this direction, I am sure from the utmost good will, ought to bear that in mind. The workers have been through it, and they know what it means. They want something more than soft, buttery words: they want guarantees, if they are going to proceed into this struggle.
That is why I think the speech of the noble Viscount, Lord Swinton, was far nearer to something practical than anything that the Government have said. It is a pity his noble friend Lord Chandos has not come along personally since the trouble arose and put the whole case to your Lordships' House: to have some steady arrangement, and yet one which would not be absolutely hidebound in its administration year by year, but would have some flexibility, according to the economic circumstances, by agreement with the trade unions. The same praise
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should be given to the noble Lord, Lord Balfour of Inchrye, for the manner in which he approached the problem in his speech. And when one remembers all the industrial matter which is at the command of the noble Lord, Lord Melchett, from his family's past experience, who can doubt the rightness of what he said on Tuesday in his most remarkable speech (I am sorry I did not listen to it, because I had to be away, but I have read it all carefully), in showing the complete fatuity of relying only upon these stupid, crude methods of control, instead of going deeper into the matter and seeing how far you need to spend money in an inflationary period in order to maintain production?
The noble Earl, Lord Selkirk, on Tuesday prided himself very much (and I was thankful for what he said) upon the increase in the reserves. They have gone up by 131 million dollars. I took the total. But it was the Daily Telegraph, that wonderfully consistent newspaper in support of the 'Tory Government, who warned you yesterday not to take too much notice of that. For the total figure of those reserves to-day has to be whittled down, first, because you borrowed 250 million dollars from the International Import and Export Bank; and secondly, because you borrowed 500 million dollars from the International Monetary Fund. You have, as my noble friend Lord Attlee said just now, an agreement not to pay any interest on the American or Canadian loans for seven years, leaving it to some Government of posterity to meet the increased interest charges that then arise. And you have been helped on the way in the dollar position by quite wrongly assenting to the sale of an important oil interest in the West Indies, because you needed the dollars to reinforce your exchange. So when an examination is made of the total, one finds that you have not yet reached net the figure at which the reserves were in October, 1951, when you came in.
After six years of Tory policy, why should we have confidence? What have you done to give us confidence? That is what we want to get information about. If one then looks at the position. industry by industry, one finds the same questions arising in one's mind. The Government (and I am going to be quite plain about

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this; I do not need to bandy words—the noble Viscount, Lord Hailsham, does not bandy words, so why should I?) came in after a most wonderful period of industrial expansion after national bankruptcy and in face of great opposition from many Tory leaders—I do not say all. They came in on a false prospectus, as it would be called in the City. They do not want to go back and remind themselves how the leaders in the election propaganda made promises that there would be a reduction in the cost of living. They said: "The Socialists say we shall take away the subsidies on food. Do not believe it. There is Lord Woolton. It is not so." Mr. Butler said in that same election in October, 1951, that for the present, at any rate, there would be no question of reducing or taking away the subsidies on food. Those promises, made in the election campaign, were all gone six months after.
You have taken every kind of step, sometimes openly and sometimes quite surreptitiously, in order to transfer as far as possible the burden from the State—which, of course, is what you want—on to the individual worker, and you are surprised and hurt and upset that you then have regular applications for an increase in wages. You have bankers who never seem to lack in the fulfilment of their incomes, prating about the dreadful increase in production costs, a large part of which they call wages costs. That is the fact. It is one thing after the other. You say, "Increase the price of welfare milk, pay more for insurance, bigger stamps"; and then, just to encourage the worker to be more co-operative with you in the crisis, you give away £34 million in relief to the surtax payer. You put the worker's rent up and threaten him with eviction if he does not pay the increased rent. What a record! Is it surprising that every by-election you have fought within the last twelve months has shown a run against you? And you have not the courage to go to the country. That is why we have no confidence in you.
I am quite sure of this: that if you would follow the advice of the prophet Isaiah, in Chapter I:
"Come now let us reason together"
you might get on better with the trade unions. You have not gone very far in
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that direction yet. The trade unions have been exceedingly calm, considering all the provocation they have had. We have had statement after statement from the Government, the first not unrelated to the refusal of a Government Department, bolstered by the Cabinet, to grant the awards fixed by arbitration to the black-coated workers and domestic workers in the hospitals. You were prepared to approve an increase to people in receipt of higher salaries, but you were not prepared to approve an increase of the lower salaries. There have been accompanying statements to the effect that if the Government do it in this way, they will expect other people to do the same. And all kinds of questions have been raised about social services and the like. If you want to make real progress and achieve cooperation, why do you not talk nicely to the trade union leaders and explain all the things you want to do?
This is the last official publication I have. It was published a long time ago—it is dated November 13. This was issued and given a very poor Press. I guarantee that half of your Lordships have never read a line of it. It was issued by the Trades Union Congress Economic Committee on November 13. It says:
"The Committee considered the present economic situation and decided to issue the following statement: In recent months the Government has set out to create an impression that inflation had suddenly got out of hand to an extent sufficient to justify a policy of deflation. In its preoccupation with achieving price stability at any cost, the Government has chosen to ignore the inevitable consequences of its own policies. By focusing attention on wage demands, the Government is diverting attention from the fact that it has turned its back on a policy of economic expansion. Deflation is bound to impede industrial development. Production, which has been rising after two years of stagnation, will be held back again; investment, on which the growth of the economy, the productivity of our industries, and the living standards of the British people depend, will fall. Confidence in economic expansion and, therefore, adoption of measures to promote industrial efficiency will be shaken. If, further, the pressure that is being applied to check wage and salary claims causes damage to the established negotiating machinery, it could have grave consequences."
That brings me to a further stage in my comments upon the trade union position. The noble Viscount, Lord Hailsham, has never spared his words about trade union leaders. I have been

