Lords Sitting of 29 July 1958

Preamble
The House met at half past eleven of the clock, The LORD CHANCELLOR on the Woolsack.
Prayers

  THE INTERNATIONAL SITUATION: THE MIDDLE EAST
  11.35 a.m.
  Debate resumed (according to Order), on the Motion moved yesterday by Lord Henderson: That there be laid before the House Papers relating to the international situation, with special reference to the situation in the Middle East.
  EARL ATTLEE: My Lords, yesterday the noble Lord, Lord Henderson, made a very complete and admirable speech expounding the position of the Labour Opposition on these matters. He stressed, I think rightly, the need for getting as much agreement as possible. That note was struck again by the noble Viscount, Lord Hailsham. I do not intend to be controversial this morning. We had an interesting debate last night, illumined particularly, I thought, by speeches of great knowledge from Lord Jellicoe and Lord Lloyd. I cannot pretend to anything like their knowledge of the Middle East, but I have had occasion to consider these matters and should like to offer one or two reflections to the House.
  It was obvious that the Middle East was a weak point in the line of the West. When the cold war started, Russia was stopped at Berlin by the Berlin air-lift and in the Far East by Korea; but it was quite obvious that a weak point there in the South was open to her for intrigue. I have no doubt that she took full advantage of it. At the same time, I believe that it is a great mistake to overestimate the extent to which the troubles in the Near East are due to Russian intrigue. We are inclined to think that our friends across the Atlantic are rather apt to overstress Russian intrigue. Our weakness in the Near East was that we had a number of States, most of them fairly backward, with no democracy. After all, there is no democracy in Asia except that which was planted by us, the British,
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  in India, Pakistan, Burma, and the rest. There was no democracy, only semi-feudal States. Inevitably, after the First World War, there were set up undemocratic States, and we depended very largely on what rulers there were in those States. Sometimes we were very fortunate: I think King Abdullah was a very fine statesman. The trouble is that too often in Asia assassination interferes with the best-laid plans, as we have seen again from the assassinations in Iraq. I was inclined to say "Put not your trust in princes", not because we did not trust the princes but because their position was so uncertain. I would also say, "Put not your trust in Colonels or Generals". I think their position is equally uncertain.
  However, the position was that we had set up a series of States, and, as has been said, it is in our interest to preserve order in that area. That is true. But beneath this election of semi-despotic States there were very disturbing movements—Pan-Asianism and Pan-Arabianism; and also the impact of sudden and unexpected wealth. I agree that in these circumstances it has been very difficult for any Government in this country to act. They are bound to form alliances with rulers. Yet it may be found that those rulers have not the support of the people of their country. I think we need to be rather careful in this matter. I notice that it has been reiterated in the speeches from the Government Bench that our British interest is peace, tranquillity and stability. That must not be pressed too far, because when one talks about the overthrowing of established States it is often difficult to tell whether that is due to outside propaganda or to the boiling up of the feeling of the people themselves.
  It rather reminds one of an historic parallel—the position of Europe in the 1830's. There you had a whole series of States nicely laid out by the Congress of Vienna, and you had bubbling up there liberalism and nationalism. Prince Metternich naturally wanted stability and everything kept the same; yet there was this movement, and I have no doubt that he felt that British propaganda for freedom and nationalism was extremely inconvenient. You might compare that position with the position in, say, Italy. There, quite respectable people were ruling, as in Tuscany; but the fact was that the Italian feeling of nationalism

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  was growing. You might compare Egypt with Piedmont from the point of view of other States. One must not look too closely and imagine that these troubles in the Near East are all due to Russian intrigue. What we have to do, I think, is to keep our minds very flexible and to remember that the frontiers laid down for, let us say, Iraq are not necessarily the right ones. Jordan was a subsequent creation. There again there is the question of whether Jordan is a viable State on its own. Maybe we need to create a greater one. Therefore, I think that when we profess that we need stability, it must be stability with flexibility.
  There is one matter on which we must stand firm, and that is on the question of Israel. I believe that, from the point of view of purely British interests, the creation of a national home was a mistake in British policy; but it has been done and we cannot now allow Israel to be swept away. It would be an enormous advantage if we could get the Russians as well as ourselves to recognise that Israel is here and that it has to remain. Undoubtedly, as the noble Lord, Lord Lloyd, pointed out, it is the existence of Israel that has been one of the great stimuli of Arab nationalism. But while we say that, we must also remember, as was pointed out on the other side yesterday, that nationalism is often apt to run into imperialism and aggression. Therefore, it should be clearly said to Israel that her State must be confined within certain frontiers and that we can no more support Israeli aggression than we can support Arab attacks on Israel. That is one of the points of stability on which we ought to insist.
  The question is, of course: Can we get any agreement with Russia? It is pointed out that our interests do not really clash, but the Middle East may be used as a pawn in the game. I myself should like to see rather more British leading. I am afraid that our American friends do not have the wealth of experience, such as we in this country can command, on the Middle East problems. I am inclined to think that they are not always very wise in their approach to these problems. Take, for instance, the proposal for a Conference. I think it is quite right that it should be under the United Nations, but I am inclined to think that the United States Government have been too insistent
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  on various legal points. In my time I found that there were a great many lawyers in the State Department—I do not think they were awfully good ones.
  I do not think that we should have rejected offhand the idea of a meeting in Geneva. Though the United Nations meet in New York, I am not sure that it would not have been a good thing to have borrowed accommodation from one of the other international organisations and met in Geneva. I do not think that the atmosphere in New York is necessarily very good. There is the memory of past controversies. There is a massed Press in America. There is also the fact that New York is one of the greatest Jewish cities in the whole world. I think, there, fore, that it might well have been wise if we had fallen in with the idea of a meeting in Geneva. Also, I do not know how far it is wise to emphasise that the Conference must be at the Security Council. There will be the presence of the Formosa representative instead of a representative of China, and I think that will lead to a good deal of talk about it being something like a hand-picked conference. I must say that this has impressed me. Particularly important is it that the Asiatic countries should be brought in, including India and Pakistan, because this is not just a European problem.
  I think that also there is a tendency to go off on smaller points and perhaps lose the main thread. The Times yesterday had a good leading article entitled, "Going Round the Mulberry Bush." I think that there is a little bit of "going round the mulberry bush." I think that we must not take too seriously the abuse that we get in all Russian communications. We must remember that they have not a great deal of manners. I think that we should disregard this abuse. There was a Prime Minister, Lord Melbourne, who always used the word "damned" before he said anything about any man or any purpose. Someone once said to him, "Let us just assume that we are all damned to start with." I think that, when dealing with the Russians, we have to assume that we are going to be abused to start with, and not take too much notice. Perhaps the legal department of the State Department is apt to take up these little irrelevant points of abuse. We want to go for the substance.

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  If we can get a conference, I say that we should be very flexible on these matters. We have to remember that if we try to stand pat, let us say, in support of certain States in Asia which the Russians regard as our satellites, we also encourage the Russians to stand firm with regard to their satellites. Therefore, I think that so far as we can we should have a complete disinterestedness in this region. We are interested in oil—so are other countries interested in oil—but there is no reason at all why our political interests should go with our economic interests. Arab nationalism may endure or it may not. In the past there have been great divisions amongst the Arabs, between the Sunites and Husseinites and others. I do not think we ought to encourage these divisions. I should like to see a great Arabia entirely free from pressure from ourselves, the Americans or the Russians. I think it might be a point of stability in the modern world.
  I am not going to talk on the matters of Suez, the troops in the Lebanon or the troops in Jordan, but I think they reinforce the need that has been so often expressed for a United Nations force. Years ago, between the wars, I was a strong supporter of Lord Davies, as was Sir Winston Churchill, in his demend for an international force. The events of the past few years have shown abundantly the need for an independent force. I hope that that will be pressed as far as possible by our Government, because I think that these difficulties will always arise where forces are put in to support order and the rule of law but are inevitably connected with the interests of the particular State to which they belong. We meet, my Lords, at an anxious time. We all wish our Government and the Prime Minister success in these negotiations; and the Prime Minister can speak on these matters with far more general support than has been available for many years.
  11.52 a.m.
  LORD REA: My Lords, I would start by apologising to your Lordships, and particularly to the noble Lord, Lord Henderson, for not being able to be in my place yesterday, but I have had the advantage of reading in Hansard the most interesting speeches that have so far been made. It has been pointed out by the noble and learned Viscount, Lord
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  Hailsham, I think rightly, that the delicacy of the international negotiations now continuing makes it very necessary that our criticisms and suggestions in this House even now should be circumspect, and not hypothetical or too specific upon matters whose full implication can, by the nature of political diplomacy, be assessed only by those Governments dealing with those matters at first hand and day to day.
  It is in that context that I should like to repeat my conviction that the action taken by Her Majesty's Government recently in the Middle East cannot be condemned in isolation; and although my Party and I do not support the declared policy of Her Majesty's Government in the Middle East so far as it has manifested itself in the past, nor their future policy so far as it can be understood—and I appreciate that it has not yet crystallised or recrystallised for the future—I regard the intervention in Jordan as one immediately based on motives of humanity and of rallying to the physical rather than the political support of human beings in danger of their lives. Whether the political results are judged as good or evil or non-existent is a totally different matter; and these aspects are at the moment very much sub judice. But until I have evidence to the contrary, I am prepared to believe that our response to an urgent call for physical help was made primarily to save the City of Amman from being sacked, to prevent the disruption of Amman airfield and to save from massacre a number of human beings, whatever their political colour and however representative or unrepresentative they may have been as a Government or as a Monarchy.
  It is sometimes argued that we have no proof that such a catastrophe would have occurred. To that argument I would reply, first, that the Baghdad Radio made it clear that trouble was brewing and would come to a head; and secondly, that in the event, so far as I know, not a life has been lost, not a shot has been fired, and so far from being aggressors, as some of us think this country was in a military sense at least in the Suez crisis, our intention has been and is purely preventive: to hold a dangerous situation in check—and at the invitation of the Government in power—and to gain breathing space, not to

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  formulate a policy but to enable a constitutional rather than a military solution to be sought. We may, indeed, only have postponed the trouble by our action, but, even so, surely such a postponement is praiseworthy and not blameworthy.
  The justification for this examination to-day of the present situation seems to me not to rest on the incidents earlier in this month but upon the degree of responsibility which this country bears for the general situation of unrest in the Arab world. It strikes me as a matter for astonishment that Great Britain, with its immense experience ranging over five or six hundred years of meeting and dealing with peoples of all races and religions, should so confuse what is desirable with what actually exists. By education and by precept we have brought many less advanced peoples to a newer and less primitive outlook, both culturally and politically. But no education will turn the instincts, deep-seated beliefs and psychological trends of a completely different race into Anglo-Saxon channels.
  They can be moulded and guided by us and other States of the West into what we believe to be a better, happier and more worth-while way of life, but I think we should never lose sight of the fact that such improvement is only possible, and indeed only justifiable, if the ends are for these peoples' improvement and not directed merely to a build-up of Western ideals or Western advantage. Despite our centuries of experience in this field, I cannot help feeling, like the noble Earl, Lord Attlee, that we have been, to some extent, led aside by the urgent and modern programmes of pro-selytisation of the great nations of Russia and the United States, neither of which countries has the deep and innate knowledge of the slow processes of civilisation, and both of which, I think, assess to-day and to-morrow as having little debt to and little relationship with the centuries of past experience and wisdom.
  The Western conception of political States is, I suggest, alien to the peoples of the Middle East, whose inspiration lies in communal religion and communal language and custom far more than in artificial geographical boundaries. Indeed, the integrity of Israel does not lie outside this definition. For this reason, we must, I think, re-assess our approach
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  and not only admit but encourage the natural force of what is held in common—a quality which is currently described as Arab nationalism. As the noble Viscount, Lord Hailsham, said yesterday, nationalism can be a good quality or a bad one. Where it operates selfishly or hysterically to the detriment of its neighbours, it is obviously bad. But where it operates towards constructive, patriotic development, with good will towards international co-operation, it is a good thing. We should, therefore, encourage and succour this new force and help to steer it into constructive channels. recognising that these millions of Arabs have found a voice that must he acknowledged.
  But just as Russia, with its large element of Asiatic territory and Asiatic mentality, is regarded by the United States as lacking in comprehension of the basic ideology of the Western Powers because it has an Oriental as well as an Occidental make-up, so Arabia is apt to be wrongly judged because it also has inherently different conceptions, standards and mentalities. Colonel Nasser typifies to many of us an unprincipled demagogue. But he represents something which the non-Arab world cannot or will not understand: he is the present and temporary focus of Arab aspirations which are held by good Arabs and bad Arabs alike. We deplore his methods and his political morals, but to the Arabs he is not a Hitler: he is to them a Garibaldi, a George Washington, a Winston Churchill. Much as we disapprove of his methods I think we must remember that.
  Our task, therefore, is to try to ensure that this new and great upsurge of Arab consciousness is guided into democracy and not into Communistic dictatorship; for in the Arab experience the impetus of to-day may go in either direction. True democratic representation by free election must be the Middle Eastern goal which we aim to achieve by all legitimate means, for the safeguarding of human welfare in Arabia and, indeed, for World peace. To this end we must do all in our power to co-ordinate such altruistic and benevolent elements as, I am positive, do exist in British, American and Russian policies. Oil, I suggest, is in a sense a hallucination. It is, for a few more decades to come, a passing richness in dollars and

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  strategic strength which may cause temporary affluence or temporary poverty in international prosperity or international influence. But situated as we are to-day, in a world where a snap of the finger may cause the nuclear destruction of all that exists and ever has existed, surely oil is a consideration of despicable insignificance; that is, comparatively. We are concerned in these desperate days with humanity: its survival or its extinction.
  So I come to the pressure of Russian influence in the Middle East or, for that matter, in South East Asia, Australasia, South America, Western Europe or the United States. As one of the two greatest nations in the world to-day, Russia already exists actually or potentially, almost everywhere. It is living in the 17th or 18th century to pontificate about whether Russia shall or shall not be allowed to appear in this or that quarter of the globe. Great Britain, for all its lost supremacy and dominance, counts for a very great deal wherever human life exists. So does America and so does Russia.
  Russia is in the Middle East; and we have the task—which I pray may soon be a pleasant and rewarding task—of co-operating and co-ordinating with this great Power whose ideology, for mental, racial, historical and physiological reasons, will always be different from our own. But just as we can live in a world where scientific knowledge remains still largely hidden from us and in the unknown, probably antipathetic to many of our most cherished presuppositions and prejudices, so, surely, we can accept Russian conceptions and predispositions (as, in a far easier degree, we accept other foreign but more understandable diver-gencies) as tenable concepts, however remote or antagonistic they may seem at the present stage of civilisation, compared with our own well-thought-out and deeply-believed-in first principles. We must, therefore, live together without compromising or sacrificing our first principles. But I see no justification in the broader horizon for maintaining—as I am afraid we do so childishly in home politics—that because we consider we have a good reason for thinking we are right, it follows that everyone who does not see eye to eye with us is necessarily wrong. That is superficial politics, but I think it is basically blasphemy.
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  Finally, one practical point which I believe was touched on by the noble Lord, Lord Lloyd, yesterday. We in this country have a great heritage. Because of that proud and admirable background in our minds and our lives, we assume, without arrogance, as it might seem to be, but because we seem to expect others to take an objective assessment which in fact they do not do, that this benevolence and the altruism in our national policies are patent and apparent. They are not; and every time that our good intentions are queried or discounted we take mortal offence. We live now, unfortunately, in a world of advertisement. It is no longer enough that justice should be done and be seen to be done; it must be advertised and publicised and underlined and emphasised and put beyond the possibility of question or of denigration.
  Our competitors in this regrettably competitive world spend millions upon millions of pounds in establishing the merits of their aims, but more especially in describing the villainy of their adversaries' aims through the little box in every primitive village which relays to countless millions their radio propaganda. I do not advocate the distorted vilification of our adversaries, but I do urge the Government once again to step up the miserable allocation of an infinitesimal sum spent on foreign broadcast information to a generous support of wholesale dissemination of what we do stand for: the appreciation of truth, the knowledge that the Western civilised world works for co-operation and not for strife; and that one pound spent on permanent enlightenment is worth thousands of pounds spent on instruments of destruction and death.
  I believe that this country of ours—and because of its background this country alone—has in its power now the possibility of averting world war by concentrating in the widest and, indeed, in the most lavish way, on the spreading of good tidings of good intentions, so as to counter the threats and the blackmail which spring from suspicion and fear on every side.
  12.6 p.m.
  VISCOUNT STANSGATE: My Lords. I am obliged to the noble Lord, Lord Birdwood, for being so kind as to allow

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  me to intervene for a few moments at this juncture. If I may say so to the noble Lord the Leader of the Liberal Party, we know we are a great country. We know all that. But it really will not help the present situation we are in—a thorough mess—by repeating these little echoes of self-praise. I know a little poem beginning "Little Jack Horner" which covers a great part of his peroration.
  LORD REA: I do not think I was talking about self-praise at all. Whatever we may think of ourselves, we cannot expect other people to think the same.
  VISCOUNT STANSGATE: What I was saying is—and it is not only to the noble. Lord—that it does not help the situation to-day to comfort ourselves that we are a great country. We know all about that. If we are going to do any good we must recognise that we are in a great mess, and what we want to find out is whether there is any possible way out. The question that has been in my mind as a member of the Opposition—of which I am proud indeed—when listening to the speech of my noble friend Lord Henderson (and I may remind the House that many years ago he was my Parliamentary Private Secretary) and the noble Earl, who was our Prime Minister, is, when is this Conference going to start? We had a meeting yesterday when Mr. Dulles was here and something was discussed. Where is Mr. Dulles now? I believe he is in Washington. When are we going to hear about some positive steps being taken? That is why I am impatient with a very old personal friend, Lord Rea. I want to know how we are going to get out of this mess in the Middle East.
  LORD REA: What I was saying is that we must forget ourselves what has been said, however true it may be, and get on with things.
  VISCOUNT STANSGATE: Then we are entirely agreed. His clarion call did not reach my ears. What we should like to know from the Government is when this Conference is going to start, and where. The thing is getting very foggy. General De Gaulle has put forward a plan of his own, and maybe it is right. He is certainly going to play a personal part in world politics. But when is Mr. Khrushchev going to see Mr. Dulles? That is what we want to know. No amount of platitude affords any answer.
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  As I am not a statesman, but an ordinary member of Parliament, I am going to ask one or two questions, as I am entitled to do. Will the Minister who is going to speak give us a little more information about what happened yesterday at the meeting of the Baghdad Powers? I think in clerical language you say the Baghdad Powers in partibus. It is everywhere except in Baghdad. What is the attitude of the United States to the recognition of Iraq? Yesterday I did not think much was discussed that required cross-examination. To-day there is a great deal of news which requires to be explained. At the Baghdad Pact meeting did we advocate that we should send a joint message to Baghdad to say that the Iraqi Government would be recognised? We had a remarkable speech yesterday from the noble Earl, Lord Jellicoe, and there were letters in The Times from Mr. Ionides, who knows a great deal about the country. They said, "If you are going to do it, do it now." I do not know what you would make of the Baghdad Pact if the new Government of Iraq joined; but we really ought to know what is the position, first of all, of Iraq in relation to the Baghdad Pact.
  The second question is, what is implied by this liaison of Mr. Dulles and the Baghdad Powers. It is not at all clear. He is not a full member of the Pact, because he cannot make a treaty without the assent of the Senate. Does it mean that as the Baghdadis have defaulted, the Americans have undertaken to send in troops if necessary? Because the whole thing is based on military apprehension, which I believe is fading and was never as much justified as people thought. All that has been done is that America has come along and given a sort of half promise in accordance with their policy of brinkmanship. We do not know what the attitude of the members is to Baghdad. If you do not go with Baghdad, Baghdad may go with Russia; you do not know; they will certainly not maintain the position in relation to the West which was the mainspring of Nuri Pasha's policy.
  There is another question in relation to the Baghdad Pact. One nation is forbidden to join it—the Jews; they are not allowed in. They would be glad to give assurances of peace in the Middle East but they are not allowed in because there

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  is a veto. People who come in must have unanimous support. We are now building up something which is making more difficult the position of Israel. If my noble friend Lord Attlee will forgive me, I would recall this. I was the Member for St. George's East and he was the Member for Limehouse. We both knew what the Russian persecution of the Jews meant. We both saw it. I saw it in my youth. I represented St. George's East down by the docks and I used to see these poor creatures coming with their little bundles, getting work anywhere they could for any wage. It was tragic. So far from thinking it is a mistake—I agree with the noble Lord, Lord Strang, that it is an embarrassment—I say it is one of the glories of our policy that Mr. Balfour founded a National Home for the Jews. It has made all the difference in the world to every Jew in the world; he can stand up now with a country of his own.
  On this same question of the Baghdad Pact, may I ask the Government whether it is intended that Jordan should come into the Pact? The noble Earl, Lord Gosford, will no doubt be able to give me some particulars about that. We tried to get Jordan in, with disastrous results, very nearly upsetting King Hussein, when General Templer the Chief of the Imperial General Staff, visited him and it got around that they were going to join. It nearly cost King Hussein his throne at that moment. Is it intended that Jordan should come in?
  I do not know about the Lebanon; I should perhaps just leave it aside. What any sensible person might have guessed is of course happening; everyone in the Lebanon are joining together against the man who gets the support of America. That is obvious. President Chamoun is finding himself isolated with the Marines. Everybody else, the Leader of the Opposition, the head of the Army, are all uniting against them. What will come out of that I do not know. In the United States, as far as one can judge from the Press, there is by no means unanimity in favour of this adventure. We have said we approve it and taken the responsibility and we may have penalties to pay; I do not know. But we are not actually engaged.
  But what about Jordan? That is a question that is very important. Are we
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  meeting the expenses of the Jordan Government? The Bedouin have not got much money; the Western bank people are hostile. Are we re-subsidising Jordan in the way that we did years ago to the tune of between£15 million and£20 million?
  A NOBLE LORD:£12 million to be exact.
  VISCOUNT STANSGATE: That is one point. The other, which is important, is this. This House is rising in a few days. Suppose the situation goes sour in Jordan. There are a great many people there, probably the majority, who do not want this dynasty, this King. Suppose there is a row: are we going to put it down ad interim? We want to get out, but we want to get out when our duties are taken over. What exactly are we going to ask the United Nations to do to replace our forces in Jordan? I do not know in the least. We went in out of a feeling of loyalty to a Hashemite dynasty who placed their destinies in our hands and now are faced with assassination and ruin. Some day it will be worth while having a discussion about that. I remember the people very well—Sir Mark Sykes, Colonel Lawrence and the rest. We allied ourselves with Hashemites and we were wrong. Now they are in this tragic position. In the meantime, within a few weeks someone has to settle who is going to pay the expenses in Jordan and on what terms we shall hand over, if we can, the occupation to the United Nations Forces.
  Finally, there is the other question that no one has spoken about, and that is the South—the Gulf Protectorates, Kuwait and Bahrein, and Saudi Arabia. Suppose that the same sort of revolt comes there against autocratic dynasties. Suppose it is an internal revolt of Arabs, as I believe these things are in the main, not inspired from outside. What do we do? Something was said by the noble Earl, Lord Home, yesterday about our responsibilities. Do we say that if there is an internal revolt, say in Kuwait, we have Treaty duties to perform to maintain the ruler with armed force? It may be that we shall have to do it; I do not know. I would be against it. But we want to know exactly what our obligations are, and how we propose to fulfil them. After all, it is all dead matter in the North, but in the South there are the

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  Persian Gulf, Saudi Arabia, Yemen and the Aden Protectorate. I would draw the attention of noble Lords to this fact: that we are surrounded in the Middle East by countries we do not recognise. We do not recognise Iraq; we do not recognise Egypt; we have no diplomatic relations with Saudi Arabia. Those are points which make us wish it were possible for the House to meet from time to time in order to receive the information that is always so readily available from the Minister in charge. Those are the only questions I have to ask, and if some answer can be vouchsafed to some of them I shall be very grateful. I am most grateful to the noble Lord, Lord Birdwood, for allowing me to intervene.
  12.18 p.m.
  LORD BIRDWOOD: My Lords, I, of course, am not going to attempt to answer for Her Majesty's Government some of the questions which the noble Viscount has posed, but I suggest that if there were any attempt to answer them I personally should be absolutely dismayed. The meeting of the Baghdad Pact Powers assembled for the first time in London yesterday, and I should say that if there were an answer to some of those questions to-day it could only mean that the answer had been taken in a spirit of utter irresponsibility. The only point on which I disagreed with the noble Earl, Lord Jellicoe, in that fine speech of his yesterday, was when he said that we should recognise the new Government of Iraq immediately. I imagine that we are going to recognise that Government fairly soon, but I do not see any need for haste in the matter. We have to remember that there is the declared intention to try all those who were in any way associated with the late regime in Iraq, and I suggest that it would not be quite proper to recognise overnight a Government which holds over the world that kind of threat.
  As to whether Jordan is going to come into the Baghdad Pact or not, I would remind the noble Viscount that now that Iraq is in a most ambiguous position in regard to the Pact it assumes the nature of that original Northern Tier presentation on which Mr. Dulles was so enthusiastic. Therefore there is possibly now some reason to believe that at some future date Israel may be invited to join.
  VISCOUNT STANSGATE: May I ask the noble Lord a question? Does he
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  agree with King Hussein when he says that his business is to restore the authority of Baghdad?
  LORD BIRDWOOD: I would most certainly say that advice given him to attempt to restore the position in Iraq would not be in his interest.
  It seemed to me that yesterday there was so much construction packed into the debate that there is little, in a positive way, for somebody like myself to add. I would therefore concentrate upon trying to remove one or two misconceptions, as I see them, in regard to our general thinking about the Middle East—a dangerous tendency which has emerged, both in public and in Parliament, to over-simplify with clichés what are in fact extremely complicated problems. I would take as the basis the four principles which were set out in another place in a recent debate, and to which the noble Lord, Lord Henderson, referred yesterday—principles which were regarded as the formula for Utopian progress. If I diagnose rather than prescribe it is only because quite a number of prescriptions were provided yesterday.
  I recognise, just as much as any noble Lord opposite, certain facts about the Middle East. I recognise the fact of Arab nationalism. I think that is a movement within its own right. I would agree with Lord Attlee, who I think said words to the effect that these days the Soviet follows Arab nationalism rather than leads it. I recognise that there is a new, coming generation of Arabs who sense frustration and who look to Colonel Nasser as the focus of their hopes. I recognise the anomalies of the Middle East—of corruption in high places, of the need for land reform and so on.
  It is only when we come to review our own part in all these matters that I find myself in disagreement with many of your Lordships. Therefore I should like to set out the kind of fashionable argument that is current these days: first of all, that we have divided to rule; that the Baghdad Pact in particular was a division to rule; that the Pact was a provocation to the Soviet without providing any compensating military security; that we cannot ensure the flow of oil by more military adventures; that we now have to obtain oil by long-term commercial methods—to "put oil on a normal commercial basis", is the phrase used—that we

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  should not use outmoded imperialism in the process and finally, that we have no long-term policy and we cannot solve long-term problems by short-term methods. Those are the charges and sometimes those are the actual words used. I often wonder whether the use of words of that sort is damaging, because the British public might well be excused for having a picture in their minds of British soldiers with fixed bayonets standing over unwilling Arabs and forcing them to pump the oil through the pipes.
  I consider that we have made two grave errors of judgment in the Middle East since 1917. I do not propose to dwell on them to-day. All I want to do is to dispose of, as I see them, some self-inflicted wounds which we have inflicted upon ourselves, to say a word as to how I believe the present confusion has arisen, and to have a look at the future. Not unnaturally, when we surrendered the Iraq Mandate in 1932 we slipped into a certain pattern of thought. In Iraq we left behind good friends in charge—friends that we had trusted in the First World War, and, perhaps optimistically, we thought that those friends would continue indefinitely in control. Perhaps, too, we failed to notice what was happening elsewhere in the Middle East—for instance, in Syria and the Lebanon, where the fact that the French had lingered on long after we had left Iraq in itself fed anti-Western sentiment. Egypt we thought we knew. What we could not know was that thirteen years after we had handed over in Iraq, Egypt would be slipping into the leadership of the Arab world. How could we know that?
  In 1916, when we were busy planning for Arab independence after the war, Egypt had never been included in the area in which that independence was to be recognised. In those days Egypt was never regarded as an Arab country, and I think that that was the kind of view taken by many Arabs themselves. It may be that latterly the motives of that Arab leadership in Egypt, which were to my mind quite unscrupulous, have been diluted with the urge for reform. But I would submit that their better instincts have always been blurred and distorted, and remain so to-day, by anti-Western and anti-colonial obsessions.
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  If that be true, what now becomes of this accusation of dividing to rule? Was our support of the Arab League, when it was first thought of between the years 1942 and 1945, when it emerged, a division? Was our unification of Iraq after the First World War out of the three entirely separate Turkish vilayets of Mosul, Basra, and Baghdad, a division? Was our presentation of Iraq in 1932 to the League of Nations as an independent sovereign State, a dividing to rule? The truth is, in fact, that as the gulf between Colonel Nasser and Nuri widened we continued to support old friends rather than ally ourselves to the one man who, on a mere count of heads, could command the greatest following in the Middle East. That may have been a misjudgment but it certainly was not dividing to rule. When one speaks of dividing to rule, one surely conveys an intention, and I would submit that it is less than fair to ourselves to say deliberately that we ever set out to divide the Middle East.
  Then I come to the charge that we have no long-term policy and that therefore short-term remedies are ineffective. I sometimes wonder if a long-term policy is either necessary or desirable. I sometimes wonder if that conveys the conception of a rigid, inflexible kind of policy posed all over one big area. Then I would regard it as wrong. I think that what, more accurately we should have in our minds are long-term principles. In any case, I would regard it as a contradiction of logic to argue that because there is no clear-cut long-term policy it is therefore wrong to take short-term measures to remedy short-term situations.
  Our action in Jordan the other day was just such a case. We had to take a short-term decision to deal with a sudden and desperate short-term situation. I do not like the argument that because King Hussein had turned sour on us about eighteen months ago we should therefore have refused him his help in his hour of danger. I think the happier view is to believe that it was General Glubb's tolerance, understanding and dignity at the time which has to-day brought its reward in King Hussein now discovering the value of true friendship. But in any case I submit that we have an obligation to King Hussein, remembering that it was

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  we who set his family on its feet and that it was we who used his family to help us win the First World War.
  VISCOUNT STANSGATE: Hear, hear!
  LORD BIRDWOOD: My Lords, had it not been for the standard of revolt raised under Sherif Hussein of Mecca—King Hussein's great-grandfather—it could well be argued that the ports on the eastern bank of the Red Sea would have remained in Turkish hands, and it is doubtful whether in these circumstances, so far as the Middle East is concerned, we should have won the First World War. We are therefore under a particular obligation to King Hussein. I am not going into the nature of the problem. I would agree with the noble Viscount, Lord Stansgate, that we have set ourselves a very difficult problem to solve, but whereas I was certainly unhappy over the American entry into the Lebanon, we had no doubt whatsoever where our duty lay when the young King appealed to us under Article 51 on the evening of July 16.
  Now I would turn to the particular aspect of the charge of "divide and rule" which concerns the Baghdad Pact. How easily people forget their history! To-day that is presented as a Western imposition thrust on the Middle East, dividing countries that would naturally have come together in harmony. I would recall that in 1957 it was Mr. Dulles who was going round the Middle East concentrating on the Northern Tier conception and getting together all those States which lay on or near Soviet frontiers in some kind of mutual security system. That was followed, in February, 1954, almost simultaneously by American aid to Pakistan and the treaty of friendship between Pakistan and Turkey. I believe I am correct in saying at that time we were actually resisting the Northern Tier conception. In October, 1954—the same year—Nuri happened to visit Turkey at a time when the Pakistan military mission were there. He made it quite clear that sooner or later his country would come into this Northern Tier conception; so that in the following year, 1955, Iraq signed her treaty with Turkey. That was in February. The British signature did not follow until April, 1955, when we took the opportunity to end the existing Treaty with Iraq, because it certainly
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  had a certain hang-over from the old mandatory days.
  My Lords, I have repeated that list of dates only to refute the suggestion that the Baghdad Pact was a British imposition, but I should like to take this opportunity to say a word about out general attitude to these pacts, because it is essentially a matter of long-term policy in the Middle East. Surely we never impose a pact on anybody, at any time or in any place. If we like a pact, obviously we encourage it but we never thrust a pact on anyone. If Turkey, Iran and Pakistan to-day wish to continue in some form of mutual understanding with each other for their self-defence, and also wish for our assistance, are we to refuse that assistance? And if Iraq of yesterday wished to build up a system around that Northern Tier based on Baghdad, were we to have refused it? My own view is that these pacts have a psychological value which goes far beyond their military value; but on the day when a pact is not required by those countries concerned, on the spot, it is certainly not for a country outside the area, such as ourselves, to thrust a pact upon them.
  But, as I see it, there is a far wider principle involved. So far as the Middle East is concerned, the argument has run like this; that because doubts were expressed as to the degree of popular support which the Government of Nuri could command, we were in some way propping up an unwanted and authoritarian-imposed régime. That kind of charge is frequently made and I welcome the chance to dispose of it. Apart from the fact that the Government of Nuri happened to be friendly, it was also the officially accredited Government of the country. Do noble Lords really argue that because that Government was not popular we should not have dealt with it? Do they go further and say that because it was out of step with President Nasser and the "coffee shop vote" we should have removed it? It is so easy to come out with these clichés about "propping up" unwanted Governments, but frankly I have yet to understand what alternatives these critics have in mind.
  If we are expected to approve only the style of a Government which conforms to our own standard of a free election, there would certainly be few Governments

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  left in the Middle East to-day to recognise. It has seemed to me that we are asked to support an authoritarian Government when it happens to have a nationalist Communist flavour but not to support it when it appears to have a feudal background. In any case, I suggest that, to be quite consistent, when and if we meet Mr. Khrushchev in a conference we should remind him that there are at least half a dozen Governments in Eastern Europe to-day which, in our view, are just as much harsh impositions as any in the Middle East. At the same time, we might take up with Mr. Khrushchev the question of his somewhat extravagant assessment of the oil trade and his constant references to these "wicked oil barons".
  On July 20, Mr. Khrushchev wrote to the Prime Minister saying:
  "They"—
  the Middle East countries—
  " want only one thing: that this problem "—
  of oil supplies to the West—
  " be solved on an equal and mutually advantageous commercial basis."
  That is exactly how it is solved—on a mutually advantageous commercial basis. Mr. Khrushchev was supported in the other place in almost identical terms. What are the facts? The oil companies first recognise that oil in the ground belongs to the national Governments concerned. Secondly, every agreement which has been negotiated since 1950 has been freely negotiated with the Ruler or Government concerned; and thirdly, all those agreements have subsequently been followed by modifications in favour of those Governments, without any pressure whatsoever from a Western Government. There we have a commercial flexible arrangement.
  As your Lordships know, there are in general two ways of raising and extracting oil and selling it. Either one can turn to local private enterprise or the local Government or that local Government can go outside and call in an independent commercial organization which is fully equipped to deal with all the very difficult technical tasks involved. As to that first method, where the local Government or local private enterprise take on the job, I state only the obvious truth in saying that it requires a fully developed economy and a broad industrial basis such as can be found only in the United
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  States, and that such conditions just do not exist in the Middle East. In looking for oil and selling it successfully, one has to be prepared not only to spend vast sums of money in finding it but also in looking for it and not finding it. It is only by some kind of fifty-fifty profit-sharing arrangement that such companies can find the enormous sums of money necessary for the development of the oil trade and for future exploration. In fact, the Government of the country are saved the whole responsibility of having to raise any capital whatsoever; and I can imagine no more logical system. It would, of course, be too much to expect Mr. Khrushchev at a Security Council meeting to understand an argument of this kind, but I believe that we should all stand behind the Prime Minister if and when oil is discussed, because if these principles are not supported Middle East oil countries are not going to continue dealing in the Middle East; and in the long run the ones who will suffer most will be the Middle East countries themselves.
  As to the wider concept of an Economic Commission for the Middle East, which has been proposed, there is already, of course, the outline of a plan put forward by Middle East industrialists by which 5 per cent. of profits from companies and oil countries would be set aside for Middle East development. That kind of plan is perfectly logical and perfectly workable, but if we are to extend that, and say that there must be one economic plan for the whole of the Middle East by which oil-wealthy countries have to give to oil-poverty countries, then we shall destroy in the process that unity which we are seeking. After all, the whole conception of one country giving its surplus to another is one which we found it extremely difficult to implement in our own country or in our own area of Western Europe; and if we are going to force such an Economic Commission on the Middle East we are doomed to failure. I personally see no reason why the West should wish to force an Economic Commission on the Middle East, any more than to force a strategic pact or a political settlement of any kind.
  In conclusion, I wish only to draw attention to an old principle by which we have always stood: that we should stand by our friends in the Middle East rather at the expense of those who are

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  not going to be quite so friendly. But it seems to me that sometimes our friends may be in difficulty in making up their own minds. Sometimes it may not be entirely to their advantage to continue to want to stand by us. I am thinking particularly of the State of a future Jordan; perhaps, too, of the sheikhdoms of the Middle East in the Persian Gulf. If a Ruler of a State is in doubt as to his future relationship, I think it is only fair to us that he should be encouraged to say so. The one thing I regard as dangerous is to continue in ambiguity.
  Personally—and this may perhaps disturb the noble Marquess who spoke yesterday—I feel that we should be wise in a political sense to withdraw from certain areas in the Middle East for some time to come. We have, it is true, certain clear-cut obligations in a certain contracted area. We should state those obligations and state that we shall stand by those obligations when challenged at all times. But in the rest of the Middle East it seems to me that we might be wise in a political sense to create, so far as we are concerned, as and when possible, a political vacuum. We should then be left with a perfectly straightforward, normal, unimaginative commercial relationship. I think that in the process we should find that the Middle East would then have to turn and face its own problems and fight them; and there would, I believe in that kind of process be a curious shake-up of loyalties. It is interesting to reflect what would in those circumstances remain of so-called Arab unity. I believe that in the process we would find that we should once more be sought again as friends, rather than always having to plough on in the unrewarding process of searching for them. I submit, my Lords, that to be sought as a friend is proof of the wisdom of a policy.
  12.44 p.m.
  THE EARL OF LUCAN: My Lords, I shall not follow the noble Lord who has just spoken, on to his own ground—the Arab world and the Moslem world, which he knows so well and about which he is such an authority; for another reason I shall not follow him, because I do not think that this debate at this stage is an occasion for an historical survey of our relations with those Powers. What I should like to say, as shortly as I can, is a few words about
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  a subject that has been touched on by almost every speaker in almost every debate on the United Nations over the last two years, and that is the United Nations Permanent Force. It is a coincidence, my Lords, that almost exactly a year ago I was making a similar speech, then also as a substitute for my noble friend Lord Pakenham, who this time has been striken with influenza and is unable to be here to-day.
  When an accepted principle is referred to continually by politicians I think there is a dancer in the constant repetition if nothing follows. It becomes a sort of conventional noise made in the course of a speech to assert your support of the principle of a United Nations armed force. Not only in the debate a year ago but since then many noble Lords and many Government speakers, both in this and another place, have said that in principle they are entirely in favour of a United Nations Permanent Force. Even as recently as June, a few weeks ago, the Minister of Defence, in a speech in another place, outlined quite a detailed series of ideas on a United Nations armed force; and the Foreign Secretary on July 2 confirmed that. There was a book published only a few months ago in which Mr. Clark and Professor Sohn worked out: a scheme for a force under world authority of something like 400,000 men, costing£3,500 million a year. When that is set against the present world armed force of 20 million men, costing something like£40,000 million a year, we get an idea of the incentive that lies before us for an agreement to set up a world force.
  But, my Lords, most of these suggestions and references are to a paramount force, a force that would be powerful enough to take on the armed forces of a nation, presumably the strongest nation. We know that the Foreign Secretary on June 10 said:
  " The starting point would have to be a general agreement for the prevention of war."
  That straight away, I think, puts the idea rather beyond the immediate horizon—some might say a very long way beyond. But surely there is something that could be done as a first step towards the ultimate ideal of the rule of law in the world, and that is a light force capable of dealing with cases of this new disease we have been hearing about, which has been

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  talked about only lately—namely, indirect aggression ". This sort of trouble that the Middle Eastern countries have been suffering from and complaining of is exactly the kind of threat that this light force, similar to the United Nations Emergency Force set up after Suez, is capable of dealing with. It is not intended to fight other armies; it is meant to guard and patrol and to be a token of the interest of the rest of the world in the dispute.
  I should like to remind noble Lords of what this scheme is. Not only has it been worked out in this country by the Commission last year over which my noble friend Lord Pakenham was chairman, but only last week I saw that the State Department in Washington came out very plainly in favour of some such scheme.
  "The State Department".
  we read in a message in the Manchester Guardian last Saturday,
  " has given its approval to the establishment of a permanent international police force under the auspices of the United Nations".
  Then some detail is given of the proposals. The proposals that were worked out in this country were for a force of something like 20,000 men, armed only lightly, made mobile by its own transport and with its own bases. But the essential feature of the scheme was that such a force would enter a country only at the invitation of that country. It would in no sense be designed to coerce any country that was resisting the United Nations.
  When it comes to the details of such a scheme, there is, of course, an enormous amount of work still to be done on the composition of it, the organisation of it—whether it should be national contingents or individual enlistment, and so on. But such a scheme was surely just what was wanted two weeks ago, to avoid the necessity of the United States and the United Kingdom sending troops into those Middle Eastern countries. Threats by individuals and small bands infiltrating across frontiers, small consignments of arms, and so on, are exactly the kind of thing that possibly a small observer force, such as that which is in Lebanon now, is not capable of stopping, but which an armed force of several thousands would undoubtedly be able to stop.
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  The scheme is there. It has been worked out. The Secretary-General of the United Nations is himself conducting an inquiry in the United Nations, a report of which is expected to be put before the General Assembly in a few months' time. Meanwhile, what are Her Majesty's Government doing? Surely we are entitled to look to them for a lead and to expect that they should express themselves not just in favour of the principle but in favour of definite steps being taken, and being taken as soon as possible.
  12.54 p.m.
  LORD ST. OSWALD: My Lords, I deem it a particular privilege to speak in any debate on a Motion set down by the noble Lord, Lord Henderson. I know what a constant and untiring champion he is of causes that I have very much at heart, and I have learned to value his guidance in those causes. In the course of what I have to say to-day I may from time to time veer away from his opinions, but I hope that in conclusion I shall not be far from the point where he has set up his standard in this debate. I should like to follow the noble Earl who has just spoken rather later in my speech, and follow him by agreeing with a great deal of what he has said. Yesterday the noble Viscount, Lord Alexander of Hillsborough, wisely, I am sure, urged restraint upon the remaining speakers in the debate, and urged the importance of finding the largest available measure of agreement across the floor. I would not say that his advice has been strictly or universally observed by the Benches behind him, or even on the Bench beside him. But in response I shall restrict myself to the differences which he himself described in the same speech. This, of course, entails stockpiling a good deal of ammunition which may well be obsolescent by the time of our next encounter.
  At this point I should like to say that although I have heard many tributes to the restraint displayed by leaders of the Opposition during these days, I feel that at least as much should be said for that of the Government spokesmen in this crisis. Of course, restraint is admirable from the Opposition, too, but, to misquote an historic phrase, "They have plenty to be restrained about." Sophocles said that "Heaven will ne'er help those

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  who dare not act", and on that basis the Opposition, in these past days, have made it pretty clear that they are not seeking much help from Heaven. More clearly than ever before, I think, the two main Parties have classified themselves in the face of international problems and emergencies, as the Participators and the Onlookers—those who favour one rôle or the other for their country.
  My Lords, because Britain is led to-day by a Tory Government, Britain has played an active and valuable part in meeting this emergency and keeping it under control. Here I must declare a prejudice, because I am one of those who think that this country has an active and positive part to play in world affairs. Fortunately, from my point of view, the country as a whole believes that, too. The Gallup Polls show a healthy prejudice in favour of action and of the Government which took it; 54 per cent. approval and only 28 per cent. against. I see that the New Statesman explains this readily enough; it is quite simply the Tories plus the ignorant versus Labour plus the educated. That seems to be an unflattering picture of the country, I should have thought, but I have noticed that noble Lords opposite are inclined to support that diagnosis. It will be interesting to see if their Party is ready to approach the next General Election with the battlecry of "Ignorant vermin".
  The Opposition offer reasons for their cult of inaction at this time. Three of those reasons—the three most lucid—are that action will excite both Soviet Russia and Arab nationalism; that it places British troops in jeopardy; and that anyway it is none of our business because there was no proven attack across a frontier. I should like to deal with the last of these to begin with, because I think it is the most dangerous. In this very interesting publication, the N.A.T.O. Letter of last month, there is an analysis of Soviet techniques, listing in all twelve separate methods employed for overthrowing such rôgimes as show determined "sales resistance" to Communist doctrine. Only one of these is concerned with physical armed invasion across a frontier. The Soviet Government know by now that a combination of some of the others is far more effective. And it will be entirely effective if these eleven other methods are to be regarded as
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  perfectly fair tactics with which we have no right to interfere.
  In this connection it was remarkable to find how many supporters of the Party opposite invoked the example of the Spanish war to brace their argument. I should have thought that it was the very last example they would choose, recalling their attitude at that time. The noble Earl, Lord Attlee, invoked it in this House last week, and as always I listened with the closest attention to what he said There are few occasions when I feel like challenging the noble Earl, but when he starts talking about Spain he provides such an occasion. In September of 1939 I passed my twentieth birthday under sentence of death in Barcelona, because I knew a little too much for my health. I am happy to think that the noble Earl was never brought to such a situation in Spain. But one or more of his colleagues in another place have implied quite clearly that because King Feisal and King Hussein and President Chamoun could supposedly not count upon their respective armies, they were fit to be overthrown. When I heard that, I thought, "Well, what price Generalisimo Franco now!"
  If I may bring the analogy a little nearer home at the price of making it far more fanciful, I would ask the noble Earl, Lord Attlee, to picture our own country some years ago, in the period of his own Administration. I should like to take one of the gloomier periods—for instance, in the middle of the third financial crisis of 1951. If at that time a group of Commando officers had decided to overthrow the Government and turn the noble Earl out of Downing Street (I certainly cannot imagine them slitting his throat and dragging his body up Whitehall), would he and his Ministers have shrugged their shoulders and murmured soulfully, "Since we cannot count on the Army we are not fit to rule!" A successful military putsch creates dangers far outside the country where it is carried out. It encourages elements in other countries with similar urges to plan along similar lines. I have heard from a very dependable source that such an effect is already apparent, even in Germany. And if one successful putsch is dangerous, then a whole chain of them, unchallenged, might well be disastrous. They have not gone unchallenged or unprevented, and for that

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  I believe that the world as a whole is deeply beholden to the Governments of Great Britain and the United States.
  To deal with the Opposition's other objections to action: so far as the exciting of Soviet Russia is concerned, I believe that what really excited Russia, what made the plotters in the Kremlin rub their hands and toss back the vodka with expectant glee, was the prospect of an effortless and undisputed victory in the Middle East. From that point of view they may find the speeches of the Party opposite still fairly exciting. There is an unhealthy eagerness among some political speakers and writers in this country for Russia to call the tune, if not all the time, at least most of the time. If this eagerness were to be rewarded or to affect a Government in power in this country, Mr. Khrushchev would soon have us all dancing the Gopak, to make up sufficiently richly for the humiliation once inflicted on him by Marshal Stalin.
  In this connection, one of the greatest surprises to me of yesterday's debate was to hear the most superbly outspoken Member of your Lordships' House, the least-mealy-mouthed, whose candour I have had so often cause to admire, urging my noble friend and leader to be mealy-mouthed with the Russians—I refer to the noble Viscount, Lord Alexander of Hillsborough. In a verbal exchange I am perfectly certain that he would be more than a match for Mr. Khrushchev, and I should hate to think that, were they to meet, his talents in that capacity would be concealed or confined. I suspect that they would not. Yet he admonished my noble friend for stating simply that we were able to recognise the Russian tactics within U.N.O. I do not think that he said the assessment of those tactics was inaccurate in any way—he just said that we should not mention it aloud. I am certain that any Government so inhibited would win only the contempt of our antagonists and the mistrust of our friends.
  As regards the excitement caused among Arab countries, I wonder whether noble Lords opposite would concede that we may have caused some very favourable excitement among our friends, by showing that they can count on our help in time of trouble. There seems to be an argument that Arab nationalism is good
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  if it is led by our enemies and bad if it is led by our friends. That is an argument that I am totally unable to follow or to accept. I find it surprising that speakers opposite have resorted to racecourse terminology in describing this crisis. We have heard it said, and I thought it did them little credit in any case, that we have backed the wrong horse.
  VISCOUNT STANSGATE: My Lords, that sentence was Lord Salisbury's—the great Lord Salisbury. That is what he said about the Crimean War.
  LORD ST. OSWALD: I am not speaking about the Crimean War this morning. I should hate to mislead the noble Viscount on that matter. We have heard it from the Party of noble Lords opposite that we have backed the wrong horse, and I rather fancy that the noble Viscount mentioned it himself in the course of the morning. What they mean is not that we have backed the wrong horse, but that we have not exhorted our jockeys to the dirty tactics employed by the other runners, if I may follow the metaphor to that extent.
  We are told continually that we must come to terms with Arab nationalism. The clear lesson of recent events is that there are forces determined that we shall not come to terms with Arab nationalism, except on terms set down by dictatorship, either Russia's or Nasser's, or a blend of both. There are those in this country who are ready to derogate, even to condemn, the overthrown or threatened rôgimes on the simple transparent argument that they were loyal to us, plus fastidious references to feudalism.
  We have heard tributes to Nuri es-Said and to his administration from those far better qualified than I, notably from my noble friend, Lord Birdwood, who spoke a moment ago, and from my noble friend of many years standing, Lord Jellicoe, in his outstanding maiden speech yesterday, which was as fine as his friends could have expected—and I can hardly pay a higher compliment than that. If, as I understand, there is to be a memorial service for Nuri Said in London in the next few days, I hope that as many as possible of your Lordships will make plain by your presence that we deeply valued the part that he played for Arab nationalism. And on

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  this whole question we cannot too often remind ourselves that the only way in which a man or a nation can win true friends is by setting an example of loyalty. I have been told of an incident, when Marshal Tito was being urged by a British negotiator to place his trust in Britain. He replied, "How can I, after the way you behaved to Mihailovic? "
  I should like to touch briefly on the very sincere objection that springs from anxiety ebout the situation of our troops in Jordan. I have been a soldier, and I know that sometimes soldiers have reason to curse the politicians. But I simply do not believe that this is such a time. They are spoken of as cut off, but that is hardly factually or geopolitically true. Can anyone really imagine the Israelis falling upon them from behind? I think that they must feel considerably less cut off than the men of the 27th Infantry Brigade, in the autumn of 1950, in the Pusan perimeter in Korea. I can imagine the noble Earl, Lord Attlee, and the noble Viscount, Lord Alexander of Hillsborough, feeling grave anxiety at that time, and I can sympathise if they are apt to compare the two situations. Frankly, I do not believe that this situation, from a military point of view, is in any degree so critical as were those weeks. And, in case for a moment it should be suspected that I am mentioning the Pusan perimeter as an occasion when soldiers were entitled to curse the politicians, may I say that nothing is further from my intentions.
  Two factors, I am certain, are of the utmost importance to the morale of our troops in Jordan. First, to feel that the country is with them, whatever may be thought of the political decision that took them there. I think that that has been made clear by speakers from all Parties—I have not heard of any expatriate Norwegians visiting the area this time!The second is to feel a sense of solidarity with the Americans, to feel that we and our troops are not in this alone. And here the comments have not been so fortunate. The noble Viscount, Lord Alexander of Hillsborough, has been openly critical in this debate of American policy and action. The other day I listened to a Labour Member of another place giving the Government some advice of such a fantastic nature
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  that I must, with the permission of the House, repeat it verbatim.
  VISCOUNT STANSGATE: My Lords, it is not a question of the permission of the House. It is a Standing Order that noble Lords must not discuss intercamerally.
  LORD ST. OSWALD: I shall bow to the noble Viscount's interpretation. There is another objection to action, which I have not mentioned, coming from those who simply think that we should not poach on U.N.O.'s preserves. But I have never been able to see what advantage lay in pretending that U.N.O. is capable of a speed of action which is quite patently beyond the limits of its organisational effort, even if unanimity of view were providing the stimulus. I think that one of the greatest liabilities under which we labour is this modern myth that U.N.O. must be regarded as effective in spheres where it is either impotent or essentially sluggish in its present form. I am all for a change in that form, to make it effective instead of mythical. My noble friend and Leader called it yesterday, "Our duty to make U.N.O. work", and I do not think he meant a passive duty based on pious hope. I relish the idea of a U.N.O. emergency force, and I hope that it may be developed. Here I am entirely behind the noble Earl, Lord Attlee, and the noble Earl, Lord Lucan. But for the present we had better face the fact that sacrificing a white bull in front of the statue of Jupiter would be as effective in practice as calling on U.N.O. to solve an immediate international crisis of any importance.
  On this question, I listened with interest to a most measured and sympathetic speech by Mr. Shinwell in another place in which he introduced one unusual phrase (if the noble Viscount, Lord Stansgate, will permit me to quote one phrase) when he said that we must "prop up the United Nations". This is no doubt a worthy ambition. But it is the devil's own job to prop up an octopus at any time, and especially if its object at the time is to bury its head in the sand. It has been frequently and somewhat smugly laid down by the Party opposite that the whole question of Iraq and Jordan should have been handed over to the Security Council and left in their hands. It has, in fact, been in their

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  hands since July 15, a period of two weeks. They are still deliberating, with a number of resolutions already in limbo, and no agreement even in sight. Bringing an open intelligence to bear, what do we think would have happened to Jordan in the meantime? I ask this because, paraphrasing so many of the kindlier speeches of Labour spokesmen during this crisis, what I find they are really saying, in essence, is this: "No one could be more regretful than I about the hideous deaths of Nuri es-Said and the Royal Family in Iraq, but what really upsets me is that we have stopped the same thing happening in Jordan."
  And when I hear these plentiful words of advice from the Labour Party on how to deal with the Russians, when I hear the echo of that exotic slogan of the 'forties, "Left will speak to Left", I am reminded of the rueful remark of a confederate warrior after the American Civil War: "We could have whipped the whole Union Army with cornstalks, only they wouldn't fight with cornstalks!" But under the present leadership we are not depending on cornstalks. We are approaching a Summit Conference, with all the opportunities stressed by noble Lords in this debate, and I take heart from the fact that our senior representative at that Conference will be a man of world stature, whose prestige was never higher, and upon whom we and our Allies can count for firm judgment and firm decisions. He will not go as an apologist for our action in Jordan. He will go fortified by the fact that such action was taken in time, and that, as a consequence, Jordan and other small countries of the Middle East are still free to name their desires. I hope and believe that, face to face with the Russian leader, he will secure as many concessions as he grants. I hope the discussion will be wide, search-in; and realistic. Above all, I hope it will be made clear that standing by our friends is endemic to our national character, and that this loyalty provides the root and branch of our policy and makes us what we are as men.
  1.15 p.m.
  LORD SILKIN: My Lords, when we adjourned at lunch-time yesterday I was under some apprehension that when it came for me to make my speech, and even more when the noble and learned
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  Viscount on the Woolsack was going to reply, there would be little left for either of us to say. Whether it was the effect of the lunch, or whatever the cause may have been, it turned out in fact that after lunch we departed from the rather peaceful and bipartisan atmosphere in which we had conducted our discussions in the morning. Then, as the House will remember, the noble and learned Viscount, the Lord President of the Council, quoted with approval the statement of the Prime Minister about the careful balance of advantages and disadvantages in which the Government had acted, and added words of his own which I feel are so appropriate that I should like to remind the House of them. He said [OFFICIAL REPORT, Vol. 211 (No. 100), col. 257]:
  " It is not a question here of legality or gravity, but a question of carefully balanced arguments, of decisions that were taken with the greatest reluctance and the greatest sense of responsibility. Rightly or wrongly, we came to the conclusion that the dangers of inaction were probably greater than the dangers of action, and although we could not foresee all the consequences of action, we had to admit that we could not foresee the consequences of inaction either."
  The spirit of the Prime Minister's remarks on July 16, and the spirit of the remarks of the Lord President of the Council which I have just quoted, are very different from the spirit of the speeches of the noble Lord who has just addressed the House, the noble Lord, Lord Birdwood, and others. I should have liked to deal with the question in the former spirit and to state my view about the intervention both of the United States and ourselves in Lebanon and Jordan. But the speeches made yesterday afternoon and to-day have rather turned this from a bipartisan debate into very much a partisan one. But for those speeches, I should have been prepared to let the matter of whether we were right or wrong rest on the statement of my noble friend Lord Henderson, but I think it is now necessary to re-state the point of view of my noble friends and myself and of our colleagues in another place. I hope that I shall do so, nevertheless, in the spirit of the statements of the Prime Minister and the Lord President of the Council, because I realise that it is not an easy question, and it had to be decided, as they said, on a balance of arguments one way and the other.