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looking up what he said last July on the Second Reading of the Finance Bill, where he was obviously talking about Mr. Frank Cousins without mentioning his name. In my opinion, it was an unwarranted attack. At other times there has been a sort of threat that if the workers were to resist any attack upon the wages, even if inspired (as I read that) by the Government and pressed by the Government, then they would have to see to it that Parliament conquered. That is not the way to get co-operation from trade unions.
I have just read out the first part of the statement they issued in November, but in my thirty-odd years of Parliamentary experience I cannot think of any man who has occupied the position of Minister of Labour and who would ever support the kind of approach to this industrial problem which has been made by the noble Viscount. I have no confidence in him, or his colleagues, while he stays there to administer that part of the policy—none at all. I am bound to say that.
Now I come to one or two other matters that were picked up in the debate, but before I do that I think I ought to say this. I have been throwing words about, and I am not ashamed of them, but I should like to say to the noble Lord, Lord Mills, the Minister of Power—and I listened to his speech with great care—that I understood him. It did not seem to speak to me of midnight oil: it seemed to me to have the quiet quality of the speech of the chairman of a large company addressing his annual meeting of shareholders—and it was none the worse for that. I did not agree with the conclusions in the last part of his speech, but at least I understood them. The noble Lord spoke about different industries, and I should like to say, "Thank you", not only to him but to my noble friend Lord Wise for the references to agriculture. In the case of agriculture, the Government have pursued the same sort of "Mr. Facing-Both-Ways" policy, just as they have done in administering the social services. We in the farming industry are in a difficult position. Nevertheless, I thought the noble Lord paid a good tribute, and whatever other controls which either this or the successor Government may have to introduce in order to put the position right,
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your Lordships should never forget the contribution—which was acknowledged by the noble Lord, the Minister for Power—made to the solution of the balance of trade and balance of payments problem through the magnificent increase of production achieved by the farmers of this country. I hope you will bear that carefully in mind. I have not time to say more about that particular point.
With the time as it is, and most of us anxious to get to the Division, I will leave out some of the other things I wanted to say—except one. I saw in the paper this morning a comment upon the fact that the London County Council have gone to the market to-day for a considerable loan at slightly over 6 per cent. It was said that they are paying too high a price for their loan. How do you fault the London County Council for that? You can buy bank shares to-day, the people who never lose (and certainly the banks never lose; I watch their reports very carefully): there is bank after bank, part of whose ordinary share capital was in the last two years liable to call in the case of emergency. The reports I have looked at show that they have wiped out that liability upon their shareholders and increased the number of units of shares in pounds, and they are paying overall larger dividends, something for which they would say "Thank you" very nicely.
You can invest to-day on the Stock Exchange in bank ordinary shares that would show a return of anything between 5¼ and 6 per cent. Are the London County Council paying too dearly, under the conditions of money control created by this Government? Are any of the other local authorities who now have to borrow on short-term at 6 to 6½ per cent. getting their money too dearly, or is it the Government who have created the position for them? If you look at the Gevernment's general policy in regard to local government now, the new apparent basis of block grants and the like, how much more do you think the local authorities can stand being passed over from the National Exchequer debit to the local authority debit? Your Lordships had better look at the matter fairly closely, because there will be a pretty good revolt by the local authorities, from the way it is going. It is only a few