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  One of the difficulties that we all feel in considering this question and forming a judgment on it is that we are not in a position to get at the true facts of the situation. There are so many facts that are in dispute to which we have not a clear answer. For instance, is it true that Lebanon and Jordan were ruled by an autocracy in opposition to the majority of their peoples? How far are the results in Iraq and the trends in Lebanon and Jordan inspired, organised and equipped from outside; or hew far are they movements which are indigenous to the people of those respective countries? Is the trouble due to nationalism—that is, the desire for Arab unity—and the disappearance of the so-called artificial boundaries created after the First World War? How far are Nasser and Egypt regarded by the rebels as leaders of a greater Arabia, or how far are they regarded with suspicion and as, to quote the noble Lord, Lord Rea, "unprincipled demagogues"? What is the evidence which the Government say they have, but have not adequately disclosed, of the threat against the Governments of Lebanon and Jordan? There are many other questions of that kind which we ought to have answered clearly before we can be in a position to give a definite answer to the problems which concern us.
  In the absence of reliable answers, we each have to make up our minds on the best evidence that is available, such as reports from Press observers on the spot, articles from well-informed people and speeches from such persons as the noble Earl, Lord Jellicoe, who made such an outstanding maiden speech yesterday. On the basis of that evidence we have to make up our minds. In the spirit of the Prime Minister's statement, I and my friends have tried to make up our minds on the very difficult problems which beset us. I have come to the conclusion that on balance we were not justified in intervening. I am not going to state my case in the demagogic spirit in which the noble Lord, Lord St. Oswald, made his speech, because I do not believe ex hypothesi that people who have come to a different conclusion from myself are villains.
  LORD ST. OSWALD: My Lords, the noble Lord must allow me. I never suggested that. I think that when he reads my speech in Hansard he will find that there was nothing in it which
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  suggested that there was villainy involved in opposing this decision.
  LORD SILKIN: I did not think the noble Lord said it, but I thought that was the implication of every word he uttered. I do not take that view. I believe that the Government have a very difficult task indeed, and I accept the fact that they came to a decision sincerely and honestly, using their judgment as best they could in these difficult circumstances.
  I should like to go through the reasons given by the Government at various times in this House and in another place for their intervention, and I will try to do so as briefly as possible, because most of the arguments are well known by now. First, it was stated—I do not think with great vigour or energy—that American and British lives were endangered. I should not think that they are in very grave danger now with 20,000 American troops in the Lebanon and 2,500 American citizens, nor in Jordan, where I believe the number of our forces exceeds the British population. But I do not think that that was ever seriously maintained. The British and American citizens were never in serious danger of their lives, and I do not think it has been suggested that they needed the help of these vast forces for that purpose.
  Next it is said that we were required to intervene as a matter of honour and morality. That was pressed by a great many speakers in this debate to-day—by the noble Lord, Lord Birdwood, and by the noble Lord, Lord St. Oswald—and yesterday by a great number of speakers. I accept that that is the main reason for our intervention. It is not for me to say whether the Americans were justified in intervening in Lebanon on the ground of honour and morality, but I doubt very much whether honour and morality required them to intervene, and still less whether we were required to support them on those grounds. But I can say a word about our own action in Jordan. When anybody is in trouble and asks for help, it is a natural human intinct to go to his help; but it is not an inevitable instinct. One does not automatically go to the help of everybody who is in trouble, and one is not even under an obligation to do so in honour or morality. In the last resort, it depends upon the circumstances of the

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  particular case, and so one has to look at the circumstances of this case.
  I do not wish to enlarge on the point, because the case was put so adequately by my noble friend Lord Attlee on the occasion of the Adjournment Debate that I am content to rest on that. It was, briefly, that Jordan had actually expelled our forces who were there to help them. More, they had refused even to accept our help. We were giving them a grant of£10 million a year, and they actually refused to accept any more money. Therefore I cannot see that the claims of friendship, honour or morality would have induced us to intervene. Then, there was the danger of doing nothing while one small independent nation after another was undermined and destroyed. Which are these nations who are being undermined and destroyed? I do not think we have had any examples of that, and it depends upon what one means by being "undermined and destroyed". What has happened is that minority Governments, autocratic Governments, have made way for more popular Governments. If you call that being undermined and destroyed, that may have well happened in Iraq. But to suggest that they have been undermined and destroyed at any rate from outside—and that is the implication; that they have been undermined and destroyed from outside—is quite contrary to the evidence of the United Nations observers and of independent members of the Press. It may be that the Government have additional evidence of undermining and destruction, but so far the evidence they have produced is singularly unconvincing.
  The Foreign Secretary in another place gave the evidence, and he disclosed that there were four instances in 1956 when Egyptian individuals had been discovered with arms, one in Lebanon, one in Jordan, one in Ethiopia and one in Iraq. He gave two instances of what happened in 1957, one in Jordan and one in Iraq. In 1958 there were no instances. If that is the evidence that is being produced to justify the claim that there has been intervention from outside with the object of undermining one State after another, I must confess that that is not evidence which would be regarded as satisfactory in any court of law or by any tribunal.
  LORD BIRDWOOD: My Lords, is the noble Lord referring to physical intervention or to subversive intervention?
  LORD SILKIN: I am referring to intervention of all kinds and the justification which was given by the Foreign Secretary in another place. Those were the cases he quoted.
  LORD BIRDWOOD: The noble Earl, the Leader of the House, quoted two very telling examples yesterday of intervention over the radio. Of course, that was only two out of hundreds. May I quote one example of what happened last year in Iraq over the radio? The Iraqis were advised to rise against their rulers and throw their heads to the hungry dogs. That is exactly what has happened.
  LORD SILKIN: I am much obliged, and I am sorry to have given the noble Lord an opportunity of making a second speech.
  LORD ST. OSWALD: That was almost more demagogic than me!
  LORD SILKIN: I was going to refer to the radio. There was one instance quoted by the Foreign Secretary of incitement by radio. But even the statement of the noble Lord is a very long way from this "destruction of one State after another justifying intervention". Finally we were told—and I accept it—that we have a vital interest in oil. Of course, there is no oil in the Lebanon or in Jordan. The oil is in Iraq, and we are not intervening in Iraq. I should have thought that the effect of our intervention would have been to endanger our oil supplies rather than secure them. After all, the effect of intervention in Suez—I do not mean to touch unduly on a sore point—was that our oil supplies were endangered and suspended for quite a long time. The natural effect of our intervention here might well have been to endanger our oil supplies rather than give them any greater security. What we have done is to give the impression that we are trying to bolster up Governments that are friendly to the West but unpopular in their own countries, and that is a very dangerous impression to give throughout the Middle East.
  I thought it right just to summarise the views which we hold. I do it in all diffidence, and I am not going to pretend that we on this side are 100 per cent.

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  convinced that we are right, any more than the Prime Minister and the Lord President are 100 per cent. convinced that they are right. But it was for reasons of this kind, not accepting the case for intervention—and, after all, the case for intervention has to be made out—that I thought it right to state our views. I would summarise by saying that, in my opinion, our action has been of doubtful legality, of even more doubtful wisdom, quite uncalled for and dangerous.
  Now I want to turn to the future. There has been a greater measure of agreement in this debate on what we should do in the future than on what we have done in the past. We all agree in this country that there should be a Summit Conference—it least, I hope we do. At any rate in this House there has been no dissension in the course of the two days.
  THE SECRETARY OF STATE FOR COMMONWEALTH RELATIONS (THE EARL of HOME): Does the noble Lord mean the Summit we originally talked about or the Summit on the Middle East?
  LORD SILKIN: I mean on the Middle East. I take it we all agree we want it held as soon as possible. We think it right that it should be held, if possible, within the framework of the United Nations, provided that the inherent difficulties can be overcome. The noble Earl may remember that when the announcement was first made my first reaction was that there were inherent difficulties in this procedure, and it looks as if those apprehensions have to some extent been realised. I have never myself thought that the kind of discussions that we held were of paramount importance. I agree very much with my noble friend, Lord Attlee, that it is an open question whether this is the best form of discussion, and certainly whether New York is the best place in which to hold it. I very much regret that we should have got ourselves bogged down in a mass of technicalities and detail as to the exact procedure to be adopted rather than getting down to the actual conference itself.
  Possibly there has been some confusion about the term "within the framework of the United Nations". When I say that I believe that a conference within the framework is preferable, I mean not the introductory machinery—that is, getting the various members of the Security
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  Council to agree among themselves as to the kind of conference; I had not that in mind—but the machinery for actually holding the conference under Articles 28 and 31 of the United Nations Charter. How the conference is actually summoned, I think is far less important. I want to say frankly that I believe that the Prime Minister and the Government are genuinely and sincerely in favour of such a conference, and I think that if left to himself the Prime Minister would not be difficult about the kind of talks we have, whether they were held in Geneva or New York, in Moscow or in London. In that respect I think the Prime Minister is in almost complete agreement with Mr. Khrushchev as to the holding of a conference.
  I realise the difficulty is that the United States is reluctant to hold a conference at all and is obviously seeking a way of preventing it, and our other ally, France, is somewhat lukewarm. It is for this country—and I am not minimising the difficulties—to try to prevail upon our two Allies to hold these talks at the earliest possible moment in conditions where they are likely to be successful. Yesterday we rather pressed the Government to announce the date of the conference before the Recess. I am not at all sure that to-day I would repeat that request, because it would be, I should imagine, somewhat unrealistic. I feel that we are now departing for the Recess leaving the matter at large and without any opportunity for Parliament to express its views in the day-to-day changing circumstances, and I should like a definite positive assurance that the noble Earl, the Leader of the House, and the Government will not hesitate to summon Parliament again, at whatever time it may be and whatever inconvenience to noble Lords and Members of Parliament, if it should become necessary and if they are called upon to make important decisions.
  I remember that we were called back two years ago in connection with Suez. It was very inconvenient to a great many of us; I had to come back from Spain. But we all came back and we had no complaint against the Government. In fact, we were grateful that they had called us back to enable Parliament to express its opinion about the situation. I believe that the position to-day is even graver than it was two years ago. Therefore, I hope we can have a definite assurance

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  that there will be no hesitation in calling Parliament back.
  Let us hope that there will be a conference of some kind. I hope it will be helpful and flexible and not rigid. I use the term "flexible"' not in a platitudinous sense, but because I think it is necessary that we should apply our minds to flexibility. We must not assume, for instance, that all the right is on our side and all the wrong on the other. After all, there are many countries and many citizens in our own country, maybe only 28 per cent. as the noble Lord, Lord St. Oswald, said—the foolish 28 per cent. if you like, or the ignorant—who take the view that our action has been wrong.
  LORD ST. OSWALD: That is exactly the opposite of what I said. I was quoting the New Statesman, and they said 54 per cent. were foolish and 28 per cent. were educated. I am not sure of the figures. I am sorry to interrupt, but I must correct that.
  LORD SILKIN: All right; the wise 28 per cent, take the view that the Government action was wrong. At any rate, an appreciable number of people in all countries and an appreciable number of countries think that we were wrong. Therefore, I hope that we shall not assume in the beginning that we are the only people who have been right over this question and that everyone else is wrong. I am glad it was assumed throughout the debate that Russia wants peace as much as we do, and that she has a legitimate interest in the Middle East. I hope we can assume that, but I would ask noble Lords to bear in mind the statement which Mr. Dulles made before leaving this country last night—namely, that one of his reasons for not welcoming a conference at all was that he challenged Russia's interest in the Middle East. I do not want to argue that at this stage. Of course she has an interest, if only because the Middle East adjoins her own territory—just as we should be interested in what goes on—
  LORD ST. OSWALD: Would the noble Lord say any greater than the interest we have in Central and Eastern Europe?
  LORD SILKIN: Yes, I would say that.
  LORD ST. OSWALD: I would disagree.
  LORD SILKIN: Of course, the noble Lord disagrees. At any rate, I think that that has been generally accepted in this debate.
  I promised the noble Earl the Leader of the House that I would refer to one or two remarks that he made yesterday in the course of the debate which I thought were somewhat ill-advised. He seemed to suggest that his idea of talks is to bring about a change of will on the part of the Russians so as to preserve the status quo in the Lebanon and Jordan—and, incidentally, so did the noble Lord, Lord Strang—and that unless there was this change of will, as he put it, on the part of the Soviet Union, these talks would be unsuccessful. He said that so far it is Russia that has prevented peaceful solutions. In a later part of his speech he said that the Soviet Union could relieve us of this new type of aggression, assuming that the Soviet Union was responsible for this type of aggression. But that is exactly what has not been established and what a great many people deny.
  In another part of his speech he said [OFFICIAL REPORT, Vol. 211 (No. 200), col. 292.]:
  " Certainly we are prepared to go and talk with the Russians and to hope that they now have a change of mind."
  I do not want to be mealy-mouthed in talking to the Russians—certainly, they are the last people who are discreet in their language; but it seemed to me that the noble Earl, who is always so careful in what he says, was displaying an attitude of mind as regards these talks which did not augur too well for their success. That is why my noble Leader and I feel that we should make some comment, and why we feel that it is necessary to stress the desirability of flexibility in our talks. It was the noble Lord, Lord Henderson who said yesterday that talks can succeed only if the result is acceptable to all concerned. I should cordially agree with that and add, also, by trying to understand, even if we do not accept, the Soviet point of view. As to what kind of agreement might be aimed at, I think it is interesting that this is the only time, I imagine, in their political lives that both Lord Salisbury and Mr. Bevan have agreed upon

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  the terms of a general agreement that might be aimed at, and there has been no dissent from those principles which my noble friend Lord Henderson summarised yesterday from either the Lord President, when he spoke, or from the noble Earl the Leader of the House.
  I imagine that, generally speaking, the Government are in favour of an attempt being made to work out a solution on the basis of those four principles. Of course that might well be our objective, and I quite understand that we cannot enter into discussions completely committed in every detail to achieving what we think is the right result. For one thing, we may not even have our own Allies completely with us—there may be differences of opinion, and we have to cater for that. I can assure the noble and learned Viscount who is going to reply that I, for one, recognise our difficulty in having to negotiate with our two Allies who, quite naturally, do not always see eye to eye with us but that it is necessary for us to present a united front and put forward a common case. I think there is general agreement upon what we wait to aim at.
  I would say only this in addition: that whatever the result of these talks, per. manent peace as opposed to a temporary standstill arrangement in the Middle East can be secured only if a number of conditions are satisfied: if the legitimate aspirations of Arab nationalism are met, and if the economic difficulties of all the countries in the Middle East can be overcome so that all countries, and peoples of all countries, participate in the prosperity which oil is able to bring to some of them. The noble Lord, Lord Birdwood, seemed to think that that was an impossible thing to attain: that no Arab country possessing wealth would be prepared to contribute to the welfare of its brethren—and one assumes that they are brethren. I see no reason why that should be regarded as impossible. After all, we and the United States, with other countries, are in fact contributing to the underdeveloped countries—possibly not enough, but we recognise an obligation to people who are not necessarily our brethren. If the Arab aspirations are true and they really believe that all Arabs are one people, it is not too much to expect that: the wealthier of them will help the less-well-off.
  LORD BIRDWOOD: My Lords, I am grateful to the noble Lord for allowing me to interrupt. I had not meant to convey in any way that perhaps this was an impossibility. All I meant to convey was that it should not in any way be imposed on them; that the desire to create this fair division of wealth through the Middle East must come from the countries themselves concerned.
  LORD SILKIN: At last I find myself in some measure of agreement with the noble Lord. I do not agree that anything that is imposed in these discussions can ever be satisfactory. Then we must find a solution to the Arab-Israeli conflict. Whatever the history of the matter may be—whether we were wise or not or right or not in creating a home for the Jews in Palestine—I think it is one of the greatest acts of statesmanship that this country has ever embarked upon, and the name of Lord Balfour will be for ever remembered for his association with that great act of statesmanship. But I recognise that there may be differences of opinion about it—and perfectly legitimate and sincere ones. The fact remains, however, that there are close upon two million people who are in the main refugees from persecution in other countries and who have settled in that land partly as a result of the encouragement which they have been given by us. In my view we have a sacred obligation to see that the State of Israel is allowed to live arid continue; and there can be no hope of permanent peace in the Middle East unless that problem is solved.
  The term "intractable" has been used. This is an intractable problem, but I hope that its intractability will not prevent us from doing everything we can. I recognise that this is not entirely a matter of economics and that one of the difficulties is the question of the refugees. I am convinced that Israel would be prepared to play its full part in helping to deal with the question of refugees if the Arab nations were prepared to do so as well. I would say, also, that if it is intended to bring in those nations in the Middle East who have an interest in that area, then Israel should be brought in as well, for she has a live, vital and legitimate interest there to-day.
  Then there is the question of recognition and understanding of the interests

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  of the Soviet Union in the Middle East. I believe we must accept that if we are going to argue about whether or not the Soviet Union has a legitimate interest there we shall get bogged down without any hope of a solution. If a solution can be found as a result of these talks, which we still hope will take place, it is possible that that may mark the beginning of a new era; that the removal of misunderstanding and mistrust will herald the peaceful world for which we all long; and that mankind will at long last enjoy the blessings which science and invention have placed at his disposal but which he is at present using for purposes of mutual destruction. I pray that all of us will have the patience and the wisdom to take advantage of this opportunity.
  1.53 p.m.
  THE LORD CHANCELLOR (VISCOUNT KILMUIR): My Lords, as I understand it the object of a debate on foreign affairs in a situation like the present is for everyone, irrespective of preconceptions, to try to get the facts in true perspective; and the purpose of a winding-up to such a debate should be rather to inform as to facts which are still doubtful and which can be answered, and also as to the mental attitude of Her Majesty's Government, to which so much importance has been attached during the last two days. As I understood him, the noble Lord, Lord Henderson, in that first speech which has won universal praise, especially drew our attention to the duality of indirect aggression. He stressed the danger of its two facets: first, actions directed at the integrity of another State, and secondly, the reactions in defence to them; and the noble Lord asked us to consider the definition of "indirect aggression" and the position of the United Nations in that regard.
  I believe it is important (and this may be some answer to the noble Lord) that we should start to consider how far the United Nations has already gone in that direction. The noble Lord will agree with me that we have first to look at the Charter as a whole and then to consider, in addition, the two resolutions to which reference has already been made—the resolutions of the General Assembly of 1949 and 1950. I believe the noble Lord will agree with me that it is not uninteresting to remember the names of
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  those two resolutions. That of 1949 was termed the "Essentials of Peace Resolution", and it called upon States:
  "To refrain from any threats or acts direct or indirect aimed at impairing the freedom, independence or integrity of any State or at fomenting civil strife."
  The resolution of 1950 was significantly called the "Peace Through Deeds Resolution" and it first condemned:
  " intervention of a State in the internal affairs of another State for the purpose of changing its legally established Government by the threat or use of force",
  and solemnly reaffirmed that:
  " Whatever weapons used, any aggression, whether committed openly or by fomenting civil strife in the interests of a foreign Power, or otherwise, is the gravest of all crimes against peace and security throughout the world."
  These are grave words, and in taking them to heart Her Majesty's Government have surely tried to work in accordance with the spirit of the Charter as illumined by the subsequent resolutions of the General Assembly. That is what I ask your Lordships to give Her Majesty's Government the credit for doing.
  The noble Lord, Lord Henderson, rightly said that this was not a new problem. Thanks to the inspiration of the noble Lord's speech I have refreshed my memory on certain points, and what is also interesting is that one of the earliest complainants about this form of aggression was the Soviet Union herself. Professor Waldock, in his well-known article on the use of force in International Law, reminds us that one example of aggression was:
  "The incursion into the territory of one State of armed bands acting for a political purpose."
  That was included, as I am sure the noble Lord, Lord Henderson, will now remember, in the Soviet Union's enumerative list of cases of aggression as long ago as 1933. We need not go into the facts, but he and I remember them very well, and I am sure that we discussed them at the time with our Russian friends; I certainly did.
  The Professor's next example was that contained in the 1950 resolution to which I have already referred:
  " fomenting civil strife in the interests of a foreign Power."
  I venture to give the House one more quotation because I believe that this is

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  the essence of the matter. It is in reference not to any thoughts of mine but to the International Law Commission of the United Nations, and it runs as follows:
  " The Commission thus recognised that a definition, of aggression simply in terms of the use or threat of armed force would be inadequate. Aggression in the modern world is achieved through indirect and concealed uses of force. This was perhaps inevitable as soon as the law began unmistakably to condemn any resort to war or armed force."
  In other words, he is driven, unless he is to go flat-footed against the whole of world opinion, to take this course; and the only point I am adding to what the noble Lord, Lord Henderson, says is that the United Nations and its members have to recognise the point perhaps more clearly than the noble Lord indicated by what he said. My Lords, I venture Ito add two things with, believe me, the utmost solemnity and objectivity. The first is that the list enumerated by the Soviet Union reflects the fact that they, in their opinion, like everyone else, have suffered from this form of aggression. There is a very good old Spanish proverb:
  " To-day to me; to-morrow to thee."
  And the second point is, as I have already tried to indicate, that its concealment and vice is that it must disguise itself as internal revolution.
  I come to the second facet of the noble Lord's worry on this point. Of course, self-defence against this form of aggression, as against any form of aggression, must fulfil the conditions that there must be an instant and overwhelming need and the force must be proportionate to that need; and the right of defence exists only in the face of imminent attack. The same tests apply (I think this is beyond controversy) to collective defence as to individual defence. There is another point on which we must keep our minds clear—and again I do not think 'that 'the noble Lord, Lord Henderson, will find this controversial at all; it is not intended to be. Quite different considerations apply to the sending of troops into territory of another State at the request of the Government of that other State, which is a situation which can occur in an infinite variety of ways. As noble Lords will remember, it was the Government under the noble Earl, Lord Attlee, that invited American troops to come to this country. We can, taking that as one end of the scale, go down an infinite variety of
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  occasions, in which different considerations apply.
  But I want to say this—and again I hope that the noble Lord, Lord Silkin, will not think that I am being controversial: I am sure he will agree that it would be wrong for the Government spokesman to leave the point which he made unanswered; indeed, I think he invited me to answer it. He dealt with the statement made by my right honourable and learned friend the Foreign Secretary in another place, and I think it is only right (I am sorry to inflict it on noble Lords, but the matter has been challenged) that we should have the record clearly in front of us. My right honourable and learned friend said [OFFICIAL REPORT Commons, Vol. 591 (No. 143), col. 1253]:
  "The technique is the smuggling of arms and explosives, the infiltration of agents, a virulent propaganda campaign, incitement to insurrection and assassination and, finally, the plot against the lives of the constitutional leaders."
  Nobody has ever denied that there has been a virulent propaganda campaign. Nobody has said that it is even untypical when we find the quotations made by my noble friend the Leader of the House calling for blood of Chamoun. That has been the method of the campaign, a campaign whose propaganda is always expressed in these terms. My right honourable and learned friend went on to give specific instances. He said [col. 1254]:
  " Sometimes the plots are found out and frustrated in time. I have a list of them. There was one in January, 1956, resulting in the Egyptian military attachébeing expelled from Iraq. In November, 1956, the Libyan Government demanded the immediate recall of the Egyptian military attaché.In that case there was the discovery of explosives. In November, 1956, in the Lebanon, a vehicle filled with arms was seized. A vehicle full of high explosives was found in the house of the chauffeur to the Egyptian military attaché.In Ethiopia, in November, 1956, the Ministry of Foreign Affairs requested the immediate recall of the Egyptian military attaché.In March, 1956, the Egyptian Consul-General in Jerusalem was expelled for the same sort of reason. In Saudi Arabia, in.1957, the Egyptian military mission was expelled; arms were found coming from it. In June, 1957, in Jordan again there was expulsion on the grounds of this technique of subversion."
  My Lords, the noble Lord, Lord Silkin, denigrates the evidential value. Surely the one constant factor that stands out in all these instances is the presence and activity of the Egyptian military

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  attachéin every country in which it is sought that this sort of thing should happen. That is the general position. The noble Lord, Lord Silkin, knows me far too well to think that I would make a debating point in a debate like this. I ask him to reconsider—and I know that he will, because he is a fair-minded man—whether, when you get a string of episodes with that common factor, that is not evidence of systematic conduct.
  Now I come to the particular, and that is the issue that faced my colleagues and myself on the night of July 16. Believe me, I do not think that any one of us would say that the language of my noble and learned friend the Lord President in any way underestimated the gravity of the decision which lay in front of us on that occasion. But, my Lords, we had first of all from Jordan itself evidence that there was a triple attack designed from the West bank, from the North and in Amman itself. That was corroborated from our own sources, which I cannot specify further, because that is not the custom of a Government of any Party. It was also corroborated by the announcement on Baghdad Radio to which reference bas been made in this debate. What was corroborated was that these things were going to happen the next morning. We had been asked for help not only by the King but also by the Government of Jordan. My Lords, on all that I have said—and I do not mind which test you apply—we were legally entitled to answer that request.
  I am sorry to think that the noble Lord, Lord Silkin, has doubts about the legality, but, with great respect to him, I have not found it seriously argued. I have read very carefully the debates in another place, and of course I have seen the Press. Then the noble Lord, Lord Silkin, says: "Even if the legality is all right, what about the wisdom?" He asked: "What are the countries in which you expected further trouble?" My Lords, what we believed would have happened if these countries of Lebanon and Jordan had gone was that there would have been a general flare-up in the Middle East. There would have been the Lebanon, Jordan, Bahrein, Kuwait, and the Trucial Sheikhdoms. There would have been an immense danger of trouble in
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  every one of them. That is what I believed, after giving the matter the most careful consideration that I could. On the night of July 16 I was convinced that there was, on the sternest test, an overwhelming need, and it was because I was convinced of the existence of that overwhelming need that I was a party to the decision which my colleagues made.
  Now, my Lords, there is another aspect of this which I would ask the noble Lord to remember, because I consider it is important. Before I come to that, may I just thank the noble Lord, Lord Rea, for the sympathy which he showed in his speech with the decision which I have attempted to describe. But it is vitally important to remember that both the United States, in the Lebanon, and we ourselves, in Jordan, went in on the basis that we should retire as soon as the United Nations could ensure its integrity. We reported our action at once to the Security Council. If I may use a famous phrase of Sir John Moore in quite different circumstances, we went in "bridle in hand", ready to go as soon as there were the forces available to take our place. On this point, I have listened with great interest to the speech of the noble Earl, Lord Lucan, on his view on the creation of a United Nations force. He was good enough to say that my colleagues had already expressed sympathy for the idea, but I shall certainly bring the conception that he favours to the attention of my right honourable friends the Minister of Defence arid the Secretary of State for Foreign Affairs; and if I may give my own reaction, I think that is a matter which it would be most profitable to discuss.
  I come to the other point that has been made. It has been said that the justification of intervention and the readiness for our forces to be replaced by the United Nations forces did not disclose a medium-term policy. I appreciate the view of my noble friend Lord Birdwood that it is sometimes a mistake to place yourself in the armed framework of a long-term policy, but I think the real criticism that has been made is that our action did not disclose a medium-term policy, and that is the point with which I want to deal. Of course, our problem was to guarantee to Lebanon and Jordan their right to independence against whatever threats were planned from outside. But what had we in mind? This is

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  obviously a delicate problem, and I hope that the House will agree that I am doing right if I put it in the words of my right honourable and learned friend the Foreign Secretary, because I do not think I can usefully add to them. But they are very important with regard to the future of Lebanon. What he said was [OFFICIAL REPORT, COMMONS, Vol. 592 (No. 147), col. 228]:
  " With regard to the longer term view—for the action taken in the Lebanon is surely emergency action—I think that the Committee "—
  he was speaking of another place—
  " is familiar with the special historic position of the Lebanon since the massacre of 1860. It has been a semi-autonomous régime, even under the Ottoman Empire and the Christian Governor, and the delicate balance has been preserved between Christian and Moslem. I believe that the Lebanon's position in the future can be safeguarded by some special international status under the United Nations' auspices which would preserve both the traditional detachment of the Lebanon and the delicate balance between the religious groups in the country. Such a position would have to be achieved, of course, with the consent of the people of the Lebanon themselves. I think that this status would be very much in their own interests, but I am not formulating proposals. I am simply indicating a way along which I believe progress might be made."
  My Lords, I think that that statement is entirely within the spirit of what was said by Mr. Aneurin Bevan in another place, and by the noble Lord, Lord Henderson yesterday.
  Jordan represents a different problem. It is, like the Lebanon, small and weak; but, unlike the Lebanon, it is economically unviable and has only a tenuous outlet to the West. Its people are of the same race and religion, and share many of the same feelings as their Arab neighbours. Here again I should not like to go further than the Foreign Secretary's speech. He said:
  " The object of these consultations with other Governments and in the United Nations would be to work out proposals under which assistance could be given by the United Nations to the Government of Jordan to ensure the preservation of Jordan's territorial integrity and political independence "—
  in other words, that we ought to share in a joint plan. In answer to the noble and gallant Viscount, Lord Stansgate, I should like to say that we have never received a request from Jordan to become a member of the Baghdad Pact, and have no reason to believe that she will make one.
  VISCOUNT STANSGATE: But the noble and learned Lord Chancellor will remember that I referred to an official visit by General Templer urging that.
  THE LORD CHANCELLOR: Yes. I am sorry; I did not intend to mislead the noble Viscount. I was referring to the present time. I was not questioning his past history: I was taking the position to-day.
  The noble and gallant Viscount also asked about the Sheikdoms of the Gulf which were independent States under British protection. They present a different case. They are too valuable economically and strategically, and yet too small in size, to be able to maintain their integrity unaided. The present arrangements are of long standing and we have no reason to suppose that there is any particular desire of those concerned—namely, the Governments and the peoples of the Sheikdorns—to alter them. I do not think that the noble Viscount would expect me to deal with hypothetical questions on the basis that there will be a change of opinion. I would remind the noble Viscount of a remark of Sheridan about the Government of which he was a member. He said that he had heard of many Governments hitting their heads against brick walls but few except his own had built the brick walls to hit their heads against. I have adopted Sheridan's position in this regard.
  The noble Lord, Lord Henderson, directed our attention, and there has been general acquiescence, to the four propositions of Mr. Aneurin Bevan: first, the great Powers to agree not to seek military allies or foster blocs in the Middle East; secondly, to guarantee against alteration of existing frontiers without consent; thirdly, willingness to facilitate amalgamation or federation; and fourthly, an economic commission under U.N.O. I want to say only one or two words on this matter, because the noble Lord, Lord Henderson, will remember that my right honourable friend Commander Noble dealt with these points in another place. I want to say this—and again I would ask noble Lords to consider it objectively. The Baghdad Pact is an institution which came about because of threats to the participants in it; and we believe that, as such, it serves a useful purpose. The noble Viscount,

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  Lord Stansgate, asked me whether discussions had taken place about the position of Iraq under its present authorities. Discussions did take place. I am not in a position to divulge them, because, as the noble Viscount will understand, they have still to be discussed with members of the Commonwealth and other Powers. I did not want him to think that I was ignoring that question.
  The other question he asked me was about the position of the United States with regard to the Pact. If your Lordships read The Times as well as the noble and gallant Viscount does (unless he has changed a great deal since we were in another place together), you will have seen the following declaration:
  " Article 1 of the Pact of Mutual Co-operation signed at Baghdad on February 24, 1955, provides that the parties will co-operate for their security and defence and that such measures as they agree to take to give effect to this co-operation may form the subject of special agreements. Similarly, the United States, in the interest of world peace and pursuant to existing Congressional authorisation "—
  I am meeting the point raised about treaty-making powers—
  " agrees to co-operate with the nations making this declaration for their security and defence and will promptly enter into agreements designed to give effect to this co-operation."
  I think that meets the noble Viscount's fear. Of course it is up to the present Iraqi authorities to decide whether they will join the Pact.
  VISCOUNT STANSGATE: My Lords, I think that this might be a convenient moment for the noble and learned Viscount to tell us what will happen to our personnel and material in Iraq.
  THE LORD CHANCELLOR: My Lords, all one can say is that since the burning of the Embassy, for which the Government have apologised and expressed desire to pay compensation, there has been no further action of which I know. The position so far as our personnel is concerned is that they are now safe. The noble Viscount knows that I have been sitting on the Woolsack all the morning, and I do not know whether there is any late news; but that was the position as I knew it this morning, and I have no reason to suppose that it has changed.
  I am sorry to detain your Lordships but a number of points have been raised.
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  With regard to the point that the noble Lord, Lord Henderson, raised about guaranteeing of frontiers, I will say only that that is a difficult matter. It has to be done by agreement and many things have to be taken into account. I think that he regarded this more as an objective than as a cut-and-dried matter of policy and programme. The noble Lord, Lord Silkin, was right in saying that the Prime Minister and the Government are anxious that there should be a conference on Middle Eastern questions under the anspices of the United Nations at which heads of Government will be present. We still think that the Security Council is the right forum—for the following reasons. Governments, under Articles 28 and 31, can be represented by their heads. Secondly, procedure is flexible within the Charter. Thirdly, there is the full possibility of private meetings; and fourthly the settlement of any question can be kept within the United Nations framework. Fifthly, it is an organisation with a continuity of effort which can carry on from the conference and also provide the basis for further meetings, should they occur. I very much hope that we shall not get into our minds the idea, which I think is completely out-of-date, that we ought to have one meeting and that that is the end of everything. I like to contemplate further meetings in future.
  I was asked about timing. Here again I want to be perfectly frank with the House, and I hope that the House will understand exactly my attitude of mind. I was disappointed with the most recent reply from Mr. Khrushchev, and so were my colleagues, because we had thought that he had gone further in accepting the United Nations framework than appeared from this latest communication. But we are going to press on for the meeting. Of course we shall consult the Commonwealth and our Allies. Noble Lords opposite would be the first to criticise if we did not. We shall press on, and I hope that we shall be able to give a progress report, not merely in the official meaning of the term, but a report of progress, before the House rises for the Summer Recess. I shall certainly bear in mind, and so will all my colleagues, what the noble Lord, Lord Silkin, said about the recall of the House. I think that this is a matter which every Government must approach with a grave

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  sense of its responsibility and of the fact that it owes its existence to Parliament, and therefore whenever there is doubt of any important matter it should lean over towards Parliament. That is a view that I have expressed.
  May I say this, in my last words? The independence and integrity of small nations are things that are worth preserving in themselves. As the noble Earl, Lord Attlee, said this morning, racialism is no excuse for imperialism even if it calls itself nationalism. That is a great truth which we must remember. We must remember that small and medium-sized nations behave just as great nations do; and we must consider that we have got to try to find some method by which all nations may be brought into better relations. I think, with the noble Lord, Lord Henderson, that we want to make yet another effort to express not only our disapproval of concealed and indirect aggression but our renunciation of it; and that this should also be a matter for which we should aim at general consent.
  When I was a boy, in international situations in those days there used to be references in the Press to the Foreign Minister of Ruritania "waving a torch over the powder barrel", which was then the Balkans. We ought to pause and think seriously that what we are considering to-day is literally the torch being waved over the oil barrel of the world It is wrong to talk about oil in any denigrating way. Oil can make all the difference to the lives of these people living in great poverty and turn them towards the hope of better things. And what is wrong with the conception of oil as the sinews of the life of our own country and of the peoples of the West? Surely it is of the utmost importance that these benefits to both sides should always be in our minds.
  We want these things: that is, the removal of a danger to a great material
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  asset by a strengthened United Nations. I am not for a moment going to ask your Lordships to agree to every mental step. Of course we shall, please God, keep our individual approaches for the health of this country and its politics—but I do ask your Lordships to agree in this: let us try to take this new step to peace through the action of a strengthened United Nations. This is a high purpose for the United Kingdom and the United States of America and our Allies. It is surely a purpose high enough and beneficial enough to command the co-operation of all the nations of the world.
  2.34 p.m.
  LORD HENDERSON: My Lords, I rise to ask leave to withdraw the Motion, but before doing so I should like to say that I think in all parts of the House there is general agreement that this debate has been worth while and extremely useful. I should have liked an opportunity of discussing some of the things which the noble and learned Viscount on the Woolsack has said in his reply. I am grateful to him for the full reply he gave to me on indirect aggression. I must admit that I had overlooked the two resolutions to which he has referred; but possibly we can come back to that matter on another occasion. I am also grateful to the Lord Chancellor for saying that before we rise at the end of this week there will be a statement by Her Majesty's Government as regards the Conference. If there is one thing that I feel I must press before sitting down it is that we are most anxious to know that a date has been actually fixed, because the situation in a Parliamentary sense will be very different next week, when the House will have risen. We hope that the Government will be able to announce a date for the Conference before we rise on Friday. With those few remarks, I beg leave to withdraw the Motion.
  Motion for Papers, by leave, withdrawn.

  MANCHESTER CORPORATION BILL
  2.35 p.m.
  THE CHAIRMAN OF COMMITTEES (LORD MERTHYR): My Lords, I beg to move the Motion standing in my name on the Order Paper.
  Moved, to resolve—
  That the promoters of the Bill have leave to suspend any further proceedings thereon, in order to proceed with the Bill, if they shall think fit, in the next Session of Parliament, provided that notice of their intention to do so be lodged in the Office of the Clerk of the Parliaments not later than three o'clock on the day before the close of the present Session, and that all fees due thereon up to that period be paid;
  That such Bill shall be deposited in the Office of the Clerk of the Parliaments not later than three o'clock on or before the third day on which the House shall sit after the commencement of the next Session of Parliament, with a declaration annexed thereto, signed by the Agent, stating that the Bill is the same in every respect as the Bill at the last stage of the proceedings thereon in this House in the present Session;
  That the proceedings on such Bill shall be pro formâ only in regard to every stage through which the same shall have passed in the present Session, and that no new fees be charged in regard to such stages;
  That the Standing Orders by which the proceedings on Bills are regulated shall not apply to such Bill in regard to any of the stages through which the same shall have passed during the present Session.—(Lord Merthyr.)
  On Question, Motion agreed to: ordered, that a Message be sent to the Commons to acquaint them therewith.

  TELEVISING OF THE STATE OPENING
  VISCOUNT STANSGATE: My Lords, I beg to ask the first Question which stands in my name on the Order Paper.
  [The Question was as follows:
  To ask Her Majesty's Government whether they can now make an
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  announcement concerning the proposal to record by television the Opening of the next Session of Parliament.]
  THE EARL OF HOME: My Lords, this matter is under consideration, and my right honourable friend the Prime Minister hopes to make an announcement before the Houses rises, which I shall repeat in this House.
  VISCOUNT STANSGATE: My Lords, I thank the noble Earl for that reply.

  PEERS' LEAVE OF ABSENCE
  VISCOUNT STANSGATE: My Lords, I beg to ask the second Question which stands in my name on the Order Paper.
  [The Question was as follows:
  To ask the Leader of the House how many Peers failed to reply to his letter of June 23 and have in consequence been granted leave of absence, and how many Peers have to the present date neglected to take the Oath.]
  THE EARL OF HOME: My Lords, if the noble Viscount will allow me, I will give the complete picture. The number of applications for leave of absence for the remainder of this Parliament is 133. The number of applications for leave of absence for the next Session is 62. Eighty-six Peers stated that they did not wish to ask for leave, and three Peers have answered but have not yet finally stated their wishes. The answers to the noble Viscount's particular questions are that 47 Peers failed to reply to the Lord Chancellor's letter, out of a total of 331 to whom the letter was sent, and the number of Peers who have not taken the Oath in this Parliament is 228.
  VISCOUNT STANSGATE: My Lords, has leave of absence been granted to the Peers who have not taken the Oath.
  THE EARL OF HOME: My Lords, it will be, but I am not sure that it has yet gone out.
  VISCOUNT STANSGATE: My Lords, it is rather difficult to send an unsolicited paper giving leave of absence to a Peer who has not qualified to sit.
  THE EARL OF HOME: My Lords, I think the answer to that is that the Peer can qualify himself at any moment.

  COUNTY COUNCIL BILLS
  2.38 p.m.
  LORD SILKIN: My Lords, I beg to ask the Question which stands in my name, on the Order Paper.
  [The Question was as follows:
  To ask the Chairman of Committees when he intends to set up the Committee promised by him on May 21 last.]
  THE CHAIRMAN OF COMMITTEES: My Lords, on May 21 I said that I would welcome an inquiry by a Select Committee, or preferably a Joint Committee, into the principle relating to County Council Bills which I had put to the House on May 13—namely, that a County Council Bill should not confer on local authorities or any other authority or person functions in which the county council has no interest. I had hoped to put the Motion on the Paper before the Summer Recess. For a number of reasons, however, I am not yet in a position to do so. The present situation is that discussions are going on both here and in another place in order to see whether a Joint Committee can be set up. I still regard myself as under an obligation in this matter and shall certainly do my best to ensure that a Motion is put down early in the next Session for either a Joint Committee or a Select Committee.
  LORD SILKIN: My Lords, I am obliged for that Answer. May I take it that the noble Lord would still prefer a Joint Select Committee rather than a Committee of this House alone?
  THE CHAIRMAN OF COMMITTEES: Yes, My Lords.
  VISCOUNT ALEXANDER OF HILLSBOROUGH: My Lords, will the noble Lord please bear in mind that if there should arise the question of having a Select Committee of this House alone, many of us would feel bound to submit strongly that the Business which would be referred to it is Business for both Houses of Parliament and not for a Select Committee of this House alone. That might lead to further difficulty.
  THE CHAIRMAN OF COMMITTEES: Yes, my Lords, I will bear that in mind.
  THE EARL OF SWINTON: My Lords, may I ask whether the Leader of the Opposition would use his best endeavours
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  to achieve what we all want—a Joint Committee of both Houses?
  LORD SALTOUN: My Lords, when the noble Lord is considering this matter, would he also consider whether a great many practical advantages may not attach to the rather indeterminate way in which the matter stands at the present moment? In practice I think it works extremely well.
  THE CHAIRMAN OF COMMITTEES: Yes, my Lords, I will consider that also.

  FINANCE BILL
  2.41 p.m.
  Order of the Day for the Second Reading read.
  THE LORD PRESIDENT OF THE COUNCIL (VISCOUNT HAILSHAM): My Lords, in April the Spring flowers can hardly vie in interest with the annual consideration of our fiscal dispositions. After all, the flowers come up much, the same every year, and we all hope each year that the Budget will be different. But to move the Second Reading of the Finance Bill at the end of July is to face a situation in which the bloom has gone off the subject, like the daffodils at the Chelsea Flower Show. We face a subject in its detail rather like a plate of cold porridge for tea which a tyrannical nanny sometimes compels her charges to consume in atonement for their not having eaten it at breakfast.
  Last year I endeavoured to spare your Lordships this ordeal by suggesting that the appropriate course was to indulge in a free-ranging debate on economic affairs, a course which I was advised would be perfectly in order and in accordance with tradition. However, that did not meet with the complete support of the Opposition, and with my customary desire to conciliate that august body I now propose to move the Second Reading in a more conventional form. I propose, if I may, to take the Bill as it stands and deal with some of its principal provisions, and then, when these have been summarily glanced over, to say a word or two, but hardly more, about the general economic policy, upon which the proposals rest, as it existed in April and as it has developed since.
  The first Part of the Bill relates to the Customs and Excise clauses, and this year

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  they carried with them the unusual interest of a far-ranging and, I think, imaginative recasting of the purchase tax provisions. These proposals were designed to simplify and rationalise the purchase tax. The number of rates of tax was reduced from seven to four—the 90 per cent., 50 per cent. and 10 per cent. rates being abolished, while the range of goods charged at 60 per cent., which is now the top rate, was much reduced. The 60 per cent. rate is now confined to a limited range of goods: cars, radios, television sets, gramophones, records, perfumery, cosmetics and what, with a sad lack of humour, are referred to as the less essential toilet goods, which contribute substantially to the tax revenue. The 30 per cent. rate is now the standard rate applicable to all taxable goods not subject to any other rate, while the 15 per cent. rate applies to the more common household utensils and requisites, and the 5 per cent. rate to clothing and most articles of furniture.
  The changes are too numerous to mention individually, but among the most important reductions are those on household goods and electrical appliances, such as refrigerators, vacuum cleaners, washing machines, space and water heaters, musical instruments, other than gramophones, radio gramophones and records (if they can be referred to as musical instruments at all), cameras and jewellery, on all of which tax was reduced from 60 per cent. to 30 per cent., whilst the only increases of note are in respect of oil heaters, shopping bags and brief cases. These were formerly exempt and are now charged at 30 per cent., in common with other comparable goods, thus removing anomalies which existed before.
  The net cost of the original Budget proposals was estimated at£41 million in a full year and, I think£30 million in the current year. Additional concessions, however, were made during the passage of the Bill in another place in respect of protective footwear and headgear, including crash helmets, shopping baskets of cane and wicker, and gas-fired domestic central heating appliances. These are estimated to increase the full year cost by about£700,000. Taken together, I believe that these changes represent a substantial simplification of the tax. They remove a number of anomalies, and
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  by producing a simpler and more logical structure they make the tax more defensible as a revenue instrument and more easily comprehensible to traders. The changes received a fairly general welcome, and will prove a useful and practical reform.
  A second improvement in this class of duty was the proposal by my right honourable friend to reduce the entertainments duty by rather more than half, at a cost of£14½ million in a full year. It has been generally recognised that this relief was needed in order to help the industry to meet the changed circumstances resulting from the sharp fall in attendances at cinemas over the past year. There were also changes in the Excise duties on wine and sweets—a phrase with which I first became familiar in this connection when I was studying the licensing laws of this Kingdom. Clause 4, which deals with the former, reduces by 12s. a gallon the rates of Customs duty, both full and preferential, on imported heavy wines. These are the stronger wines, like port and sherry, as distinct from the lighter table wines, like claret and hock, on which the duty remains unchanged. I hope that this reduction is welcome: the trade would call it overdue. It goes some way towards reducing the disparity between the duty rates on light and heavy wines which were widened in 1949, when the rate for light wine, as your Lordships will remember, was substantially reduced, while that for heavy wine remained unchanged. The new rates of duty are 38s. a gallon for non-Commonwealth and 28s. a gallon for Commonwealth wines. The duty reductions, which have been passed on to the public in full, represent a saving of 2s. a bottle. Also they have been warmly welcomed by the trade, although it is fair to say that the trade itself had pressed for an even greater reduction. Clause 5 is rather consequential on Clause 4. It applies to those British wines to which the old English term of "sweets" is still applied.
  I come now to the second Part of the Bill which relates to the Inland Revenue. Of the changes in direct taxation, the two which I think should be given pride of place and which I feel should be noticed here are the 50 per cent. increase in the rates of initial allowances for plant and machinery and industrial

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  buildings and the radical reform of the structure of the profits tax. The former of those two changes is effected by Clause 15 of the Bill. This increases the rate of initial allowances on qualifiying expenditure payable on or after the day of the Budget from 20 to 30 per cent. for plant, and from 10 to 15 per cent. for industrial buildings.
  As your Lordships are aware, these initial allowances have varied in the past with changing economic circumstances. Your Lordships will also have noticed that the increase is double that which was originally proposed in the Budget. This change in the rate of increase reflects my right honourable friend's wish to encourage firms to write off their assets fairly quickly so as to be in a position to take advantage of new and improved plant and machinery and buildings. It reflects also his later judgment, as time developed, of the degree of encouragement to industrial investment which the situation currently requires. A measure of this encouragement could be given by saying that the cost in a full year of the increase is something of the order of£50 million. Apart from the direct benefit provided, the change should give confidence to those responsible for the investment plans of private industry and should be of particular help to new and expanding concerns.
  The second major change is to be found in Part IV of the Bill and in the Seventh Schedule. These contain the provisions converting the present differentiated profits tax, which is charged at 30 per cent. on distributed profits and 3 per cent, on undistributed profits, into a single rate of tax of 10 per cent. on total profits. The Royal Commission on Taxation, under the chairmanship of Lord Radcliffe, drew attention to the serious economic and administrative disadvantages of the existing tax in its present form, and the majority of the Commission strongly recommended the unification of the rates which is now proposed.
  The change has, I think, generally been welcomed by the representatives of industry and commerce as removing a source of distortion of company finance and assisting the flow of capital within industry. It will also greatly simplify the law and administration of the tax,
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  remove the main causes of avoidance and save much unnecessary work, both for the Revenue and for the taxpayers and their advisers. It is true that one effect of the change will be to reduce the liability of companies which distribute a high proportion of their profits in dividends and to increase the liability of those which retain a high proportion of their profits without distribution. Many of the latter should, however, benefit from the increase in initial allowances. In any case, as my right honourable friend has pointed out, these are effects which must be faced if we are to change to a system which we have been advised by the Royal Commission is sounder in the long run.
  Apart from those two changes, my right honourable friend formed the conclusion that present economic conditions and prospects for the near future do not permit any substantial reduction in direct taxation this year. Obviously, alleviation of the present heavy lax burden must remain for the Government a most important long-term objective, one which I hope will he shared in all quarters of the House; but the policy for this year must be one of consolidation. That, of course, has not prevented my right honourable friend from giving up a modest amount of revenue in order to meet specially deserving cases, and the Bill, it will be noticed, contains a number of provisions of this character of which perhaps I may be permitted to give some of the most noteworthy.
  In the sphere of income tax I would draw your Lordships' attention to Clause 14. This extends the special reliefs for old people living on limited incomes and for those who help to maintain infirm or elderly relatives. I would also mention Clause 16, which relaxes the Schedule E expenses rule in favour of those paying annual subscriptions to professional and learned societies connected with their work. There is also Clause 17, which removes an anomalous provision that has deprived the churches and other charities of exemption from tax on certain property which they own and occupy.
  In the sphere of estate duty I would mention Clauses 29 and 30. These clauses give relief in cases where there are at present two lots of duty payable