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months since the noble and learned Viscount who spoke to-day was pressing the claim for more places in the schools and in the colleges and everything else. We shall see what happens to the case for education under these figures.
I hope that the voices that have been raised on the other side in favour of making a better approach to labour in the matter will be heard by the Government. I can say from this side of the House that, if it is decided to do that, I am certain many of us here, if not all, would support you in it—to try to get talks going with labour to see what can be done to get a better basis. But we cannot possibly accept the present basis of policy for dealing with inflation. Nor do we agree that the policy already adopted can possibly cure it. The Government must have the nation behind them and must be willing to go to further control. I appeal to my followers, anyway, to come into the Lobby with me in support of the Amendment. I do not know whether the Liberals will go that far with us, but I shall be astonished if, after the exchanges this afternoon, they will not want to go into the Lobby against the main Motion. If that is so, I shall ask my followers to stay behind; where we could have done with one Motion, we can stop and divide on two. In the meantime, I say that we cannot possibly give open support to this Government, and we shall persist in our Amendment.
6.35 p.m.
THE EARL OF HOME: My Lords, until only a short time ago I, like my noble and learned friend, Lord Hailsham, had found it very difficult to recognise in this Amendment a vote of censure. I listened yesterday to three most admirable but gentle speeches from the noble Lords, Lord Pethick-Lawrence, Lord Wise and Lord Rea. I am bound to say I had to go on pinching myself to make sure that I was not in the first place on a conducted tour of the Bank of England; in the second at the annual meeting of the Country Gentlemen's Association; and in the third, at the Moral Welfare Advice Bureau. I listened with respect, as I always do, and as all your Lordships have learned to do, to the noble Lord, Lord Pethick-Lawrence, because his criticisms on these matters of finance are
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usually so pungent and penetrating; but yesterday the real burden of his speech, as I understood it, was advice to Conservative Chancellors of the Exchequer; namely, that they should take less advice from the banks and use their own judgment more often. I did not want to be controversial yesterday—I was not in a controversial mood—but I might have asked the noble Lord, was that the course which Sir Stafford Cripps followed before devaluation, and was that the course which Dr. Dalton followed in his relentless pursuit of cheap money in the middle of one of the longest and most unparalleled booms in this country? If so, it was not all that successful. But I will convey the noble Lord's advice to my right honourable friend with those caveats.
The debate has taken on a slightly different tone after the opening by my noble friend and the conclusion by the noble Viscount. The noble Viscount said—and commiserated with us, as I understood, although there might have been an element of gloating in it—that the Conservative Party had lost many very good men in the last few years. That is true; but of course the answer is that the Conservative Party is so rich in talent that however many good men it loses, it can always replace them; although that is a situation which I might say the noble Viscount, from his own Party experience, would not be expected to understand.
On the reasons for Mr. Thorneycroft's resignation, I am going to leave him curious. All of us in the Government, as has been said time and again, are concerned to cure inflation. There are different methods of doing so. Mr. Thorneycroft favoured one set of methods and the rest of us favoured another. Mr. Thorneycroft, finding himself in a minority of one, felt it necessary to resign. The noble Viscount is himself a man of integrity and he will understand that and would probably have done the same. It is a very heavy loss to any Party to lose their Chancellor of the Exchequer and their Ministers of the Finance Department; but if this personal sacrifice has brought home to everybody in the country that the value of the pound is what matters above everything else, even the loss of Mr. Thorneycroft is perhaps worth while.