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  simultaneously or in rapid succession. As regards stamp duty, a modest relief is given by Clause 34 to those who wish to buy their own houses by the remission (up to£3,500), or the reduction (up to£6,000) of duty on small conveyances. The other Inland Revenue clauses are designed either to simplify or clarify the law or to counteract avoidance. In the first category, for example, are Clause 23 and the Sixth Schedule. This change gives effect to another recommendation of the Royal Commission that there should be a comprehensive review of all time limits for income tax appeals and claims, with the primary object of bringing about a greater degree of uniformity. In the second category there are Clauses 18 and 19. The necessarily lengthy and highly complicated provisions of these two clauses are directed against the avoidance of income tax by means of what have come to be known as "dividend stripping" devices. I would also draw your Lordships' attention to Clauses 20 to 22 inclusive, which are directed against the avoidance of sur-tax by way of settlements, and to Clause 28, directed against the avoidance of estate duty by the purchase by life tenants of interests in expectancy.
  That brings me to the Treasury clauses of the Bill, of which I think I need mention only Clauses 36 and 38. Clause 36 extends for a further twelve months, until August 31, 1959, the arrangements first introduced by Section 42 of the Finance Act, 1956, under which the nationalised industries are financed directly by the Exchequer, instead of, as before, by borrowing temporarily from the banks and by issues of stock, both having been guaranteed by the Treasury. At the same time the limit of the finance which may be met in this way is increased from£700 million to£1,070 million. The reason for the further extension of these arrangements is that these industries still cannot in practice borrow on their own credit, and so long as they have to borrow on Government credit there are strong reasons of market management for centralising the raising of money in the Exchequer.
  Clause 38 deals with annuities under the Tithe Acts. This clause is designed to bring about economies in the operation of the Tithe Redemption Commission which was set up by the Tithe Act,
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  1936, when the annual tithe rent charges were extinguished. At that time those who had formerly paid annual tithe rent charges were required to pay instead Redemption Annuities, calculated on a different basis, to the Tithe Redemption Commission. Since 1936 rising costs have upset the financial balance of the Commission's operations, and in order to promote more economical administration this clause provides for the annual, instead of half-yearly, payment of annuities. The 1936 Act also provided for the compulsory redemption of any annuity in cases where the annual payment amounted to£1 or less. Redemptions under the£1 limit are now almost complete and the clause raises the limit for compulsory redemption from£1 to£3, with provision for possible further increases in future. These two changes will make possible considerable administrative economies in the working of the Tithe Redemption Commission.
  My Lords, I now turn for a brief period to the economic policy underlying these proposals. I hope that by this time the main aims of the Government economic policy are sufficiently well understood. As my right honourable friend said, as recently as July 3, when he was announcing some relaxation of the control of borrowing [OFFICIAL REPORT, Commons, Vol. 590 (No. 134), col. 1599]:
  " The Government's economic objectives are fundamental and unchanging—to put the strength of sterling, the soundness of our international position, and price stability first."
  He added (col. 1600):
  "…we are determined not to return to inflationary conditions. But it is clearly right to encourage such sound development as we judge to be within our capacity."
  He said that the first objective would be to stimulate our exports and investment programme.
  Already at the time of the Budget my right honourable friend could look back on six months in which Britain's external position had been, I think it is not too much to say, transformed. Sterling had become strong, and since the end of September our reserves had increased by 920 million dollars, a sum which meant that they had fully recovered from the autumn losses. At home the prospects as regards prices could be considered better than at any time in recent years, and I think it could have been claimed already

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  at the time of the Budget that the dangerous excess pressure of demand had slackened. Looking ahead then in April, it seemed probable that demand would weaken a little further, mainly because of the expected fall in overseas demand for our exports. In consequence, some slight decline in production and a continuing rise in the unemployment figures were already foreseen.
  The difficulty was that at that stage it would, I think, have been imprudent to announce immediate measures of expansion. The recovery from the autumn crisis was very recent and the external financial position, although already stronger, still at that time imposed a high measure of caution. At home, at the time of which I am speaking, the pattern of the wage round had not yet emerged, arid although the prospect for prices was, as I have already said, comparatively hopeful, I think it could still have been jeopardised by any decisive return to inflationary conditions. The Budget which my right honourable friend presented was, therefore, a reform Budget, rather than an expanding Budget on the grand scale. Only small tax concessions were made, although this year they will cost£50 million. The most important concessions were those to which I have drawn attention, relating to purchase tax, initial allowances and the reform of profits tax.
  Since the Budget, however, the economic situation has developed. I think it has developed more or less on the lines we then expected. The general level of home demand has been well maintained; consumption and investment have continued to increase. On the other hand, there has been some decline in the demand for our exports, although the fall has not been large, and on the whole I think we can take a certain amount of satisfaction in the smallness of the reduction to date. Production has been maintained at a high and stable level. None the less, in spite of that high level there has been some rise in unemployment since last autumn. This is always something which must cause concern to any Government, but one reason at least, is not altogether unhealthy: employers have at last weeded out unproductive labour to increase efficiency.
  I think it is fair to say that unemployment, at a bare 2 per cent. of the working population, is still low compared with
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  that in any other industrial country, though I am not forgetting that even very small figures like that do not operate absolutely evenly over the country, and there are areas where this extremely satisfactory picture would not be reflected. When we read some of the comments which are made about the economy this might seem to suggest that at the moment we are in recession. But I would say that the present situation would seem recessionary only to those who regard the previous overstrain of the economy as a desirable state of affairs. I have already indicated that I have not forgotten that unemployment in certain areas is still above the national average. The Government are most conscious of the problems this must cause, and the Distribution of Industry (Industrial Finance) Bill, which at present awaits the Royal Assent, will allow financial help for the industrialists willing to set up in those areas and, we hope, will go some way towards solving the problem. I am sure that in expressing that hope I reflect the opinion of both sides of the House.
  The main internal problem for the United Kingdom this year has been not to avoid deflation but to break the inflationary spiral, as it is called, in wages and prices. The other day my right honourable friend said that he was not yet entirely satisfied about wages: the rate of increase this year is still in excess of the normal growth of productivity. Nevertheless, the average wage increases granted this year are likely to be less than in recent years. For the immediate future, I should be inclined to say that the prospects for price stability are relatively good. Here, of course, we have been mainly helped by the sharp fall in the price of our imports over the past year. This has now worked its way through into wholesale prices. The wholesale price index of manufactured output stopped rising as long ago as October and in recent months has fallen slightly. There are now, therefore, good prospects of a fall in retail prices in the coming months. Recent rises in the index of retail prices have been due to seasonal rises in food prices—particularly, I am told, because of the shortage of potatoes.
  I think I can report to your Lordships that our balance of payments so far this year has been really satisfactory. The

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  main factor has been the exceptionally favourable terms of trade which we have been enjoying temporarily: thus although export earnings have fallen slightly, the cost of our imports has fallen much further, and for the first time this century we have had a substantial payments surplus on visible trade.
  Invisible earnings have, of course, also been high, and in consequence the current surplus in the first half of this year will prove to have been very large. The reserves have also improved substantially since the beginning of this year. On June 30 they amounted to£1,099 million, which was£287 million more than at the end of December. It was also the highest level for over six years. At the same time our liabilities—the overseas sterling holdings—have been falling. Between the end of June last and the end of March this year (the latest date for which published figures are available, I believe) the sterling balances of other countries went down by£260 million. Our external monetary position, taking account of both reserves and liabilities, can therefore be claimed to be much stronger now than it was at the beginning of this year or, indeed, has been for a number of years past. At the same time, we have been maintaining the flow of capital abroad. mainly, as I know your Lordships will be glad to hear, to the Commonwealth, which helps underdeveloped countries to expand their resources and so, we believe, strengthens world capacity for increased trade.
  Having given that favourable report I feel it is right to say that in the second half of the year the result will not be so good. This is partly due to seasonal causes, but partly because of growing reserve difficulties in the rest of the sterling area which must affect our exports to those countries. We hope that the current surplus will still be large, and in view of our improved monetary position we feel that we can enter into this seasonally less favourable part of the year with a good degree of confidence, Her Majesty's Government have made clear that they will encourage expansion as soon as it is safe to do so. Your Lordships will remember that since the Budget several steps have already been taken in this direction. The bank rate has now been brought down to the level
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  of 5 per cent., which is where it stood before the crisis last autumn, and the ceiling on Bank advances imposed at the same time has been removed. Also, the criteria by which the Capital Issues Committee have to judge applications have been substantially relaxed and, as I said when I dealt with the Budget proposals, the initial allowances have beer further increased.
  These measures are designed to encourage expansion selectively, mainly by stimulating investment and exports. Further measures will be taken as and when they become desirable, although, of course, it is not desirable to advertise them in advance. The outlook for the economy is more hopeful than it has been for several years. I believe that we call look back on nine months in which great progress has been made in strengthening sterling and fighting inflation. When I was preparing for this debate I re-read that rather grim debate on the financial situation which we had in February last. I then expressed a degree of confidence in the future and satisfaction with the policies of Her Majesty's Government which was not universally accepted in your Lordships' House. I believe that events have proved that the view I then took was the right view. My Lords, I beg to move that the Bill be read a second time.
  Moved. That the Bill be now read 2a.—(Viscount Hailsham.)
  3.14 p.m.
  LORD PETHICK-LAWRENCE: My Lords, we are greatly indebted to the noble and learned Viscount for his description of the Finance Bill and I should like to tell him that it is all to the good that we should have our minds refreshed as to the details of the measures which his right honourable friend, the Chancellor of the Exchequer, introduced into another place in the middle of April. Our minds get a little rusty with regard to these things, and even though perhaps we ought to remember them I believe neither the oldest nor the youngest of us is able fully to carry all these changes in our minds. We are also grateful to the noble and learned Viscount for the discourse he gave us on the economic policies of Her Majesty's Government. I think he described them fairly accurately although I shall have something to say in an adverse sense with regard to them later in my speech.

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  This debate on finance follows closely on the heels of the long debate which we have had yesterday and this morning on foreign affairs; and to some extent there roust be a likeness in the two debates. I was very happy that in that foreign affairs debate a considerable measure of agreement was reached in all parts of the House, but my noble Leader was careful to explain that that agreement did not, in the slightest degree, mean the withdrawal of any of our strong criticisms of the policies of Her Majesty's Government in the past. It is my intention today equally in the matter of finance to explain most carefully, first of all, where we are in accord with Her Majesty's Government, but also where we disagree strongly in those measures of finance and economics which Her Majesty's Government have carried through, in our view to the grave detriment of the fortunes of this country.
  First, among the matters on which we agree I should like to state emphatically that we are at least equally determined as Members on the opposite side to prevent inflation. I have spoken many times to your Lordships upon the evils which come about with inflation and I have done so for two main reasons. I believe inflation is externally injurious because it tends to price our products out of world competition; and it is internally injurious because it works havoc with our contractual obligations. From the former springs the menace of the flight from sterling on the exchanges and from the latter springs the unjust discrimination against persons of limited fixed incomes. Where we differ from Her Majesty's Government is in the choice of weapons with which to combat inflation—a matter to which I shall make much longer reference later in my speech.
  Secondly, we recognise the importance of the sterling area and for this purpose we desire to strengthen the gold and dollar reserve. I noted the statement made by the noble and learned Viscount, repeating the words of his right honourable friend, the Chancellor of the Exchequer, with regard to the reserve at the present time. We are very glad that the figures show as good a return as they do, but it is only fair to remember that they would not stand at that figure but for two facts: first, that we had borrowings from, I think, both the International Monetary Fund and the World Bank; and, secondly, I will not say that we
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  defaulted, but at any rate we did not pay the interest on either the American or the Canadian loan last December—and I believe that that is not the first time it has happened. In fact, I think that but for those facts over the past three years our reserves would be£350 million lower than they are at the present time. I am not saying it was unwise of the, Chancellor of the Exchequer to effect those transactions; probably it was right; but before we "lick our chops" with the delight of the meal we have had, I think we have to consider that somewhat slight commentary upon the facts. As I say, we desire to strengthen the reserves, and we wish, within the limits of our resources, to promote the development of the countries of the Commonwealth and of our Colonial Empire and also, where it seems suitable, to help other backward nations in their progress towards industrial recovery.
  In the third place we agree with the Government—and to that extent disagree with the Liberal Party, as represented by the noble Lord, Lord Grantchester, who spoke in this House last week—in thinking that some controls are necessary. We do not believe in laissez faire, and I hope it is true that the Government do not believe in laissez faire either. We believe there roust be Government control of economic development for our own country; but where we differ from the Government is in that, whereas we think there should be selective and sometimes physical controls, though riot more than are absolutely necessary, the Government appear to think that a "free for all" economy and a preference to rely on monetary weapons (meaning mainly changes in bank rate) are all that is required from them. However, I will say this for the Government: I think they agree with us, and not with the noble Lord seated by the gangway on my side of the House, that changes in bank rate are a matter of high policy and cannot be left entirely to the decisions of financiers, however able, working inside or outside the precincts of the Bank of England. I think that the Government, equally with us, have no desire to go back to the régime of Montagu Norman, when decisions which mainly affected the economic life of this country were decided, not inside the Houses of Parliament, but within the walls of the Bank of England.

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  Leaving those matters, on which there is a certain measure of agreement, at any rate, between both sides of the House, I come to other matters where I think there is slightly greater divergence. We on this side of the House, and our Party as a whole, set very high up among our priorities full employment and the maximum home investment programme. Tory Chancellors of the Exchequer, during the last few years have, in our opinion, missed a great opportunity when they have been given the immense advantage—a "windfall" advantage to which the noble Viscount has already referred—of the terms of trade turning in our favour. I wonder whether all noble Lords fully appreciate how great the change has been. It has amounted to no less than£400 million to£500 million a year. In our opinion, Tory Chancellors of the Exchequer during these years have frittered away this "windfall" bonus that has been given to this country; and they should have used a great deal—a larger part of it—in setting the industrial life of this country on a wider basis. Further than that, they have in the course of these years toyed with the obsession of immediate convertibility. Fortunately, they drew back at the critical moment, though before they had done so this toying with convertibility had already worked to considerable detriment to the country.
  I remember very well some thirty years ago, or a little more, when Mr. Winston Churchill (as he then was) toyed and did not draw back from a similar pressure from the financial authorities to restore the gold standard at its old parity. Later, Mr. Winston Churchill himself admitted that he was over-persuaded and it would have been better had he not done so. The consequences of that action in restoring gold at the old parity wrought incalculable harm. The troubles of the later 'twenties and the early 'thirties owed a large part of their origin Ito that action. Mr. Maynard Keynes (as he was then, later Lord Keynes), your Lordships will remember, had written a very famous book called The Economic Consequences of the Peace. He wrote another, much smaller, book, The Economic Consequences of Mr. Winston Churchill, in which he showed what frightful results had happened from this most unwise step that Mr. Winston Churchill had taken at
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  the instigation of and under pressure from the financial authorities to which he was subjected. I am thankful that the Government stopped short of the brink and did not make the plunge. But they went very near it and, as I say, they did a lot of harm in the process.
  Part of what I am going to say to your Lordships presently will be to sum up the economic consequences of the Tory policy in recent years. But before I come to that, I should like to point to one thing in the actual Budget of to-day to which we on this side take exception. The noble Viscount referred to the obliteration of the distinction between the profits tax on the undistributed and the distributed profits of a company, and he said it was of considerable advantage and had been recommended by a Commission. That may all be true, but there is no doubt—and even he admitted it—that it has to a large extent withdrawn the incentive to companies to keep their profits as undistributed and have them ready, therefore, to devote to development, rather than to distribute them and leave them to be spent on consumption. Even if it were thought desirable to take this course, we on this side strongly hold that some other incentive ought to have been put in its place, because otherwise once again it could be said that the policy of Tory Chancellors of the Exchequer has been to fritter away money that could be used for extending the industrial progress of this country on presents to some of the people in this country.
  Now I come to the cost. The Chancellor of the Exchequer tells us—and it has been supported by the noble Viscount—that the financial crisis which has been confronting the country may now be regarded as over; that there is not anything like the need for the credit squeeze that there was; that there can be a let-up, and that we can now go to encouragement, expansion and growth. Of course, we are glad to be told that, and we are glad when tangible signs of it appear in the Budget or in the speeches of the Chancellor of the Exchequer. We are glad that he has seen fit, in conjunction with the Bank of England, to bring down the bank rate from 7 per cent. to 6 per cent., from 6 per cent. to per cent., and from 5½per cent. to 5½per cent. Of course, in the old days 5 per cent.

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  was considered a very high rate of tax. Compared with 7 per cent. it seems comparatively small, but it is still a considerable handicap on industry and a considerable handicap on the public life of the country.
  What we are concerned with is this: this inflation has been stopped, and some of the credit for that—a large part of it, if you like—may be due to the action taken by the Chancellor of the Exchequer; but were the methods used to bring that about the best methods, or have they been far more costly than other methods which would have achieved the same result? Your Lordships will remember the proverb of the Chinese, which I think runs:
  " If you are going to roast a pig, it is not necessary to burn down the house."
  Our criticism is that in stopping the evil of inflation the Government have not exactly burnt down the house but have damaged the foundations and strength of the house when they could have had roast pig on very much cheaper terms.
  Some of your Lordships will remember that in November last we had a debate on the Address to the Sovereign, in the course of which I raised a certain question. I put to the Minister who was then replying for the Government (it was Lord Mancroft) the question: could he, representing the Treasury, give us any approximate figures Which would tell the cost incurred by the country due to the high bank rate of 7 per cent.? How much more was it going to cost the country than if the hank rate had remained low, as it had been in the years gone by? The noble Lord said that he had asked his advisers for the figures but that he regretted very much that there were not any figures and that they could not give any. At the time I was rather shocked by that, and I think he was a little shocked himself. But since then have had time to think it over and, in the light of what has happened in the last few months, I have realised the reason for their refusal to give any figures. It is clearly this: that a great many of the data on which any reliable figure could be based—or even an approximate figure—were data that depended on hypothetical events in the future, and, that being so, no figures could be given.
  My Lords, the future has now come. The hypothetical future of nine months
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  ago is now with us, and we are now able to have facts which were only possibilities in those days. I propose—rather venturesomely, because it can only be a very speculative estimate in the hands of a private citizen like myself—to give to your Lordships some rough idea of the aggregate cost of this high bank rate to the country. Let me begin with the floating debt. The rate of interest on the floating debt has gone up from hardly anything at all to 5 per cent., and for a time it was 7 per cent. There is not the slightest doubt that that has involved the Exchequer in payment out of large annual sums in interest on the floating debt. It is perfectly clear that those sums, taken in the aggregate. will run into several hundred million pounds over the years—how many hundred millions, I should not like to say. What is further well known is that a considerable part of that has gone to foreigners and has not come into the hands of the citizens of this country at all. So we start with the interest on the floating debt, and we realise that that has cost several hundred million pounds.
  Now we come to the funding debt, and that is what was not in evidence in November because I think it is since that time that three funding operations have taken place. They have resulted in the following facts. There has been the£300 million of 5½per cent. Funding Loan, 1982–1984. That is, of course, a period of something like twenty-four to twenty-six years. There is approximately a further£300 million of 5 per cent. Conversion Loan, 1974. That is some sixteen years further on. There has also been£500 million of 5½per cent. Exchequer Bonds, 1966. Now I should just like your Lordships to realise the importance of this. Because of the high bank rate, we have been obliged in the course of the last few months to float loans bearing this exceptionally high rate of interest, and that rate of interest will have to be paid for all those years until those loans have been redeemed. Therefore the cost to the Exchequer of the high bank rate includes all that additional rate of interest for all those periods of years.
  Now I do not want to make an un fair comparison. Let us assume that instead of the high rate that has been adopted the rate had been 3½per cent.—

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  I think that that is a fair figure, because it was, roughly speaking, the rate of interest on long-term money in this country about 1951. It was roughly that; it may have been a little more, it may have been a little less. On that basis I reckon that the total additional cost to the Exchequer of floating these loans at this much higher rate of interest is no less than£300 million. I could have taken a more unfair view by comparing it not with the rate of long-term interest but with the rate of the interest on the floating debt, which was a great deal happier in those days—something like 2 per cent., or something of that kind. That would have produced a much higher figure of over£400 million, but I think the lower figure of over£300 million is probably a fairer statement of the case.
  In addition to that extra cost, which falls directly on the Exchequer, there is the cost that has fallen on local authorities. I have no figures to show the total amount of local authority loans that have been floated in this austere money period, but I will just remind your Lordships of one of them. Not long ago the London County Council floated a loan for£20 million repayable in 1975–78. They had to pay 6 per cent. interest on it, and will have to go on paying that for the whole of the next seventeen to twenty years. That is only one out of the great number of local authorities who, either directly or through the medium of the Government, have had to pay these high rates. Adding all these three items together, I do not think the loss to the Exchequer and the local authorities can fall very much below£750 million. That, in itself, is a very considerable sum, and I think very few people realise that that is the price that our pundits at the Treasury have forced us to pay for getting us over inflation.
  But I will say this—I want to be strictly fair—this is a gross sum and I think that there must be same rebate on it. In the first place, some loans are partly held by Government authorities and there is not much loss when it comes to that. It is a matter of taking from one pocket and putting it in another. Also there is additional income derived by individuals from these high rates and we should make some allowance for income tax and pos-
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  sibly even for surtax in some cases. No private individual can possibly form any estimate on that score. I have given the gross figure. I admit that there may be a certain subtraction from it in the shape of a rebate, but there still remains a very large figure when all that is said and done.
  But that is not the whole of the picture. In addition to this direct monetary loss, there has been a great loss to the country in the restraint of production, the holding back of investment and the loss of manpower resulting from unemployment and under-employment. The noble Viscount who dealt with the Budget just now made rather light of unemployment. I am sure that he did not mean to be unsympathetic.
  VISCOUNT HAILSHAM: My Lords, I do not think that the noble Lord is right to say that I made light of unemployment I said that it was a matter which would give rise to anxiety on the part of any Government. I simply pointed out that in so far as it was due to employers getting rid of unproductive labour, it was perfectly satisfactory and that in fact it was lower than in any other industrial country in the world. I do not think that it is right for him to say that I made light of it. I must completely reject that.
  LORD PETHICK-LAWRENCE: I am sorry that I gave offence to the noble Viscount; I did not intend it. I said that he was not unsympathetic. I withdraw the phrase "making light of." He seemed to paint the less terrible side of unemployment and looked at it from the point of view of the individual. What I was going to say is that, whatever view might be taken by a number of individuals, it was a loss to the country, because there were idle pieces of machinery not being worked and idle hands not working them, and in consequence the productive results were less than they could be, and should be, if full employment existed. That is the point that I wanted to make. I am sorry to have drawn the noble Viscount, because I had no intention of criticising what he said. That is a big factor and might well result in an even greater loss than that to which I have referred already.
  We can get some idea of what this further loss has been from the following facts. Between 1951 and 1957 there had been a growth of production in this country of some 18 per cent. and we can make

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  the comparison between that and the increase in some of the other principal industrial countries of the world. In a fable of ten of them, some of whom I will mention by name later, Britain comes eighth. There are only two others with smaller increases than ours but there are seven countries with much greater increases, headed by Japan, which had 113 per cent., then West Germany with 73 per cent.; Italy with 52 per cent.; and France with 48 per cent. I think that that shows that we in this country have not adequately encouraged the increase of production. I attribute this in part—I would not by any means say in whole—to the financial policy of the Government over the last few years. These are the deplorable facts for which I hold the financial and economic policies of the Party opposite to be responsible.
  But my "Economic Consequences of the Tory Party" has not finished there, because there are other facts that must be mentioned. I will start off with the frightful burden on hard currency imposed on us by the promise to keep four divisions of soldiers in Germany, The cost in hard currency is just coming to the public notice—some of us saw it when the promise was made. I was reading a day or two ago a book by a famous economist and financier, Andrew Schonfield. This is what he says with
  "What this means in commercial terms is that we need to sell an extra£1 million of exports a week for the rest of this century in order to meet this undertaking to Western Europe."
  I know that it is common to say that we must provide for these soldiers and that they might as well be in Western Germany as anywhere else. If we could pay for them in our own currency, in sterling, the position would not be so serious, but because they are stationed in Germany we have to pay a large part of the cost in foreign currency, and that has been a frightful burden on our resources.
  I do not want to talk foreign policy but I cannot avoid mentioning what happened with regard to Suez. Looking at the matter from a purely financial aspect, we cannot entirely neglect it. There is no doubt that the cost of the whole Suez episode has been quite considerable, even though we have not ever really recompensed those unhappy Britishers who were working in Egypt at the time when the
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  Suez event took place. In the third place, there was the laxity of control which allowed some£50 million worth of exchange to disappear through the Kuwait gap. If we were more particular to guard those leaks and less anxious to procure a premature return to complete convertibility, we should be serving much better the benefit of this country.
  It would be a legitimate question for noble Lords opposite and on my right to put to me: "What would you do about it?" In the last few minutes during which I propose to detain your Lordships, I would say a few words about that. In the first place, in the matter of monetary policy, in so far as we require monetary policy to handle this matter, we would make it far more selective and less a matter of the bank rate. Instead of flying to the bank rate at the earliest opportunity, we would adjust the financial methods. One of those financial methods has been put forward by our Party for some time. When it is necessary to restrict credit, there should be a compulsory change in the bank liquidity ratio. That was scoffed at by members of the Party opposite—I do not mean in this House—though I think that I am right in saying that that method is in existence in other countries.
  I am interested to see that the Chancellor of the Exchequer has declared to-day his intention of pursuing a policy in future on somewhat analogous lines. As noble Lords are no doubt aware, he has suggested that in times of emergency the Bank of England, no doubt with the concurrence and probable direction of the Government, should have the right to demand from the banks special deposits, and that when these special deposits have been made, they shall not form the base of additional credit. It is too early to form a final judgment in regard to that matter, but prima facie it appears to me and to those of my colleagues to whom I have spoken to be quite a good proposal. We welcome it not only because it is in line with what we have already suggested but because we think it will be a cheaper way in future of handling the necessity of some control and curtailment of credit than the expensive method of tile bank rate. I would say, further, in that connection that we shall look forward with great interest to the Report of the Radcliffe Committee, which we hope will make other valuable suggestions for