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I wish to respond to the mood of the noble Earl, Lord Swinton, and examine this debate from the broad national point of view. It has broadly been a debate about inflation and about how to control it, and I think it is fair to say that from the different speeches that have been made on both sides of the House certain broad conclusions have emerged. First, although there are signs of a world recession and we must be ready to alter our course, nevertheless, inflation is still the Exit enemy. Secondly, the main cause for the fall in the value of money and the continuing rise in prices has been, as my noble friend, Lord Brand, underlined, the pressure on supplies and services of incomes which have far outrun production. In the homely words of my noble friend, Lord Mills, and my noble friend, Lord Dundee, we have been paying ourselves too much for what we are doing. Thirdly, although self-supporting countries may for a considerable time run a chronic inflation, for the United Kingdom, which is dependent on its exports to pay for the raw materials which it must have, inflation is a deadly disease and must be defeated. As one or two noble Lords on the other side pointed out—Lord Shepherd and the noble Earl, Lord Attlee—that is more than ever so when markets are becoming more and more competitive.
The noble Earl, Lord Attlee, drew particular attention to the American market, and I agree that there is a great opportunity in it to-day. Its requirements need special and particular study, and I think there is a new awareness of that in industry. As a matter of fact, trade with the United States is rising, although there is much more that can be done. I have the figures because I thought the noble Earl was perhaps unduly pessimistic. Since 1950 our total export trade has risen by 53 per cent.; our trade with the U.S.A. by 67 per cent. and with Canada by 51 per cent. We must not relax our efforts in any way; indeed, we must increase them. But those figures are not so pessimistic as the noble Earl would have us believe. Indeed, only the other day when the Canadian trade delegation came to this country I believe their eyes were opened as to the efficiency and flexibility of British producers, and the more we can do in the interchange of businessmen between here and the
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United States and here and Canada the better we shall all be pleased.
The pressures which cause inflation—I think again this point has arisen from the speeches that have been made in this debate—stem from a combination of several agencies. There were the world tendencies which were mentioned by Lord Brand to-day, in which he pointed out that inflation was a world problem and that probably it had been stimulated by the vast capital expenditure undertaken by every country in the world since the war. One of the agencies, no doubt, is the credit policy of the banks; another, Government spending on defence and the Welfare State; and another, the wage policy of organised labour. Any cure that was applied in one or other field would be ineffective, and I think the conclusion one draws from this debate is that if inflation is to be contained the contribution must be made by the credit policy of the Treasury and the banks, by the Government in respect of Government spending and by organised labour in respect of wages. There must be complementary action between all those three.
I have always felt that until the public could relate in their own minds overspending with the rise of prices and the fall in value of their money, no Government had very much chance of beating inflation. So far as we on this side of the House are concerned, we have never sought to delude the people. We have warned them consistently that wages restraint must play a part in beating inflation. Now I believe that people, almost for the first time, are beginning to realise that although it is tempting to pile up more and more pound notes in your pay packet, what really matters is that each pound note should command its full face value in the purchasing of goods for the home and the family. If that has got across to the public, as I believe it is beginning to get across, then we shall defeat inflation.
The Opposition condemn the credit restriction, economies, and pleas and appeals for wage restraint, as a negative and a restrictive policy. I personally feel that they would have a good deal of justification in that case if we had, in fact, set ourselves against expansion and high wages. But no Government spokesman has said anything of the kind;

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indeed, quite the contrary. Expansion can begin when production and productivity catch up with demand. If there is a rule, and if this rule can be expressed, it is that the nation—
VISCOUNT ALEXANDER OF HILLS-BOROUGH: This is rather an important matter. Would the noble Earl—
THE EARL OF HOME: Might I say one more thing, because this is controversial? This contention of the Opposition that the Government policy is negative and restrictive has been bolstered up by a speech by the noble Lord, Lord Faringdon—a thoughtful speech—and again, I think, by the noble Viscount in his speech just now, when they said that they wished to increase investment and that that was the way in which to overcome our inflationary problems. Lord Brand dealt with that from the broad point of view, but again I would be inclined to agree with the Opposition. I have said that if we had set our faces against expansion and high wages, I thought they would have a case; if in fact we had slashed investment greatly they might have some case. But what has happened? So far from having slashed business investment, it remains high; indeed, since 1951 the proportion of the gross national product devoted to fixed investment has risen from 14 to 17 per cent., and that will help us when the time comes to expand in the export drive for which so many noble Lords on the other side have appealed and which is so important. So let me make this quite clear: that the Government does not set its face against expansion or against high wages, and this policy which we are recommending to the country at the present time is designed, indeed, to create the conditions in which expansion and wages can go ahead once more.
VISCOUNT ALEXANDER OF HILLSBOROUGH: I must say that I am very much obliged for that statement in the noble Earl's speech. But I want to be quite clear about the statements made by different Government Ministers in regard to different claims arising on wages of busmen, the people in the Health Services, the workers on the railways and all the rest, that there is to be no more money. That, in the minds of the common workers, is almost like a fiat
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—that there will be no increases forthcoming whatever the justice of their claim. If the noble Earl would make it clear that that is not so, he would be going a long way to stamp out some of the criticism.
THE EARL OF HOME: I was going to say a little about the Government attitude on wages and labour questions in a moment. Perhaps the noble Viscount would wait for that. There is also a debate in another place to-day in which the Minister of Labour will be setting out in full the Government's case; therefore I do not want to encroach too far on the ground which he will be covering in the debate this afternoon. I simply emphasise, and re-emphasise again and again, that this is not a restrictive policy for a restrictive policy's sake, but simply something to secure the foundation from which we can begin to expand our activities.
If the diagnosis of the causes of inflation in this debate is correct, then we have to decide which of the two Parties' policies is best designed to contribute to the final defeat of inflation. I do not want at this part of my speech to make a particularly Party point, but I cannot see how the Socialist Party's advertised programme can do anything but aggravate the troubles. They are at present dangling the bait of increased expenditure before the public, which they hope to woo. I have totted up some of the items in their advertised programme, and the bill. They are going to buy shares in private industry; they are going to nationalise all rent-controlled houses and pay compensation; they have an expensive superannuation scheme; they are going to abolish the Health Service charges; they are going to rescind, as I understand it, the increased National Insurance contribution; they are going to allocate 1 per cent. of the national income (£80 million extra) to increased investment overseas.
Food subsidies I will leave on one side, rather kindly, because I am not sure that Mr. Gaitskell's announcements of the other day, when they come to be examined in the country, will really go too well for the Party opposite. I have been adding up these items and have found a calculation made by an expert whom the Socialist Party in another place have been very fond of quoting to their advantage over the last week or two—

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Mr. Enoch Powell. He has calculated that if this Socialist Party programme is put into effect it will inject another £1,000 million into the economy, with no quid pro quo in production; and I doubt whether anyone could devise a policy more certain to turn what is a temporary illness into a fatal disease.
I heard from the speech of the noble Lord, Lord Faringdon, that they would get more production, because labour relations would be better under a Socialist Government and people in the country would work harder.
LORD FARINGDON: My Lords, if I may interrupt the noble Earl, that was not, in fact, what I said. I said that there were certain measures which could be taken in order to get the necessary funds, but that for that policy we should need to have closer co-operation.
THE EARL OF HOME: My Lords, the suggestion was that there would be closer co-operation and therefore more productivity. I heard this argument time and again when we were having the endless debates in another place on nationalisation. Nationalisation was "sold" to the public on the basis that if the industries were nationally owned under a Socialist system there would be better production. What has been our experience? Anyone who has experience of the post-war coal industry and has compared it with the post-war steel industry will be unlikely to "fall for" that one again.
There is still the near-accusation, if not the actual accusation, that the present Government are alienating the trade unions. I must deny that absolutely, and say that our wish, and our practice, is to have the closest relations with them. What is more, the Minister of Labour, and the Prime Minister and the Chancellor of the Exchequer, as well as the late Prime Minister and the late Chancellor of the Exchequer, have had frequent meetings with representatives of the trade union movement. As a Government we want to be as close to them as we possibly can be on these intensely important and vital matters of labour relations. Let there be no doubt about that. That does not, however, absolve Her Majesty's Government from the responsibility of making it clear beyond doubt to every section of the community that there is no section of the community which can opt
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out of its responsibility in this fight against inflation, and that wage increases, if they are to come, must come out of increased production and not out of new money printed by the printing press. So I hope that we shall hear no more about the alienation of the trade unions by the present Government.
I do not want to spend too long on this matter, but I must say a word about the Socialists' external policy for dealing with inflation and the value of money. As I understand it, it consists of import controls. One can manage the economy in that way, of course—but at what a cost! Noble Lords opposite will excuse me for saying that that is certainly not an expansionist policy. Import controls will certainly invite retaliation, and they are surely inconsistent with what must be the national objective—to gain freer terms of trade. If noble Lords opposite are going in for import controls I should like to know what imports they are going to cut. I believe it was the noble Lord, Lord Salter, who said, quite truly, that if we are talking only in terms of what noble Lords opposite call luxuries there is very little scope and not much impression will be made. It is a fact that most of the imports into this country are food and essential raw materials.
My noble friend Lord Melchett gained a certain amount of recognition from the Socialist Party yesterday because he said, "Let us use import controls as precision instruments". But when he was asked what imports might be cut, he suggested tobacco and timber. If the Party opposite really believe that import controls are the answer, and that they can be used on some scale, then they must tell the country how they are going to avoid rationing; and they must "come clean" on the list of things they are going to control. They must declare the items, and declare them well before a General Election.
The truth is that this policy which I understand from noble Lords opposite they are now putting before the country to deal with inflation is the old mixture: more spending, more nationalisation, and more controls—the policy which Sir Stafford Cripps followed prior to the devaluation, and which was associated with Dr. Dalton. I very much doubt whether the people of this country are going to accept and acclaim what I may