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  cheaper methods of handling a crisis than the expensive way to which we have been subjected in this country.
  In addition, the Labour Party believe, frankly, in planning. It is in accordance with what happens in all other directions of life, and the Labour Party do not think we can get away with a "free-for-all" economy in these days when planning is required in other matters in every direction. I hope noble Lords will not run away with the idea that by "planning" I mean that we want to restore all the controls, restrictions and rationing which we had to have, by the agreement of all Parties, during the war, and which the Labour Party, to a certain extent, had to retain in the years immediately following the war. We do not mean anything of that kind. But we do mean that, when all is said and done, there must be development, and in the nature of that development there must be some planning by an authority capable of deciding what should be done.
  Among other proposals that we have, of which probably your Lordships are aware, is that there shall be for this purpose of taking care of the development of the country a National Investment Board; that it should deal with the question of investment, and that it should be in addition to, and not a substitute for, the Capital Issues Committee. Moreover, we should seek, in conjunction with other members of the sterling area, to reconsider the matter of effective controls to prevent the leakage of sterling out of the area. Greater price stability and a healthy balance of payments are both indispensable conditions of expansion; and some planning and overall control of that expansion is an absolute necessity behind both of them. Above everything, we seek maximum investment and rising production. By these alone can we provide a better standard of living for our people and an opportunity to play a noble part in the development of the backward countries of the world.
  3.53 p.m.
  VISCOUNT ESHER: My Lords, the backwoods are at their best just now, out I felt that I ought to come up this afternoon in order to represent, after the Front Benches had given their incontrovertible and incomprehensible explanation of the Budget, the point of view of
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  ordinary people to whose opinions your Lordships are always prepared to pay attention. One of our opinions is that if the Labour Party came back at the next Election things would be exactly the same, only rather worse.
  I do not understand anything about economics, and I do not know what the perpetual crisis is about. It therefore required some courage to face the embattled economists in your Lordships' House this afternoon. This courage was derived from the fact that I recently formed part of an impressive and important deputation to the Chancellor of the Exchequer urging him to implement the National Theatre Act, a matter of high consequence to the intellectual life of the country. Being the least important member of that deputation, I had time to watch the Chancellor of the Exchequer, and I was surprised to find that he seemed to understand what we were driving at. He had none of that tough hostility which has made such a gulf between the politicians and the public, between the governors and the governed, a gulf which has destroyed the Fourth Republic in France and has caused the revival of the Liberal Party in England. On the contrary, he had an atmosphere of sympathy and understanding rarely experienced by those who are forced to enter the official world and deal with Government Departments. So I thought I would venture to discuss the Treasury and its Finance Bill as it seems to the unprivileged who live outside the magic circle of the establishment.
  I once knew a very unpopular man who used to say: "Let me see if I can put it in a way that you will understand." No one has ever tried to do that about the finances of this country. Yet in every Budget one thing is made clear: that we ought to save. But in spite of being prodded to do so, every day and in every way, I have never for years saved a penny. We ordinary people never have the advantage of talking about finance with important people at top level; we never meet Mr. Roy Harrod at luncheon. As a rule, what we think is of no importance, and we are glad to accept the decisions of people who are "in the know". Also, we may be wrong, which as a rule does not matter a straw. But as the Government want us to save, it is important for them to know the reason why we do not. And the reason why

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  we do not save is because we believe the Government themselves do not really intend to save: they just want us to save, which is an altogether different thing.
  I admire and understand the persistent extravagance of the Government. No wonder they have totally failed to reduce the income tax during their Administration!
  VISCOUNT HAILSHAM: If the noble Viscount will forgive me for interrupting, he must be more under-privileged than he is now pretending if he has not noticed the reduction in the income tax. Perhaps he does not pay any, he is so underprivileged.
  VISCOUNT ESHER: Those reductions are practically invisible. It is no wonder that the Government have failed to inspire a crusade for saving. Their "banner with a strange device" has written on it some such dreary and inexplicable abstraction as "balance of payments". They have put no glamour or excitement into the idea of saving because they do not believe in it themselves. They intend, as we do, to have a gay time inside the inflationary spiral.
  Suppose we had done what we might have done, but did not, and had recently invested in some successful business and made a profit of£5,000? Shall we save it or shall we spend it? If we spend it we can buy a car or a fur coat. If we save it and invest it, dangers surround us on every side. The income it brings in is subject to income tax and sur-tax up to 18s. 6d. in the pound; the capital itself, after the next Election, will be seized by Mr. Gaitskell who is waiting in the wings for that express purpose; and if we are fortunate enough to die before the next Election the present Government will take up to 80 per cent. of it in death duties. Indeed, the Government consider it so immoral to save for one's children that they make it impossible to do so, and "Not a penny from grandpa" has become the motto of family life. So we all spend, and it is the Government who set us the example. They spend£186 million of our capital that comes to them from death duties as income every year.
  Chatsworth is a wonderful example of this process. The Government are selling up many of its treasures: one of the finest collections of works of art in the
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  world, a palace of which even Italy would be proud, not only sold up, but its large capital values used as income! One is reminded of those well-known lines in Omar Khayyám:
  " What is it that the vintners buy
  That's half so precious as the stuff they sell?"
  What is it that the Government buy that can compare with what they are selling from the Chatsworth collection?
  It is clear, then, that nobody is going to save, and I am all for the Government being as extravagant as I am myself. But I hope that the Chancellor will look very critically at the£5,000 million he spends every year, not in order to save it but to cut out the waste and improve the direction of his expenditure. There is a lot of smug talk in Government circles about not being able to afford this or that desirable expenditure. The Germans do not feel like that. They know that a nation can be a great Power without having an army, navy and air force. And look at the money spent by that disarmed nation on the amenities of life!We have done away with poverty here, and our way of life is regarded as unequalled in the world. I want a few of the Government's£5,000 million to be spent on making this young and promising democracy an educated and civilised nation. There is no reason whatever why the lives of this classless nation, so unified in its ideas and so happy in its temperament, should be both boring and congested. A man said to me the other day, "You go through a hell of traffic if you go on a holiday, and when you get to the other end there is nothing to do but to look at the sea." But when we are faced with such problems the Government say, "No" to all suggested improvements that we should like to carry out: they lie supine in the hands of a conventional bureaucracy.
  On the other hand, Mr. Lennox-Boyd, who is disposing of the Empire, and Mr. Duncan Sandys, who is disposing of the armaments, are well aware that Government expenditure is spent largely on obsolete objects. The Government know that, in addition to the few millions that people like myself require to make our national life more interesting,£3,800 million requires to be spent on the roads to make it possible for us to get about this country. Yet the Government sit there,

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  surrounded by field marshals and trades unionists, saying "No" to everything.
  Surely the time has come to overhaul, examine and, above all, to make intelligible to the voters of this country the vast expenditure of the Government. Much of the£5,000 million has probably become purely automatic—served up every year on a plate as if the world never changed. Surely there must be large sections of expenditure which could be curtailed or eradicated. If the Government would make the effort, they could finance the pleasures, the amusements and the occupations of the Welfare State, and establish this great nation that is destined to lead the new world. I do not believe they are hostile to this idea: they merely refuse to believe that it can be done. But it would be the most popular as well as the most rewarding thing they could possibly do.
  4.9 p.m.
  THE EARL OF CROMER: My Lords, the noble Viscount's most enlightening speech leaves me in somewhat of a quandary whether to attempt the abandon of the underprivileged, or whether to attempt to soar into the academic economic stratosphere. I think my best counsel would be to keep in between the two extremes and try to confine myself to matters which concern me in my day-to-day life. I think the most impressive thing to anybody who has to deal with money day by day is the remarkable results brought about by the use of the bank rate. The noble Lord, Lord Pethick-Lawrence, has left us in no doubt that he detests the bank rate as being what they call a blunt instrument, because it falls on worthy causes and what some would call less worthy causes.
  If I interpret correctly the beliefs expressed by the noble Lord, Lord Pethick-Lawrence, this afternoon, I understand that the Socialist Party would go in for detailed planning. By their detailed planning they would attempt to judge the merits of credit users. This approach, apart from introducing differences of opinion as to what might be more worthy than something else, also overlooks a most important factor, the factor, I think, which is the most important of all—that is, the question of confidence. You can call it old fashioned if you like, but resolute use of the bank
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  rate when circumstances demand it inspires greater confidence in our intention to uphold our position than anything else. Relatively few people in this country, and even fewer abroad, have any confidence in the juggling activities which must form part of any policy of detailed planning if the British are to be left with any freedom. Even if by some happy fluke at one moment in time detailed planning were to bring about a state of equilibrium, there would be no confidence in its continuance. After all, half the fun of watching a juggler is the hope that sometime he is going to throw up one more ball than he can manage and then the whole lot falls to, the ground. The noble Lord, Lord Pethick-Lawrence, said that before adopting the use of the hank rate they would explore every other measure. Is that likely to instil confidence? Confidence cannot be created by edict; it is indeed a most tender flower which reacts to certain stimulants when it wilts but dies altogether in constant changes of atmosphere.
  The noble Lord, Lord Pethick-Lawrence, also brought up the question of frittering away the balances accumulated as a result of our favourable balances of trade. I fail to understand how these balances could have been put to more practical use. He also raised the question of high bank rate, but high bank rate does not necessarily prevent productive investment. In point of fact I think the quite remarkable stability of the pound in the last few weeks is almost entirely due to the confidence created by the very courageous action of Mr. Thorneycroft in raising the bank rate last September.
  Unfortunately, owing partly to other distortions in the economic system and partly to insufficient energy, there has not been the increase in savings necessary to finance our investment programme. The last Report of the Bank of International Settlements publishes a table of domestic investment and savings in most of the leading industrial Western European countries. In that table the savings in the United Kingdom are lower, as a percentage of national product, than those of any other of the countries quoted, with the exception of France. On investment we are the lowest of all. This does not bode very well for our future, for on our investment to-day depends our prosperity

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  to-morrow. Only by a high rate of internal investment shall we be able to continue to compete in world markets where the foreign customer is the arbiter of quality and price. There would seem to be little doubt that our savings and investments are totally inadequate for our internal needs, let alone for overseas investment, but I do not want to raise that issue this afternoon as we are to have a debate on that subject to-morrow. It seems to me, therefore, that the first priority in the internal economic picture is to increase savings and mobilise them more productively.
  There are two fairly obvious approaches which come to mind at once. The first, I am sure the noble Viscount, Lord Esher, would agree, would be to cease penalising those members of the community who by their ability or thrift or industry have incomes of over£2,000 a year and as a result find themselves starting to climb a greasy pole, a pole surrounded by the barbs of the Inland Revenue and surmounted at the top by the Special Commissioners armed with a sledge-hammer. Do not let us forget that it was the forerunners of such people who by their exertions created the investment in the industries which to-day give us our livelihood. They took a chance and many failed, but those who succeeded laid the foundations of industrial Britain. This is also the section of the community—perhaps I should now add, with some exceptions—who instinctively save. From the point of view of the nation they are the people who should be encouraged to even further exertions, as it is their ingenuity more than any other which can do most to improve the lot of the greatest number. The immorally high rate of surtax, accepted willingly when the State was in danger in war time, to-day not only stifles initiative but starves the country of the risk capital it so urgently needs.
  Another approach towards achieving the savings we need is to mobilise more effectively and energetically the savings of wage earners so that both they and the country can directly benefit from the increased profits arising from more investment. There must be many wage earners who, given the opportunity and facilities, world wish to become shareholders in our public companies. It is, however, essential
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  for them to have a spread of risk for their investments. The insurance companies and the unit trusts have been doing excellent work in this direction, but it is probably true to say that the surface has hardly been scratched. So far as I can see, the Government has given no lead to stimulate the smaller investor.
  There are a number of constructive steps which come readily to mind here. Get on with the necessary amendment of the Truck Acts, so that wages can be paid by cheque or bank transfer. Encourage as many people as possible to open bank accounts. Surely no one can seriously believe that the payment of wages by cheque or bank transfer is likely to introduce the abuses which originally led to the Truck Acts. There is plenty of evidence of the effect of this change. By chance I am myself a director of a company in Canada which some ten years ago started paying wages by cheque. The bank opened at the gate of the works a branch which was open when the men came off their shift on pay day. The rise in savings as a result of payment by cheque was really quite remarkable. Surely this is an opportunity that we cannot afford to overlook.
  Another step, and a most constructive one, would be to amend the Companies Act or in some other way permit the forming of what are generally called "open-ended" investment trusts. I do not need to worry your Lordships on this occasion with the technicalities of this matter, but this type of investment trust is, I think, probably the most extensively used medium by the small investor in every other country outside the United Kingdom. Yet we do not permit it in England owing to a technicality of the Companies Act which does not permit the reduction of capital. That is quite proper for most purposes, but it is ridiculous when applied to this type of investment. Lastly—for I have already taken too much of your Lordships' time—why do we continue a rate of tax on transfer of property, including investments, so much higher than any other country in the world, so as to make London the most expensive market in the world to operate in, and then, curiously enough, impose the tax on the man who makes the saving instead of on the man who is liquidating his saving? Is that encouragement to save?

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  My Lords, the Conservative Party have set themselves to create a property-owning democracy. I strongly believe in this ideal, as I believe it is the only system in a modern industrial society under which the individual can retain his freedom. I would ask the noble Viscount who is replying to the debate to give the Government's assurance of a continued belief in this ideal. I would also ask him to persuade his colleagues to adopt a more active approach towards its creation, because every single suggestion I have made would be possible in a free society, but is not possible as long as certain out-dated regulations remain on the Statute Book.
  4.22 p.m.
  VISCOUNT ALEXANDER OF HILLS-BOROUGH: My Lords, may I first of all thank the noble Lord, Lord Grantchester, for allowing me to precede him, because I have to leave early this afternoon. I have been exceedingly interested in the exposition of this Finance Bill by the noble Viscount, Lord Hailsham. I expect he will hardly think it necessary for me to comment at any length on his speech, because my noble friend Lord Pethick-Lawrence has largely covered the ground for me. On the other hand, I have been exceedingly interested in the speech of the noble Earl, Lord Cromer, who has just resumed his seat. He seemed to me to be putting in the most attractive way possible many of the well-known views of those who are experienced in City business, and it will not surprise him therefore that I hold somewhat different views.
  One could take, for example, the question he raised on the point made by my noble friend Lord Pethick-Lawrence, about the frittering away of trade balances as they accrue and the failure to organise the whole system in relation to the great improvement in our position which took place with the improved terms of trade, month by month. While no doubt there were many avenues through which my noble friend probably thought that the frittering away had taken place, there were certain important respects in which undoubtedly the use of those favourable conditions reacted against certain other aspects of industry. I put it in this way: that whilst we hear this rather nicely worded defence of the poor, down-
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  trodden sur-tax payer, one method which the Government adopted, and which is probably part of the answer that the noble Viscount, Lord Hailsham, will make to Lord Cromer, is that nearly£34 million was given back to the sur-tax payer in reduced taxation. Considering the limited number of sur-tax payers there are, that is not a bad fall of fruit for that particular financial year.
  But in the larger sense what we have in mind is that we on this side of the House are so often blamed for our policy in trying to see that wages and the like keep pace with the cost of living. Therefore, we have to come back to the question of the cost of living and the steady improvement in our terms of overseas trade, commencing I think, fairly early in 1952. In the period immediately succeeding that time, we had a steady policy of reducing or, in some cases, abolishing subsidies on food, the processes of which led immediately to the demand—and we say a justly based demand—for increased wages, which put up the wage spiral and the cost of production and reduced all the value of the improved terms of trade abroad by making it more difficult in terms of trade for those who produce in this country. That is our general reply. If I had more time I would go further into it, and especially into one other point that I must mention, because I want to come now to a particular "bee in my bonnet" with regard to the movement in which I have spent most of my life.
  The noble Earl, Lord Cromer, spoke about the need for spreading investments among the working classes. I gather that he would desire that the risk on their investments should be widely spread, if not, in view of his subsequent remark about property-owning, that the investments should be without real risk; and that they should be induced to refrain from buying articles which they can possibly do without, so long as they can be sure that the value of the investments they make will be safe. That brings me on to the point that I specially want to raise upon this Bill—namely, the application of the details of the changes in the profits tax which the noble Viscount, Lord Hailsham, explained to us to-day.
  Broadly speaking, I suppose it is understood that by changing from, say,

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  a 3 per cent. profits tax on sums placed to reserve and 27 per cent. extra on distributed profits to an overall 10 per cent., it is estimated that the Treasury will not lose. I understand that is the position. On the other hand, for some reason or other, in divers ways it appears that, if I may take three separate instances, varying results follow in the individual cases. It is not as if the Government were just making this change over a large number of companies and getting exactly the same results. As I understand it, one group or class of companies will gain from the change a total of about£16 million a year.
  I am sure that it will please the noble Earl, Lord Cromer, that the building societies are to benefit altogether to the extent of£1 million a year. But one of the greatest organisations working as an engine of thrift for the working classes is to be damnified by an increased charge of£1,300,000 per year. That seems to me to be just stupid. It is upsetting a large section of the population who gather themselves together in industrial and provident societies in order that they may reduce the price to themselves of the necessaries of life, and in order to have a basis on which they can invest their capital with security, and yet, in their working class circumstances, have it readily available for withdrawal on notice. All these things are essential if the Government are going steadily to promote the saving habit on the part of the working classes of this country.
  I am well aware that experience in the case of the individuals among more than 12 million members in the industrial and provident society co-operative movement will vary a great deal. Some of them will not keep much capital in; but some may, by steady and hard work and thrift, go up to a holding of£500 in total, and then go on investing in loan capital. Here a great organisation is being told, "It is because of a general comparison that we make between you and the ordinary company system that we must apply the same rule of 10 per cent. on your reserve capital and 10 per cent. on other classes of profits on which you are liable for distribution." If the Government are going to take that line with co-operative societies, it means that they will inflict on the societies the penalty of
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  being unable to set aside£1,300,000 a year which is badly needed.
  There are certain fundamentals to be remembered in connection with this decision. First of all, the Co-operative Movement has never yet agreed, and will not agree, that there was any real reason for change, as was made out in the Act of 1933 (after the 1932 Norman Raeburn Committee) departing from the basis which had then been accepted for something like nearly ninety years, that mutual trading amongst members of an association was not trading for the purpose of profit and therefore no profits arose for taxable purposes. Since that time we have had this very big change. It is true that, because of the very great need of the country in connection with the war and the immediate post-war problems, when the profits tax was instituted the co-operative societies, while they felt that they must make their usual protest on the basis of the injury to their mutual position, nevertheless made no great grumble about paying profits tax on that basis.
  The result of what is supposed to be a nice new tidy way for the Treasury to collect the profits tax, one which will save money in administration (for I expect that would be one of the reasons put forward) is to place upon co-operative societies an additional burden of£1,300,000 per annum. And for no reason at all except that given by the Paymaster General and the Secretary to the Treasury, when they are pressed: the old bogy that because this mutual association enters into competitive trading it is an organisation that should be taxed at the same rate as others. Of course they had to clarify their words and to indicate to others that they did not want to go back on a decision arising out of the Raeburn Committee and did not want to give way to the many demands made, that dividends on purchases ought to be subject to tax. They did not do that, I grant; but I would point out that every authority on this matter in the Treasury, right up to the memorandum of Sir James Grigg in the year 1932, was always in favour of our point of view and not against it. Now the position is that we are once more to be damnified in this matter.
  The other thing I would point out is this: I can well understand the pleasure

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  which this change afforded to those responsible for the wellbeing of companies at large. As a result of having the tax on their distributed profits reduced by 17 per cent. off the present 27 per cent. they are able to distribute much more to their shareholders. The shareholders in this case will gain from a dual point of view. Nearly all of these are public companies which go to the exchange markets for their capital, and they will get, first of all, the increased dividend for share interest (whatever one may call it) in distributed company profits. Secondly, they will stand to gain very appreciably in the value of their shares upon the market, because of the increased rate of dividend that will be paid as a result of this new decision.
  May I point again to the thinking, on our general objection in another place to this whole question? I am bound to say that I believe that, in the long run, the change in the case of companies will be inflationary. There will be more spent on things that do not matter, and with the rate of tax on what they put to reserve going up from 3 to 10 per cent., probably less will be left in the "kitty" of a particular company for the development and expansion which are so much needed. Whilst we up here cannot do anything on a certified Finance Bill, and while all the decisions on this matter have been made in another place. I am bound to utter my protest about this change, because the industrial and provident societies do not trade in the capital sense on the same basis as companies. They do not go to the public market looking for risk capital. All their capital is provided by the savings of the members of the society, either by voluntary deposits or by allowing for discounts upon their mutual purchases to be credited to their share capital and loan accounts.
  It must be noted also that if we are to tax contributions placed to the reserve of a particular provident society we are making it much more difficult for them to meet certain of their objectives. First, like any other part of industry they want to expand; and as has been so ably demonstrated again and again by capitalist speakers in this House, they expand best if they have good reserves and a sufficient capital by way of reserve
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  and depreciation capital to enable them to do so. What Her Majesty's Government now propose to do is to increase the tax on that capital from 3 to 10 per cent.; and in the case of co-operative societies that is quite serious.
  Another point to be remembered in connection with this type of shareholding is, as I have said, that it is capital acquired and used on the continual lending principle, and is always withdrawable on short notice. Under the law, it is never given to earn more than the gilt-edged rate for the time being on the general market. That is prohibited. and I imagine the Chief Registrar of industrial and provident societies would soon be "chasing" those societies hard if there were any widespread attempt to acquire deposits of members' capital on any offer of greatly increased interest on shares. That cannot be done tinder the general administration of the Industrial and Provident Societies Acts.
  At the same time if the societies are to meet the necessary withdrawals on notice from members they must have liquidity of capital backed by a reserve, so that in any particular period, as often happens in the event of unemployment, a strike or a lock-out, they are able to realise without serious damage to the whole financial structure of the society and to meet all probable claims made upon them. It seems to me that Her Majesty's Government have not treated industrial and provident societies very well in this matter. In view of the reliefs given to certain companies and to building societies (not that I want that relief taken away, for I think it is a good thing that it should work out in that way for building societies) the industrial and provident societies might easily have staged a major agitation for a change in the law on the taxation of mutuality profits and surpluses. They did not do so, however. All that they said in another place was that, in view of the nature of the requirements for which profits tax was instituted, they would be content and satisfied if they were allowed to have the status quo and to remain taxed at 3 per cent. on capital, and whatever was due to be taxed under the law in their case on any distribution they made. I think it is of no use for me to make a long detailed speech upon it, though I could say a great deal more.

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  But I am here to protest on behalf not only of all the industrial and provident societies which are affiliated to the normal organisation, the co-operative union; but also of all the agricultural societies. One thing that we are very anxious about in the rural areas is to increase the number of agricultural co-operative societies. Some are growing, and are growing very well indeed. I am a member of one myself.
  VISCOUNT HAILSHAM: My Lords, I am a member of two.
  VISCOUNT ALEXANDER OF HILLSBOROUGH: The noble Viscount is a member of two. If that is so, and if the noble Viscount and I were to compare the balance sheets of his societies and mine we should find that the one outstanding factor is the need for more capital; and the best means of ensuring that is to get the largest amount contributed by each member on the basis of his trade with them, and so on.
  I would say that it was by no means a surprise to me to learn, after the event, that when the deputation waited upon Mr. Simon, I think it was, the Financial Secretary to the Treasury, the agricultural co-operative societies—now in an Association which is so well run by Sir Frederick Bundrett—had sent their representatives, alongside those of the general Co-operative Movement, to state their case to the Treasury, which I believe they did very well. When we consider all these things, I think that the Government might have taken a better view of the matter and granted that very small request—that, in view of the nature of their capital, these societies should be allowed to retain the status quo. I am very sorry that that was not done.
  4.43 p.m.
  LORD GRANTCHESTER: My Lords. before I come to the main remarks I should like to make in this debate, perhaps I may be allowed to follow the noble and learned Viscount in a reference to the Control of Borrowing (Amendment) Order which we discussed last week. The noble Marquess, Lord Lansdowne, admitted that the then existing position—that is, the position as at last week—was almost incomprehensible. He promised that there would be a consolidating Order, which has since been issued. I think that this new consolidating Order
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  contains a serious error in Article 4 (1). It is taken from the Order of 1947. Would the noble and learned Viscount have this looked into before he comes to reply? This Order is made under a highly penal Statute and it is important that it should be correct. I repeat, I refer to Article 4 (1). Perhaps it could be looked up.
  VISCOUNT HAILSHAM: My Lords, I have no doubt that I can get it looked into; I doubt whether I can get it looked into before I come to reply.
  LORD GRANTCHESTER: I thought there would be somebody here from the Treasury who could look into it.
  VISCOUNT HAILSHAM: I shall do my best.
  LORD GRANTCHESTER: My Lords, turning to the Finance Bill, the basic difference between the views that I have tried to put and those of the noble Lord, Lord Pethick-Lawrence, and other members of his Party is that, in my view, they do not trust the people to manage their own affairs. Quite simply, the purpose of all controls is to prevent people from doing something that they want to do or to direct them to do something which some outside person thinks is better for them than their own decision. I do not believe in this. I would rather rely upon the result in the market of the decisions of many individuals (who will not all take the same view). than upon any imposed decision.
  I indicated in the debate on the Control of Borrowing (Amendment) Order that I think bank rate reflects the short-term view in the money market; and whatever the noble Lord, Lord Pethick-Lawrence, says, this view in the money market is not controlled in this House; nor is it controlled within the precincts of the Bank of England. That is why I think bank rate should be left in the hands of the authorities who have the duty of watching the money market from day to day, rather than waiting upon the Chancellor of the Exchequer. I think that the long-term rate is determined somewhat differently. It is decided by what I may call the common denominator of the views of investors—really, by what investors are willing to accept for a longer-term investment. A higher rate reflects, after all, increased prosperity and an increased demand for expansion.