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call the old design for bankruptcy. The measures of Her Majesty's Government—credit restriction, economies and public education—are having their effect in this inflationary situation. In the last four months, for instance, the clearing banks' advances have fallen by £129 million, compared with £8 million in the same period last year. Reserves have risen each month, and noble Lords had the latest figures from the noble Earl, Lord Selkirk, only a few hours ago; and the latest rise in our reserves has helped to counteract the external pressure on the pound.
There have been some significant falls in wholesale prices, so that there should be better prospects of internal stability in the price level. Let there be no doubt in the mind of my noble friend Lord Astor that Her Majesty's Government wish to reduce taxation and have not abandoned endeavours towards the reduction of taxation—indeed, they believe in it as a necessary part of Conservative policy. I will not worry him unduly with figures, but the standard rate of income tax has been reduced from 9s. 6d. to 8s. 6d.; the distributed profits tax from 50 per cent. to 30 per cent. and the undistributed profits tax from 5 per cent. to 3 per cent.
VISCOUNT ALEXANDER OF HILLSBOROUGH: Inflation!
THE EARL OF HOME: My Lords, that is not necessarily inflation, because much of it has been ploughed back into industry to give the expansion which the noble Viscount himself desires.
Over-optimism would, of course, be foolish. Sir Oliver Franks put his finger unerringly on one of our basic problems when he measured the effort and burden which would be laid on the United Kingdom economy if, out of our trading reserves, we had to build the sterling area reserves to a level adequate for any calls that might be made upon them; and he suggested some recognition by the great creditor nations of an obligation to pursue more liberal and expansive policies. My noble friend Lord Brand
again made a suggestion about the price of gold, and it is one that obviously should be considered. But whatever international relief may come, I must make this point: nothing can excuse us in this country from making our maximum effort to earn a surplus and decide to live within our means. We can quite properly appeal to the creditor nations if the low level of our reserves, the low margin, is established to be due to essential expenses in the common cause or to the scale of our overseas investment, which is in itself a world interest. But what we cannot do is appeal to creditor nations to underwrite our own extravagance.
My Lords, this debate has been founded on Motion and Amendment, and therefore necessarily there have been elements of conflict. Indeed, these matters are proper for argument and disputation. But my noble friend Lord Swinton was right when he said that to beat inflation is a national interest and of national concern: and that, above all, to secure the value of the pound is everybody's concern. And it is not only our own fortunes that are at stake. I move about in the Commonwealth and see our Commonwealth partners. Their fortunes in this matter are in our hands, and without a strong and solvent Britain they could not exist in anything like the strength and happiness which is theirs to-day.
The noble Viscount, Lord Alexander of Hillsborough, quoted Isaiah to us. I thought he was a bit gloomy to-day—in fact I think Job would be a jovial optimist compared with the noble Viscount in the closing passages of his speech. But let him, if he is to vote against us in the Lobby to-night, recognise that this problem of inflation is the problem of the whole people. Even though we may part in the Lobbies to-night, let us join together to try to secure the value of the pound for the British people.
On Question, Whether the said Amendment shall be agreed to?
Their Lordships divided: Contents, 28; Not-Contents, 101.