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  Decisions cannot be imposed either for short-term or for long-term rates without causing grave dislocation, which is undesirable and injurious to the economy.
  In considering the Finance Bill to-day, I should like to let figures speak for themselves. My noble friend Lord Esher has already referred to this aspect in passing. I should like to underline it. The figures involved give us a great deal to think about, and it is desirable that they should be understood by every citizen. I should like the Press to lend their help a little more in making the figures that are involved a little clearer. I should like to do a little sum in addition, a little simple arithmetic, while referring to these figures. There are so many books of learned statistics, if I may so call them, that it is difficult for even a mathematician to do the sum. I am sure that the noble and learned Viscount will correct me if I make a mistake in referring to the figures or in doing the addition.
  I make the central Government's expenditure, above the line, the income account,£5,000 million, in round figures—the figure quoted by my noble friend Lord Esher. This figure of£5,000 million is made up of items of£700 million interest on past borrowings;£1,400 million on defence;£1.000 million on National Health expenditure, including welfare foods, family allowances and national assistance;£800 million in contributions to local government expenditure. There is£300 million for subsidies, agricultural subsidies, and food subsidies;£100 million for atomic energy expenditure; and there is miscellaneous expenditure which totals£600 million which goes on broadcasting, Commonwealth Development and Welfare Funds, prisons, research and other miscellaneous items. That approximately makes up our total of£5,000 million. To these must be added National Insurance payments, which means another£500 million. These are just as much part of Government expenditure as other items, such as the cost of the Health Service. Then there are the rates levied by local decentralised authorities, which amount to some£600 million, in addition to the contribution made by the central Government. Finally, there is the central Government expenditure called "below the line", the capital
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  account, which is another£600 million. That makes a total expenditure this year for which Government is responsible of at least£6,700 million. I think the noble and learned Viscount, if he checks those figures, will agree that I have not exaggerated them. If anything, they are understated.
  Once upon a time we had Kings who were considered guilty of extravagant ideas and costly adventures. Once upon a time Parliament used to call the King to account. In due time Parliament came to think that it might as well do the spending instead of the checking—it is certainly more interesting. A Party which had been brought up upon the virtues of retrenchment thought that brakes were unnecessary, and to-day we have no power to question the right of those in another place to spend as freely as they may decide. But we can still draw attention to what they have decided, and, as I have said, I wish the Press would do a little more to bring home to every citizen the figure to which this expenditure has risen.
  Some years ago a group of economists expressed the opinion that in peace time the safe limit for Government expenditure was 25 per cent. of the gross national product. I believe that the late Lord Keynes lent his authority to this view. I rather think this view must have gone home in a sort of way (though perhaps not quite in the right sort of way), because in May last the Information Department of the Treasury announced in their Monthly Review that current Government expenditure was now down to 25 per cent. of the gross national product. So as not to be misleading, there was a star against the word "expenditure". The star referred to a footnote in which it was stated that National Insurance payments were not included. Of course, if you do not include all that you should include, the percentage of the gross national product spent by Government looks better; but if the items which I have enumerated and which, as I have said, total some£6,700 million at least, are correct, the proportion of the gross national product taken and spent by Government is about 37 per cent. I said I would leave the figures to speak for themselves, but, whatever else these figures may say or suggest, surely the first call will be for a halt to continually rising expenditure.
  Perhaps our greatest danger in this respect comes from the clever people—I

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  do not say that in any disparaging sense. It is natural that clever people should think that they can spend our money much better than we can ourselves. The Labour Party has recently treated us to a series of treatises on schemes by which they would control the use of any money left in the pockets of the people. There are rumours that the present Government intend to enter into competition with them, particularly in the field of pensions, for which new taxes will have to be paid by everyone. My Lords, it has been estimated that it costs about one-and-a-half times as much for the Government to do anything we can do for ourselves. I think that that is probable, for the costs of administration are always great. I am sure that the case for the Government not doing what the citizen can do for himself is quite overwhelming.
  Before I leave the figures involved in this Finance Bill I should like to recall the controversy the Government had with their last Chancellor of the Exchequer; the little controversy, as it was called, over a "negligible" sum of some£50 million. We now have the actual figures before us. The Estimates for the current year exceed the Estimates for last year by no less than£250 million, and exceed the actual expenditure last year by£150 million. My Lords,£50 million is not a sum which should be treated as negligible by a Government pledged to good house keeping; but an increase in the Estimates of£250 million surely should be enough to shock any Chancellor of the Exchequer into resignation. It is appalling to think that any Conservative Chancellor of the Exchequer can be found to defend it.
  Strictly speaking, taking expenditure "above the line" and expenditure "below the line", this Budget is not balanced, even after raising in taxation some£5,500 million. The estimated surplus of£415 million, if it materialises, is, of course, forced saving. Broadly, that is raised to finance the nationalised industries. The Labour Party, as I understand it, would carry this method further. Their policy is more forced saving and control of the use of any private saving. It is evident, I think, as I have said, that the Labour Party do not believe in trusting the people or in their education. The exercise of his freedom, the exercise of his choices, the exercises of his preferences, when-
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  ever he spends his own money, is part of the self-education of every citizen.
  The Conservative Party certainly gives him more freedom than the Labour Party would, but I still say, my Lords, that it is not enough. Let us try to build a really responsible society. I believe that a sound economy is based rather on the decisions of the consumer and the user than upon the dictates of any bureaucrat. Without infinite knowledge and without infinite wisdom, the job of controlling wisely is impossible. That principle applies to the Capital Issues Committee which I mentioned in the debate last week. I do not want to criticise the sincerity of their efforts, but the job that they have to do is an impossible one. That is why we prefer the decisions of the market which are the decisions of many individuals rather than the decision of any bureaucrat.
  There is only one other matter which I should like to mention. It is, I believe, related to the subject under discussion. Spending by the Government which is not covered by taxes or funding has to be met by the use of the printing press; by printing more Treasury notes or issuing more Treasury bills. I am rather surprised, when demands are made upon the Government—for instance, in the nationalised industries—for increased payments, that the Government do not admit straight away that they could find the extra money by instructing their printing press to manufacture a little more money. I am surprised that the Government do not say that, if they are pressed too hard, this is what they will have to do. I am going to suggest that this is what they have been doing. Last month they printed an extra 100 million Treasury notes; last week the Chancellor of the Exchequer gave authority for an extra 50 million to be printed.
  I know I shall be told that this is to meet the needs of those who are going on holiday, but if your Lordships will look at the figures of the note circulation you will see that although there are peak periods at Christmas and in the summer holiday time, the level of note circulation is always increasing. Last week it reached an all-time high of£2,150 million. This is what used to be called debasing the currency. Can we be surprised that the value of the pound is continually falling or, to put it in another

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  way, that the cost of living rises? I conclude as I began, by hoping that the figures that I have mentioned will speak for themselves, warn us all and bid us think where we are going.
  5.2 p.m.
  LORD MILNE: My Lords, before I make my few remarks I should like to take up some points made by previous speakers. The noble Lord, Lord Pethick-Lawrence, whom we always enjoy hearing, made some remarks about the expense of the increased bank rate. I have never been a great believer in a high hank rate, but I thought that the sudden increase at that moment of crisis was the best example of the merit of that course. I thought that the noble Lord's remarks were rather in the nature of jobbing backwards. He worked out some figures that might show the expense of the high bank rate, but what he did not say was the expense of devaluation for a country that has to buy all its foodstuffs and a great deal of its raw materials abroad.
  The noble Earl, Lord Cromer, spoke about the high surtax. He failed to say, and the noble Viscount, Lord Alexander of Hillsborough, corrected him, that in the last Budget the surtax payer received great help. He received allowances against surtax, and increased earned income allowance, so I think that my noble friend Lord Hailsham would have brought him up on that point. The noble Earl also mentioned the small investors. The Truck Act is very tricky and I agree that it should be amended if it is possible, but this year again there has been a small present to the small investors in the shape of reduced stamp duties on smaller purchases, which has been extended not only to house property but to investments as well. The noble Viscount, Lord Alexander of Hillsborough, made some remarks about distribution charges, suggesting that they fell more heavily on big companies. But it is the directly controlled small companies which in fact have suffered almost penal taxation. I understand that the average investor in big public companies is only a comparatively small holder and this alleviation of tax on distributions will be of great benefit to the small investors.
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  I propose to confine my remarks entirely to the Bill and therefore I reassure your Lordships that I am not going to speak in any great detail and at any great length, since by this date anyone interested will have studied the Bill. It has certainly lost all its freshness. I do not think that in the Spring anyone expected any notable reduction in personal taxation after the increased earned income allowances, et cetera, the year before. Therefore, from the point of the view of the public the Budget held very little interest from the beginning. Such reductions in personal taxation as were going went to the aged and small income groups, and rightly, as they feel the pinch of inflation more than most.
  This year, however, the business community has undoubtedly received a considerable encouragement, in the reduction of entertainments duty, the rationalisation of purchase tax, the amendments to capital allowances and the flat rate of profits tax that we have already heard discussed. All these taxes have been the subject of persistent and adverse criticisms, and certainly the change in purchase tax will be notable. As to the activities of the more ingenious members of society, the usual technical clauses are designed to frustrate their tricks. It would appear from Clauses 18 and 19 that in addition to plugging the old gaps derived from the benefits from artificially manufactured loss claims, the Chancellor of the Exchequer is moving to frustrate rather similar tax reclaims based on existing tax losses Although this may be expensive, and therefore important to the Chancellor, I view these practices more in sorrow than in anger as being a normal reaction in a community so subject to high taxation that tax considerations weigh more heavily in business than orthodox trading. Two more estate duty gaps have been plugged and a few more crumbs from the Chancellor's table complete a Budget to which one might apply the adjectives solid, logical and safe more than important, but which provides as much as we were entitled to hope for in the Spring of this year.
  5.8 p.m.
  LORD AUCKLAND: My Lords, during the past two days we have had two debates of tremendous importance to the whole country. It is logical that a debate on economic affairs should follow

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  one on the international situation, because economics and foreign affairs relate to each other very closely. For example, supposing that by some terrible misfortune the oilfields of Kuwait were suddenly taken from us, the economic repercussions on this country would be extremely serious. There are a number of people who "could not care less" about economics. When the term is mentioned to them, they display a sort of disinterested casualness; but if the price of beer goes up 1d. a pint or if the price of tobacco goes up 6d. an ounce there is a very different story: people begin to complain and to blame whatever Government is in power, without considering how all this happens.
  I is all very well to blame the Government in power for the high cost of living; and, indeed, the Government must take a large share of the blame. But surely in these days of comparative freedom of choice the housewife too can contribute towards bringing down the cost of living. May I quote an example? Last Saturday in Epsom, where I live, if one went to the local "Mac Fisheries", or whatever fishmonger it was, one saw salmon at 12s. 6d. a 1b. A few hundred yards away is the market, which operates on Saturday mornings, and similar salmon could be bought there at 8s. a 1b. Some people say: "Oh, I cannot be bothered to queue up in the market." But surely markets are just the places that are helping to bring down the cost of living. The general public can help by boycotting shops that deliberately keep up their prices—and there are shops like that in the country. In towns where there are a number of shops of a similar kind, people will find that not all of them charge the same prices; and if the public are discriminating, the shops that try to "fiddle" them will soon find themselves out of business.
  I do riot want to quote too many figures, hut in yesterday's Daily Telegraph certain figures, which may be of interest, were quoted. This year production of both goods and services was about 1 per cent. greater than in the first quarter of 1957; and purchases by consumers rose by 3½ per cent. One has only to look at the shops at Christmastime to see how many people "flood" the shops, and how many go to the bank. I do not know what bank withdrawals are or have been in the last year or so, but perhaps the
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  noble Viscount who is to wind up may be able to supply those figures. They have been quite high, which proves that there is money about and that people are not in a state of financial bankruptcy, as some would have us believe. According to these figures, public expenditure by the central Government and local authorities combined fell slightly. That is surely a point of the utmost importance.
  I work in the City, and in the course of my job I meet people of all classes and all incomes; and the cry of almost everybody is: "What about the cost of living? What is going to be done about it?" I have already mentioned one thing that can be done by the purchasers. Then, they say: "What about Government expenditure?" Government expenditure, of course, is high, and nobody is more keen than I am to see, in my own way, that Government expenditure is kept to a reasonable limit. But if we want the social services, the educational services and all the other services kept to a reasonable level, there must be some form of Government expenditure. People cry, "Enough!," if social services are slashed; but if the Government are suddenly going to say, "We will cut expenditure by Li-million ", people must not be surprised to find that the social services are themselves cut. The main thing which we have to see is that the money is spent wisely; and I contend that under this Government, while it is certainly not above criticism, the social services are being operated with quite a reasonable amount of wisdom and the minimum of money is being wasted.
  Another point I should like to mention is that which the noble Earl, Lord Cromer, raised about a property-owning democracy. This, I think, is important, and it is a matter to which the Conservative Party have pledged themselves fairly closely. It is surely logical to say that the more people who can buy and own their own houses, the better. I feel that the Government could give a greater lead in this respect. A semi-detached, three-bedroomed house in Surrey costs, on an average, today between£2,800 and£3,500. Before the war that same house would probably have cost between£600 and£1,300. Obviously, with the present high cost of labour and materials the price must be considerably higher than pre-war, but I feel that something could he done to make the prices more in the

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  range of the buyer or for mortgages to be more easily obtained. At the moment, unless a person is assured of a good, steady income, mortgages of a reasonable amount are difficult to obtain. Rather than have more and more council houses going up, I should like to see houses built for purchase. I have nothing personal against council houses, but one must remember the important fact that the local ratepayers, many of whom earn substantially less than those in council houses, have to subsidise those self-same houses. I think the Government should give that point considerable thought.
  Finally, I want to say a word or two on the Budget itself. I had a particular interest in listening to it, because the brother of the present Chancellor of the Exchequer is the chairman of the board of governors of my old school, and I had the pleasure of meeting Mr. Heathcoat Amory three years ago at an old boys' dinner. A finer and more conscientious man would be very hard to find. He has produced a Budget which, while it may have faults—and after all, to err is human—is undoubtedly one of the best Budgets we have had for many years. How many people can say, in all honesty, that they are a lot worse off than they were a year or two ago? How many people can say that they are a little better off than they were a year or two ago? I submit that a great many millions of people can say the latter. This Budget has been primarily a housewife's Budget and one for the small income groups. As I say, probably there are flaws in it which we can find, but I feel that we are discussing this subject at a time when prospects are a good deal rosier than they were six months ago. I believe that if the Government, aided by the public—who can do their share—pull together as a team, we can come out with rosy prospects ahead.
  5.20 p.m.
  LORD HAWKE: My Lords, I would have taken up one or two points made by the noble Lord, Lord Pethick-Lawrence, but I see that he is not in his place at the moment. I cannot resist the temptation, however, to ask the Liberal Front Bench to answer a question I put to them before on hearing some of Lord Grantchester's speeches—that is
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  which particular large items of expenditure they would propose to cut out of the national Budget. So far I have not received an answer, and I have an idea that to-day I shall still not get one.
  We all know that the free enterprise or capitalist system is subject to booms and slumps, but I think it is only a belief shared by Karl Marx and the purer minds of the Liberal Party which says that these things cannot be altered and that we must endure them without complaint. We believe that one can do a great deal to dam the mass optimism of man and to spur his mass pessimism. We have very powerful weapons at our command, and I particularly welcome the new weapon, the bank deposit to decrease the liquidity of the banks. I think that is a useful and perhaps long overdue addition to our armoury. But we must remember that the management of a free economy is a new venture, and nobody yet knows a great deal about how to carry it out. We need new techniques the whole time, and we have not got much experience. Quite frankly, over the last few years we—and by "we" I mean the whole Western World—have not been particularly successful. We have not done it half as well as the copybooks lead us to believe it can be done. We have too long had a boom, and now we are having too deep a reaction.
  The three economic factors of the world are, ultimately, the power to produce the raw materials, the power to convert them and the power to consume them. The trouble about the affairs of men is that those three never march in co-ordination. They go in fits and starts; and that, I believe, is just as true of Soviet Communism as it is of our own system. To-day we have the powers to produce and the powers to convert to an extent that is not matched by the purchasing power. The trouble is that we dare not loose the purchasing power at the moment, because we have just recovered from one spell of wage inflation and to do so might immediately bring us back to another one. When I say, "loose the purchasing power" I mean to free it in the volume which would match the capacity to produce and convert.
  I think there is room for common sense in this problem, because the interests of the trade unions are exactly the same as the interests of the Government and of

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  everybody else. They want to see a steady progress marching forward. Fits and starts, jerks forward and reactions with unemployment, are no good to them or to anybody else. If we are to have an increasing productive capacity in this country, we need an increasing purchasing power to consume it and also to encourage the expansion. After all, what is there for a man who invests in productive power? What is the lure which lures him on? It is the increase in population and the growth in purchasing power. That is what he has to go for. Some people would reject outright the idea that there should be an annual round of wage increases. I submit that practically and psychologically that would be quite impossible. After all, the manual labourer in this country is backed by powerful trade unions who see that, by and large, the clerical worker, the white-collar worker, gets an annual increment, and it is only natural that the trade unions should try to establish a similar sort of system for their own people. So we have it with us, I think, for ever.
  I am rather attracted by the idea which the noble Viscount, Lord Chandos, put forward some time ago, that the Government should negotiate with the trade unions for a standard rate of increase for a fixed period ahead. I believe that the economy could stand a 2½ per cent. rise a year without a wage inflation. That figure would seem small, of course, to some trade union leaders, but I justify it by he fact that there is a large sector of our economy in which the productivity of man cannot really increase, and that sector has to be carried by the sector where it can. Therefore it may require a 5 per cent. increase in production in the increasingly productive sectors to carry the whole economy.
  Then, of course, the actual cost of the services performed by that part of the economy which cannot increase its productivity will naturally go up if its wages go up, and if the burden is not to go upon the people who buy those services they will have to have it made up to them in another way. That, I believe, is the proper sphere of the Government through the Budget. The increased Government revenue resulting from higher income and higher production should be given as relief speedily, so that people can carry the cost of the increased services. When I say "speedily." I do not mean a year
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  in arrear, which is what happens in the Budget to-day. If Budget relief could be given much more quickly, I think we should find that demands for wages would be lessened.
  At the present moment we have reached the position where the price of manufactures is tending to fall and some profits are contracting; and to that extent there may be some lowering of Government revenue, possibly set off by increased income tax from higher wages, which, in turn, is set off to some extent by lower tax on overtime. That is a slightly gloomy picture, but as a set-off to that, on the other side of the picture we have a pound that is strong and reserves which are rising. But we do not really know—I certainly cannot possibly suggest—why or how the reserves are rising. To what extent is it due to money flying from depression in the United States? To what extent is it hot, short-term money from the Continent, and to what extent is it from the lower commodity prices which presumably must make the sterling area more liquid? If it is from the latter, as I believe it may well be, we have a lower purchasing power abroad, and we simply cannot afford in our position a world deflation and increased competition for contracting markets; and that is why we must do our utmost to maintain the overseas markets for goods. I have believed for some time now that we ought to have been using these reserves in giving credits to those countries overseas that want to buy our goods and which have lost their purchasing power owing to the fall in commodity prices. That step would help to tide them over until the tide turns. I see that in the last week or so I have been fortified by the opinion of a very eminent economist who apparently thinks the same.
  That is one reason why I thought my noble friend Lord Hailsham was a trifle complacent, and I believe Treasury spokesmen are too, when they talk about exports keeping up. The exports of to-day are the orders placed a long time ago, and the exports we are worrying about at the moment are from orders that should be coming in at the moment. I do not know how they are coming in. I suggest that they are probably not coming in as well as one would like. I should also favour exploring the field

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  of commodity agreements, wherever possible, though I realise the appalling difficulties that lie in embarking on such a course. Whether those commodity agreements should be Commonwealth—guaranteed markets for Commonwealth products—or whether they should be world-wide, would have to depend. I think, on individual commodities. But in this connection one thing I have never been able to understand is Her Majesty's Government's policy in selling commodities from what I believe are called the strategic reserves. If they were strategic I should have thought they were needed now as much as ever. If they were balancing stocks I do not see why they should have been sold on a falling market which has contributed to further falls.
  In the Finance Bill itself I do not think there is anything startling. There is nothing new that is bad, but there is still some old and bad. I am afraid that I am quite unrepentant in regarding the rates of sur-tax on the higher incomes as economically stupid and inevitably tending towards the type of fiscal depravity which we see so much abroad. There is no question about it that from bottom to top, whether it is the expenses of the big business man or the Saturday afternoon work free of tax, we are becoming a nation of tax-avoiders and tax-evaders.
  The greatest problem of Government is one that I have referred to before, and it has remained completely unchanged; that is, the ability to borrow for the public sector. I believe that investment on the whole and money for the investment in the private sector is probably adequate; it matches the consuming power. But when we turn to the public sector we all know on all sides the things that we want built. We all want roads. Many of us want lunatic asylums, looking to the future. Some of us want new hospitals, looking to the present, and so on—new barracks for our soldiers.
  There is an immense amount of Government spending on capital account which ought to take place if the Government were able to borrow to do it. Though the noble Lord, Lord Pethick-Lawrence, would suggest the remedy of cheap money (he can make it cheap in the short term by a low bank rate which
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  can be reinforced by printing), for the long term I suspect that the rate of money is the rate at which borrowers and lenders are prepared to meet. Therefore, I do not think a lower bank rate is likely to help very much the problem of Government borrowing in the long term. The trouble is that to-day there is a universal belief in inflation in some degree. The Church Funds Investment Measure, the Variation of Trusts Act, are pointers in the wind. To dispel that belief, I believe, is quite beyond the powers of any Government. It would require years of deflation. It would be politically quite impossible and economically quite disastrous. The only alternative is to "plug" along, and to try to provide stocks which will compete with the real property and equities into which the savers of to-day are putting a large proportion of their funds.
  I have said that the pound is looking up, and the curious thing is that when one surveys the whole scene I do not believe the position is remarkably different from what it was a year ago. Prices are a bit more stable but our export prospects are worse, so from the foreigners' point of view I should not have thought there was much in it. But the pound is looking up and it does show that it is confidence that does the whole thing. It may surprise some of your Lordships to know that, so far as I can make out, the retail prices in this country to-day, measured in terms of either dollars or gold. are exactly the same as they were before devaluation, or within a point or two. In other words, goods which in 1949 would have cost£100, 400 dollars, bought in the shops to-day could be bought for about£150, and that would cost 420 dollars.
  Our pound has lost its value in terms of gold, and of course the dollar has lost its value in the United States to some extent as well. So that our internal price level has just about now caught up with the inflation caused by the devaluation of the pound in 1949. That is why I believe we have the chance of some stability now; things have caught up. The annual wage increase seems to be nearer what the economy can stand, and I am glad to see that the chorus of denigration of the pound, whether it comes from Zurich or from the City of London, seems to have died down. But let it be replaced by a more positive

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  attitude. Our pound is not over-valued. We know that devaluation is quite disastrous, as we have learned. We intend to hold it; and all our reserves, visible and invisible, will be behind that task.
  5.40 p.m.
  VISCOUNT HAILSHAM: My Lords, I think the time has come for me to reply to the debate. My notes are inextricably confused, and nearly all those who have taken part have sent me little messages saying that they are unfortunately called away and cannot listen to the reply. I should like to thank the noble Lords, Lord Cromer, Lord Milne and Lord Hawke, for speeches to which I shall not reply in great detail, if only because I found them so helpful as to save me from saying a good deal which would otherwise have fallen to my lot to say. I should like to assure the noble Lord, Lord Grantchester, that there is indeed a rather obvious misprint in the Order to which he referred, which will be put right to-morrow; therefore he cannot complain of the promptitude of my service in this respect.
  LORD GRANTCHESTER: The mistake, unless corrected, would have far-reaching effects.
  VISCOUNT HAILSHAM: It might be quite serious if it was not a misprint. I am grateful to the noble Lord for drawing it to my attention and it will certainly be put right to-morrow.
  My Lords, I was very grateful to noble Lords on the Front Bench opposite for their courteous remarks about my opening speech, which was entirely designed to meet their criticisms of last year. I still think it would have been better if I had left two-thirds of it out, but if they like it that way they shall have it that way next year—whether as a reward or punishment it is not for me to say. The only point on the Budget which really requires any answer on my part is the point of the noble Viscount, Lord Alexander of Hillsborough, who made a long and detailed complaint about the effect of profits tax on co-operative societies. There is absolutely nothing whatsoever in that criticism; it is a naked and quite blatant attempt to get a privilege above all other taxpayers for a particular class of taxpayer. The funny thing about profits tax, to be entirely and thoroughly paradoxical, is that it is a tax
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  on profits, and what Lord Alexander of Hillsborough objects to is that it is his profits—or rather those of his societies—which are taxed as well as those of other people, and at the same rate.
  This was put rather clearly by the Royal Commission when they proposed a flat rate of tax. They said:
  " The main principle that we wish to see adopted is that a tax on the profits of corporations should apply to all profits without distinction between corporations the ownership of which is vested in the State and other corporations, or between corporations formed to serve public purposes and those formed to serve private purposes. It seems to us that only by an impartial distribution of the tax whenever and wherever profits are found can there be a fair balancing of costs and prices between the public and private sectors of industry and commerce. And if these factors are not balanced fairly the true relationship between these different activities in respect of their development is itself disturbed.
  " The second principle that we advocate is that profits themselves ought to be arrived at by the usual objective tests and that artificial definitions of profits which depart from these tests do not serve any good purpose, since they tend to obscure the very realities which the main principle aims to throw into relief."
  The noble Viscount, Lord Alexander of Hillsborough, for various reasons which he gave us, wants a quite unfair advantage given to a particular class of traders so that their profits are not taxed at the same rate as other people's—a naked and blatant privilege which the democratic Party on this side of the House could not possibly endorse.
  If I may just "polish off" the noble Viscount in his absence, which I regret as much as everybody else, I would agree that he did say that the share capital of co-operative societies is not quite the same as the share capital in other trading companies. This, of course, is true. What he did not say, and what it would have been fair of him to say, was that my right honourable friend the Chancellor of the Exchequer had fully taken all that into account when he allowed, as a special concession to the co-operative societies, interest on share capital to be deducted on the same basis as loan interest, which it more nearly resembles, before ascertainment of profits. There is, therefore, nothing whatever in that point either.
  The noble Viscount also complained very largely of the extra burden of taxation which the equitable distribution

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  would throw upon the co-operatives. I do not think there is very much in that. The sales of retail co-operative societies during 1956 amounted to£886 million. It is against this background that the additional burden of£1·3 million has to be observed, and we have the effect, if it was all thrown on to the "divi", which is of course not a dividend, that it would be reduced by one-third of a penny.
  The noble Viscount also claimed that the co-operative societies desired to expand. This, of course, is true. Since the Budget debate, the report of what I understand is known as the Gaitskell Commission on the Co-operative Movement has been published. It says that if the Movement is to increase its share of food trade by one-third and to double its present share of the non-food trade, a total capital expenditure on new assets of some£200 million would be required over the next ten years, which would mean annual expenditure well above the present level. Against this background the increase in profits tax of£1·3 million appears to be a very small burden. I hope that noble Lords opposite will feel that I have done full justice to the arguments of the noble Viscount. Lord Alexander of Hillsborough.
  I turn now to the Budget itself and to the more general economic matters which we have been discussing. To a contemporary Party like my own there is something rather odd in the continual debate we always see on these occasions between the Socialists, who do not appear to believe in freedom at all and would go back, as the noble Lord, Lord Pethick-Lawrence, crudely said, to planning—that is, I suppose, the philosophy of the ground-nuts scheme—and the noble Lords of the Liberal Party whose most articulate speaker on this subject was Lord Esher but whose most thoughtful speaker was Lord Grantchester. I am sorry that Lord Esher has gone, after a delightful and stimulating but not very realistic speech. But the Liberals continue still to believe in the virtue of the Manchester school of economics, in which, I must say, there has always been a great deal and to which, therefore, I am prepared to pay my tribute in its proper historic context.
  But the unreality of both Parties opposite lies in the fact that the Party of the
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  noble Lord, Lord Pethick-Lawrence, appear to think that the only choice is between what they describe as a planned economy and what they describe as a "free-for-all", by which they mean the Manchester school beloved of the noble Lord, Lord Grantchester; and the noble Lord, Lord Grantchester appears to think that we, of the Conservative Government, are living in something like the "Big Brotherism" of 1984. I must say to both sets of noble Lords that that bears no relation to realities whatsoever. We belong to a modern industrial society in which it is generally recognised that public activities bear a greater weight and a greater proportion in a large number of economic and social activities than was probably thought desirable in the middle of the nineteenth century. That makes nonsense of the claim that the Conservative Party believes in a "free-for-all". The idea that in the structure of modern legislation and with an annual Budget running, as we have been reminded more than once, into a total of£5,000 million a year, we are indulging in an economic "free-for-all" would be absolutely ludicrous if it were not apparently seriously believed by the noble Lord, Lord PethickLawrence and his Party. A "free-for-all" could not be, and has not been, indulged in in such conditions.
  What we believe in is a quite small and modest measure of freedom for the remaining sector of the economy, which is, thank goodness, rather more than half. But that measure of freedom is apparently denied by the Socialist Party. The various activities in which we indulge, whether they are in the form of defence at a cost of£1,400 million, or in the form of social services which amount to rather more, cost money, and they certainly bear a direct relationship to the requirements both of the time and of the number of people that you keep alive in this country. That is a fact which it seems to me the noble Lord, Lord Grantchester, consistently overlooks in his perpetual Jeremiads about the level of Government expenditure. He reminds me more than anything else of the admirable and wholly praiseworthy Members of both Houses of Parliament in the 18th century who were constantly reminding their colleagues of the King Charles's head of a Standing Army which they were suggesting was perpetually frightening decent