CONTENTS

Attlee, E.

Addison, V.

Hall, V.

Lucan, E. [Teller.]

Alexander of Hillsborough, V.

Stansgate, V.

Archibald, L.

Greenhill, L.

Nathan, L.

Burden, L. [Teller.]

Haden-Guest, L.

Pakenham, L.

Chorley, L.

Henderson, L.

Pethick-Lawrence, L.

Crook, L.

Kershaw, L.

Shepherd, L.

Darwen, L.

Latham, L.

Silkin, L.

Douglas of Barloch, L.

Macdonald of Gwaenysgor, L.

Williams, L.

Faringdon, L.

Milner of Leeds, L.

Winster, L.

Wise, L.

NOT-CONTENTS

Kilmuir, V. (L. Chancellor.)

FitzAlan of Derwent, V.

Harris, L.

Furness, V.

Hatherton, L.

Hailsham, V. (L. President.)

Goschen, V.

Hawke, L.

Long, V.

Hindlip, L.

Wellington, D.

Massereene and Ferrard, V.

Howard of Glossop, L.

Runciman of Doxford, V.

Kilmarnock, L.

Cholmondeley, M.

Soulbury, V.

Leconfield, L.

Salisbury, M.

Templewood, V.

Luke, L.

McCorquodale of Newton, L.

Alexander of Tunis, E.

Aberdare, L.

Mancroft, L.

Amherst, E.

Addington, L.

Melchett, L.

Bathurst, E.

Ailwyn, L.

Merrivale, L.

Cork and Orrery, E.

Aldenham, L.

Mills, L.

Dundee, E.

Amherst of Hackney, L.

Milne, L.

Fortescue, E. [Teller.]

Ashbourne, L.

Milverton, L.

Gosford, E.

Birdwood, L.

Napier and Ettrick, L.

Haddington, E.

Brand, L.

Newall, L.

Halifax, E.

Chesham, L.

Pender, L.

Home, E.

Clitheroe, L.

Raglan, L.

Howe, E.

Coleraine, L.

Rathcavan, L.

Limerick, E.

Colyton, L.

Remnant, L.

Morley, E.

Conesford, L.

Riverdale, L.

Onslow, E. [Teller.]

Congleton, L.

St. Oswald, L.

Perth, E.

Cottesloe, L.

Salter, L.

Radnor, E.

Craigmyle, L.

Saltoun, L.

Selborne, E.

Croft, L.

Savile, L.

Selkirk, E.

Derwent, L.

Somers, L.

Spencer, E.

Dormer, L.

Strang, L.

Swinton, E.

Dovercourt, L.

Strathalmond, L.

Woolton, E.

Dowding, L.

Strathcarron, L.

Ebbisham, L.

Strathcona and Mount Royal, L.

Astor, V.

Ellenborough, L.

Stratheden and Campbell, L.

Cilcennin, V.

Grantchester, L.

Teynham, L.

Crookshank, V.

Hacking, L.

Tweedsmuir, L.

De L'Isle, V.

Hamilton of Dalzell, L.

Waleran, L.

Devonport, V.

Hampton, L.

On Question, Motion agreed to.

ALL HALLOWS THE GREAT CHURCHYARD BILL [H.L.]
ALL HALLOWS THE LESS CHURCHYARD BILL [H.L.]
ASHTON-UNDER-LYNE STALY-BRIDGE AND DUKINFIELD (DISTRICT) WATERWORKS BILL [H.L.]
BLACKPOOL CORPORATION BILL [H.L.]
COVENTRY CORPORATION BILL [H.L.]
CITY OF LONDON (VARIOUS POWERS) BILL [H.L.]
ROCHDALE CORPORATION BILL [H.L.]
FALMOUTH HARBOUR BILL [H.L.]
KENT COUNTY COUNCIL BILL [H.L.]
LONDON COUNTY COUNCIL (GENERAL POWERS) BILL [H.L.]
House adjourned at seventeen minutes past seven o'clock.