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  citizens into a belief that their fundamental liberties were threatened. Again he has turned on the full battery of armaments which were provided in the middle of the 19th century, but which really have little relationship to to-day.
  I must tell him absolutely plainly that, time after time, he comes to us and complains of the level of Government expenditure. He is aways invited to describe one item which he regards as unnecessary, and he never will respond to our invitation. I ask him again, does he think, for instance, that the children's allowance, which costs for the second child something like£500 million, is unnecessary? If he does, by all means let him say so. But the fact is that if you are going to pay a children's allowance your Government expenditure will go up if there are more children. And when he says, with a terrible air of shocked surprise, that he cannot conceive of how a Conservative Chancellor of the Exchequer can justify the estimated increase of£250 million, what would he have us do? Would he have us kill all the children, or else abolish the children's allowance?
  LORD GRANTCHESTER: My Lords, with respect, the noble Viscount is surely conjuring nonsense. The Labour Party think they can invest the savings of the people of this country better than the people themselves. There will be investment by the savers if the money is left in their pockets. As I have said, the Conservative Party allow more freedom than the Labour Party would, but not sufficient freedom. That is perfectly fair. Development will go on if people invest their savings themselves in just the same way as if the Government do the investing for them out of forced saving.
  LORD HAWKE: My Lords, did they invest their savings in the mines and the railways?
  LORD GRANTCHESTER: The people have the right to decide the investments they wish to make.
  VISCOUNT HAILSHAM: My Lords, at the moment nobody is talking of investment. All I am saying is that every time there is an economic debate the noble Lord, Lord Grantchester, complains to me about the gross excess of
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  Government expenditure; but when he is invited to provide one single modest economy he always delicately declines the invitation. I am putting forward one or two possible substantial economies—education, for example. Just before I became Minister of Education we were spending (including local expenditure) something below£500 million a year. In my year we spent£569 million on education. In this current year we are spending£613 million—a great increase in Government expenditure. Oddly enough, there are more children, and to talk in terms of "extravagance" without taking account of the elementary social realities of a modern State is really to live in the middle nineteenth century. The trouble is that the Liberal Party are deluded into thinking that they are ordinary people—
  LORD GRANTCHESTER: My Lords, this is not playing the game. If I have several children I have to provide for them out of the income that I have left after the Government have taken taxation. All I am saying is that the Government must keep within the same kind of housekeeping that a citizen has to apply to his expenditure.
  VISCOUNT HAELSHAM: My Lords, I should have thought we did so. The actual cost of keeping a child at school under the provided system is grotesquely small; and I doubt whether the noble Lord, with all his experience, is able to keep within a similar housekeeping budget. I must say that I feel that the noble Lord is out of touch with reality.
  That was illustrated very clearly by another Liberal speech—that from the noble Viscount, Lord Esher, who blew in and blew off and blew out, having told us that he was an ordinary man. Of course, he is not an ordinary man: he is a most distinguished man. But ultimately, during the course of his delightful address, it emerged that the ordinary people for whom he claimed to speak, those among whom he apparently perpetually revolves and over whom he sheds his illumination, are ordinary people who live a life in which they pay 18s. 6d. in the pound income tax and surtax and who are so well off that they do not notice when Her Majesty's Government reduce the current rates of income tax and sur-tax and introduce seven successive Budgets with direct taxation

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  relief, and who, when they die, pay death duties at 80 per cent. which, I believe, is above the maximum. So the noble Viscount, Lord Esher, speaking as an ordinary man and complaining of the extraordinary gap between the Administration and the people, was not a very good example of what he was describing. I can only say that if I had to introduce the noble Viscount into some of the clubs of my former little constituency of Oxford as an "ordinary man" he would have to wear a very considerable disguise.
  LORD WINDLESHAM: My Lords, I was not in the Chamber when my noble friend Lord Esher was speaking, but perhaps I might be allowed to defend the noble Viscount who has been the recipient of some remarkably amusing "cracks" from the Government Front Bench which we have all enjoyed, in varying degrees of course. The noble and learned Viscount has invited the noble Lord, Lord Grantchester, and therefore possibly anybody on these Benches, to give a single instance of a way in which public expenditure could be saved. Time and again in your Lordships' House I and others have tried to draw the attention of Her Majesty's Government to the fact that the expenditure for the Ministry of Defence and the Services is out of proportion to the results achieved, because the staffs are, and have been for too long, too big. This could well be a means of reducing public expenditure—
  EARL ST. ALDWYN: My Lords, may I interrupt the noble Lord? He is in fact making a speech during the reply of my noble friend. If he wishes to make a speech he must make it in proper turn.
  LORD WINDLESHAM: My Lords, I apologise if I have inconvenienced your Lordships, but we on these Benches were asked to produce an instance where expenditure could be saved, and I have tried to do so.
  VISCOUNT HAILSHAM: My Lords, apparently the noble Lord's suggestion is that we should save money on defence. Having lived through a period of Government consultations relating to the Defence services, I am bound to say that the achievement of my right honourable
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  friend the Minister of Defence in reducing Government expenditure on defence in the last eighteen months has been little short of spectacular. In fact, the only plausible criticism I have heard—and I am bound to say that it is a plausible criticism—is that my right honourable friend may have cut too near the bone and may even have gone too near the minimum. That was the burden of complaint in another place yesterday, and I should have thought that that had a good deal more substance than the suggestion of the noble Lord.
  The noble Lord, Lord Pethick-Lawrence, who I am glad to see has returned to the "firing step", was at pains to conceal the fact that what I really had to tell this afternoon was a success story. It is a success story, the story of a very sound and, to my mind, brilliantly successful Government policy, won at the expense, for a time, of extreme unpopularity. When we last debated this subject in February we on the Government Benches were assailed with almost triumphant jeers from the Benches opposite. I notice a very considerable change of tone to-day. It is true, of course, that the noble Lord. Lord Pethick-Lawrence, endeavoured to "pooh-pooh" our achievement. He said that the increase in our reserves was due to various special circumstances, favourable terms of trade, the export-import borrowings and assertion of our right of bisque in loan repayments. There is a great deal of truth there, for in any period of nine months there are always special circumstances of which partisans of political warfare are able from time to time to take advantage.
  Our reserves have much more than recovered their autumn losses, even allowing for special items since then. Even taking off export-import borrowing and bisque we get a figure of£950 million. which compares with the figure of£850 million a year previously; and what the noble Lord did not appreciate was the importance of the fact that during the same period our sterling creditors had run down their sterling balances by£260 million. So I do not think the noble Lord can really "ride out" by suggesting that this is not a success story.
  He was a little bland in some of his statements. He started very fairly. He always sounds very fair, and I believe

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  that he tries to be fair. He said that there were certain things on which we were in accord and certain things on which we differed, and he enumerated things on which we were in accord. I have a note that at one stage of the proceedings he said we were in accord in that the Labour Party were as keen and determined—the noble Lord used the word "determined"—as Her Majesty's Government to combat inflation. I wish I thought that we were in accord about that. I know that the noble Lord is perfectly sincere in what he says, but I do not believe that the Labour Party are in the least determined to combat inflation—and I have good reasons for expressing that belief. I can go back to the devaluation of the pound in 1949, under Sir Stafford Cripps. They did not show a great deal of determination then, although we were subjected to a good deal of austerity. I remember that when they held the General Election of 1951 they were running away from, rather than facing, a crisis which was certain to lead to further devaluation on any measures that they had put forward.
  I have been watching their proposals week by week and year by year during the present Parliament. There is not one of those proposals which would not have directly encouraged inflation. What about their grotesquely inaccurate pension scheme, with its fantastic actuarial inaccuracies? What about the replacement of all Health Service charges with a free service? What about housing? Each one of these several items of policy which are being brought out now week by week and month by month, for the Party Conference, would create in one way or another vastly increased demands upon our purchasing power. It is all very well to say that they are determined to combat inflation, just because "inflation" is a dirty word. But the fact is that the Labour Party are not determined to combat inflation. On every single occasion I can remember they have tried to buy votes by creating inflation; so we are not in accord on that at all.
  LORD PETHICK-LAWRENCE: My Lords, the noble Viscount is entitled to draw his own inferences, but he is not entitled to say that we are not keen and determined to prevent inflation; and, in spite of the invective which the noble
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  Viscount has just delivered, I stand on what I said.
  VISCOUNT HAILSHAM: My Lords, I have said once that I recognise to the full the noble Lord's absolute sincerity in this matter. But determination is proved by resolute action and not by bold words. The words of the noble Lord are bold enough, but when his Party get into power their actions are recklessly inflationary: they attack the anti-inflationary measures of those who have had to bear the responsibility, while at the same time proposing what they think to be attractive electoral schemes like that for pensions which can have only an inflationary effect. Although I do not in the least question the noble Lord's sincerity, or his general desire to do good in the world, I question his statement of fact that the Labour party are determined to combat inflation. I do not think they are. I think that their determination is belied by their actions and their promises alike.
  The noble Lord, Lord Pethick-Lawrence, amused himself with some very elaborate and attractive calculations as to what he called the economic consequences of Toryism. He did this by an ingenious calculation, and he said, in substance, "If you have a bank rate of 5 or 7 per cent., instead of 2 or 3 per cent., obviously you pay more for your borrowings, and therefore this is a very expensive thing. "The truth is that the noble Lord, so far as I can see, is wasting his time in making these calculations, because both rest on invalid assumptions. He takes an arbitary rate and assumes that the Chancellor of the Exchequer might have borrowed at that rate in the past year. But he ignores the fact that it might have been impossible for the Government to borrow at such low rates, even if they had been inclined to take such steps as would throw their monetary policy to the wind.
  Secondly, he ignores the deliberate calculation which successive Chancellors of the Exchequer have made and defended in Parliament: that the extra cost to the Exchequer has been justified by the overriding need to use the monetary weapon to deal with inflation. It is ultimately as simple as that.
  LORD PETHICK-LAWRENCE: My Lords, the noble Viscount is really confusing the issue. I never suggested for one moment—no sensible person would

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  suggest it—that the Government could have borrowed in the last few years at the rate of 3 per cent. instead of 6 per cent. No one would dream of making the suggestion. My point is that the cost of the method which the Government have adopted to deal with inflation is a very heavy one; part of that cost, the majority of it, arises from their use of the monetary policy in putting up bank rate. Of course, when they have put up bank rate to 5, 6 or 7 per cent. it follows, as day follows night, that when they go to the public to raise a loan they will have to pay this high rate of interest. I say that the total cost of their method of making a roast pig is a very heavy one; it is even as great as burning down the house.
  VISCOUNT HAILSHAM: My Lords, the noble Lord has now gone even further than he went in his speech. He said in his speech that it would not be as great as burning down the house. The point is that I am doubting the validity of the analogy, and I would put it as simply as this. When the Government are faced, as we were last autumn, with a balance of payments crisis or a monetary crisis, one of the things they need to do is to attract foreign money to this country. One of the ways of doing that is to make it more attractive for people to send it here. Noble Lords opposite still delude themselves with the belief that it is possible to maintain a stable currency without maintaining confidence in its future. In fact, you can maintain a stable currency only if you maintain confidence in its future. You can win your lender's confidence only by offering terms which he personally finds attractive; and fortunately, or unfortunately, the foreigners whose money we wish to attract to this country, both outside and inside the sterling area, are not within reach of a
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  Socialist Chancellor of the Exchequer. They will not send money if the terms of bank rate are any more than the reasonable rate for the job.
  In so far as it has an internal effect as well, the internal effect is equally beneficial. If you are faced with a problem of credits, and an inflationary problem, one of the things you want to do is to stop people borrowing so much money, and so you make it slightly less attractive for them to do so by raising bank rate. This is what we think is a rational approach; and over the past twelve months it has proved to be effective, which is more than can be said of any of the remedies offered or imposed by the Socialists, and which they have threatened to reimpose if ever we are unfortunate enough to suffer again from a Socialist Government.
  A curious fact about the Party opposite is that, like the Bourbons of old, they learn nothing, even though they may forget a lot. They have not yet learnt that controls of a physical nature are not a way of restoring confidence, and controls of an experimental nature are not a way to generate expansion. The truth is that the policy which has been exemplified by this Budget of my right honourable friend is a success story, for the reasons which I indicated in my opening speech. I do not believe that there have been any arguments put forward from noble Lords opposite during this debate which would lead people to lose any sort of confidence in it; and it seems to me that the Party which supports my right honourable friend in both Houses of Parliament has the only right among those who have spoken to-day to claim to represent a contemporary and forward-looking economic policy at all.
  On Question, Bill read 2a; Committee negatived.

  LOCAL GOVERNMENT AND MISCELLANEOUS FINANCIAL PROVISIONS (SCOTLAND) BILL
  6.8 p.m.
  Order of the Day read for the consideration of the Commons Amendment to one of the Lords Amendments.
  THE MINISTER OF STATE, SCOTTISH OFFICE (LORD STRATHCLYDE): My Lords, I beg to move that the Commons Amendment be now considered.
  Moved accordingly, and, on Question, Motion agreed to.

  COMMONS AMENDMENT TO ONE OF THE LORDS AMENDMENTS
  The References are to Bill (99) as first printed for the Lords
  LORDS AMENDMENT
  After Fourth Schedule, insert the following new Schedule—

  LOCAL GOVERNMENT ADMINISTRATION
  The Allotments (Scotland) Act, 1922
  1. Section nine of the Allotments (Scotland) Act, 1922 (which requires the councils of certain burghs to establish allotment committees) shall cease to have effect.
  The Education (Scotland) Act, 1946
  2. In section three of the Education (Scotland) Act, 1946 (which relates to the provision of facilities for recreation and social and physical training), in subsection (1), the words with the approval of the Secretary of State' shall cease to have effect.
  3. In section twenty-five of the said Act of 1946 (which relates to contributions by education authorities to the maintenance of certain schools and institutions), in subsection (6). the words 'with the sanction of the Secretary of State 'shall cease to have effect, and for the words 'the Secretary of State,' where those words secondly occur, there shall be substituted the words 'the education authority'.
  4. In section twenty-seven of the said Act of 1946 (which relates to educational research) the words 'with the approval of the Secretary of State 'shall cease to have effect.
  5. In section thirty-four of the said Act of 1946 (which relates to exemption from school attendance) subsection (5) shall cease to have effect.
  6. In section forty-five of the said Act of 1946 (which relates to the provision of transport and other facilities), in subsection (1), the words 'or as the Secretary of State may direct 'shall cease to have effect.
  7. In section seventy-four of the said Act of 1946 (which relates, among other things, to the examination of accounts of education
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  authorities) subsections (2) and (3) shall cease to have effect:
  Provided that this paragraph shall not have effect as respects accounts for any period before the year beginning on the sixteenth day of May, nineteen hundred and fifty-nine.
  The National Health Service (Scotland) Act 1947
  8. In section twenty-two of the National Health Service (Scotland) Act, 1947 (which relates to the care of mothers and young children), in subsection (3), the words with the approval of the Secretary of State 'shall cease to have effect.
  9. In section twenty-seven of the National Health Service (Scotland) Act, 1947 (which relates to the prevention of illness, the care of persons suffering from illness or mental deficiency and the after care of such persons), in subsection (3), the words 'with the approval of the Secretary of State 'shall cease to have effect.
  10. In section fifty-one of the National Health Service (Scotland) Act, 1947 (which relates to the duties of local health authorities under the Lunacy and Mental Deficiency Acts), in subsection (3), the words 'with the approval of the Secretary of State 'shall cease to have effect.
  11. The Fifth Schedule to the National Health Service (Scotland) Act, 1947 (which requires local health committees to make the minutes of their proceedings available for inspection by electors) shall cease to have effect.
  The Local Government (Scotland) Act, 1947
  12. In section one hundred and five of the Act of 1947, subsection (2) (which requires county councils and town councils of large burghs to have administrative schemes for the discharge of their functions as local health authorities), subsection (3) (which requires county councils to have administrative schemes for the discharge of their functions relating to roads) and subsection (4) (which precludes county councils and the town councils of large burghs from revoking administrative schemes approved under section fourteen of the Local Government (Scotland) Act, 1929, otherwise than by making another administrative scheme) shall cease to have effect and any reference in subsection (5) or subsection (6) of the said section one hundred and five to an administrative scheme shall be construed as a reference only to an administrative scheme relating to education.
  13. Section one hundred and seven of the Act of 1947 (which prescribes the contents of certain administrative schemes required to be made by county councils and town councils of large burghs) shall cease to have effect.
  14. Section one hundred and ten of the Act of 1947 (which requires county councils to appoint committees for the purposes of their functions relating to roads) shall cease to have effect.
  15. Section one hundred and eleven of the Act of 1947 (which relates to health committees required to be appointed by county councils and town councils of large burghs) shall cease to have effect.
  16. Section one hundred and twelve of the Act of 1947 (which requires county councils and town councils which are police authorities to appoint committees for the purposes of their functions relating to police) shall cease to have effect.
  17. In section one hundred and fourteen of the Act of 1947 (which relates to the appointment of sub-committees of committees for administrative scheme functions) for subsection (1) there shall be substituted the following subsection, that is to say—
  ' (1) Save as otherwise provided in this Part of this Act a sub-committee of the education committee of a county council may consist to an extent not exceeding one half of persons who are not members of the council:
  Provided that a person who is not a member of the council or of the committee shall not be appointed to a sub-committee except with the consent of the council.'
  18. Section one hundred and fifteen of the Act of 1947 (which relates to the appointment of committees and sub-committees of county councils, town councils of burghs and district councils) shall have effect with the addition of the following subsection, that is to say—
  ' (3) Any committee appointed by a local authority under subsection (I) of this section for the purposes of the authority's functions under the Allotments (Scotland) Act. 1922, the National Health Service (Scotland) Act, 1947, the Town and Country Planning (Scotland) Act. 1947, or the National Assistance Act, 1948, may to an extent not exceeding one third of its membership consist of persons, not being members of the local authority, who have special knowledge or experience in regard to the functions for the purposes of which the committee is appointed.'
  19. In section one hundred and fifty-seven of the Act of 1947 (which relates to the acquisition of land in advance of requirements) the 'words with the consent of the Minister concerned 'shall cease to have effect.
  The Town and Country Planning (Scotland) Act, 1947
  20. Part IV of the First Schedule to the Town and Country Planning (Scotland) Act, 1947 (which requires local planning authorities to establish planning committees for the discharge of their functions under that Act) shall cease to have effect.
  21. In Part V of the First Schedule to the Town and Country Planning (Scotland) Act, 1947 (which relates to sub-committees), in paragraph 1, for the words 'The planning committee of a local planning authority' there shall be substituted the words 'Any committee established by a local planning authority for the discharge of their functions under this Act '; after the words 'the committee' there shall be inserted the words '(hereinafter referred to as "the planning committee"), and for the words 'not less than three-fourths of the members of any such sub-committee which
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  consists of more than three persons 'there shall be substituted the words 'not less than two-thirds of the members of any such committee'; and, in paragraph 3, for the words 'a planning committee established under Part IV of this Schedule', there shall be substituted the words 'a committee to which paragraph 1 of this Part of this Schedule relates'.
  The Local Government Act, 1948
  22. In section one hundred and thirty-five of the Local Government Act, 1948 (which relates to instruction, lectures, etc., on questions relating to local government) in subsection (1), the words Subject to such conditions and restrictions, if any, as the Secretary of State may by regulations prescribe' shall cease to have effect.
  The National Assistance Act. 1948
  23. Part I, of the Third Schedule to the National Assistance Act, 1948 (which requires county councils and town councils of large burghs to establish committees for the discharge of their functions under Part III of that Act) shall cease to have effect.
  The Valuation and Rating (Scotland) Act, 1956
  24. Section two of the Valuation and Rating (Scotland) Act, 1956 (which requires valuation authorities to have administrative schemes far the discharge of their functions relating to valuation) shall cease to have effect.")
  The Commons agreed to the above Amendment, but proposed the following Amendment thereto:—
  Paragraph 17, line 6, after (" county council ") insert (" or of the town council of a county of a city ").
  LORD STRATHCLYDE: My Lords, I regret having to trouble your Lordships with this drafting Amendment, but it corrects an error in the new Schedule which was added to the Bill in your Lordships' House during the Committee stage. Paragraph 17 of the Schedule as it stands refers only to education committees of county councils. The cities also have education committees, and therefore it is necessary to refer to them. This Amendment puts the matter right. I therefore beg to move that this House doth agree with the Commons in the said Amendment.
  Moved, That this House doth agree with the Commons in the said Amendment to the Lords Amendment.—(Lord Strathclyde.)
  On Question, Motion agreed to.

  HOTEL ACCOMMODATION
  6.10 p.m.
  LORD GIFFORD LORD GIFFORD rose to call attention to the increasing loss in dollar earnings caused by the shortage of hotel accommodation, particularly in London; to urge Her Majesty's Government to consider creating more favourable conditions to those wishing to make economical use of valuable sites in the West End for the erection of large modern hotels, which are urgently needed to cater for visitors from overseas; and to move for Papers. The noble Lord said: My Lords, your Lordships have spent two long and gruelling days on foreign travel, after which you endeavoured to balance your budgets—always a difficult thing when returning from abroad. It is therefore hardly surprising that a number of noble Lords have preferred their homes to hotels, which will be the subject of my Motion to-day.
  In the debate on the Budget, as in every economic debate that I have heard in this House, more than one speaker has emphasised the importance of building up our exports, particularly to dollar countries. I think this view is held irrespective of Party—it is perhaps the only point on which every economist agrees. My Motion to-day is based on the greatest of all our exports, and by far the largest dollar-earner. I refer to the tourist industry, the importance of which to this country cannot be emphasised too frequently. It is estimated that over 1¼million visitors will come to Britain this year, and that they will spend, including fares, about£190 million. These are enormous figures: 1¼million visitors spending£190 million. Compare this total with about 400,000 visitors in 1947 and less than half a million in 1937, the best pre-war year. In ten years the tourist traffic has increased by about 200 per cent.
  We have to face a probable annual influx of about two million visitors in about five to ten years' time. What are we doing about it? The airlines are doing a great deal. The noble Lord, Lord Douglas of Kirtleside, Chairman of British European Airways, has stated that£1,000 million has already been invested in 1,000 jet or turbo-prop airliners, and that more than five times that number will be required by 1970. These are huge figures, but the money being
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  spent on these airliners will be wasted if the passengers they bring cannot be accommodated when they get here. Foreign airlines will carry them to Continental countries which have had the forethought to encourage the building of large modern hotels aided by various Government schemes. I am appealing to the Government to-day to give immediate and earnest attention to this problem, because I believe that every million pounds spent on providing hotels will bring in several times that figure in foreign currency. It has been said that every hotel room of the right type built in this country will earn us£4,000 per annum in foreign currency.
  In May of this year the British Travel and Holidays Association held a two-day conference at the Board of Trade. The Chairman, Sir Arthur Morse, told me that he was calling this conference because he and his staff were getting desperate. They were beginning to feel that their most successful "Come to Britain" scheme and campaign would shortly be a waste of time and money because there would be nowhere to put those visitors who came as a result of their excellent propaganda. Even now it is believed that 10 per cent. more visitors from America would have come here last year if the rooms had been available. The hulk of American tourists are sent here by American travel agents. Some of them, of course, come under their own steam, but great numbers of them come in large or small parties, organised not from here but by travel agents in America; and if those American travel agents cannot quickly and easily obtain hotel accommodation in Britain. their tours will by-pass Britain and will be confined to the Continent, where they get much more help and encouragement from the hotels.
  Now, at the conference to which I have referred it was significant that, although only one of the four sessions was devoted to hotels, the subject kept on cropping up at every single session. In fact, the chairman felt compelled to put his foot down and to rule that any further mention of hotels would be out of order. This conference on tourism was opened by Mr. R. A. Butler, and every one of the four sessions was attended by a Minister or Under-Secretary from the Board of Trade, the Home Office, or the Ministry of Transport: so

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  there is no doubt that the Government took a great interest in this conference. I am therefore much encouraged in bringing this Motion before your Lordships to-day by the obvious interest which is being taken in Government circles. I might interpose here that I also sympathise with the noble Lord, Lord Mancroft, in that not for the first time he has to answer for several Departments at once.
  Now I come to this point: that there is an undoubted need for far more hotel rooms with private baths. But why are practically none being built? The answer is that with present day costs at somewhere about£5,000 to£6,000 per room it simply is not an attractive proposition. I could give several glaring examples, but I will quote only one. The directors of Quaglino's acquired the adjoining site facing Jermyn Street—the site of that famous pre-war institution the Hammam Turkish Baths, which some of your Lordships will remember. The hotel already had all the necessary restaurant facilities, but what did they do on this site? They merely built a banqueting room in the basement and built an office block on top of it. When one thinks of it, this was an ideal opportunity to increase the number of hotel rooms in London. When I expressed disappointment to the chairman, whom I know well, he told me that with the huge capital cost involved the new bedrooms would not have been an economic proposition. How much greater are the difficulties in the way of anyone wishing to build a new hotel from scratch!
  THE EARL OF LUCAN: Before the noble Lord goes on, perhaps he could answer one question. One of the things he has said puzzles me. As I understood him, he said that the cost of hotel rooms was from£5,000 to£6,000 per room. He has also told us that each room was calculated to bring in£4,000 a year in revenue. How, in that case, is it not an economic proposition to build hotel rooms?
  LORD GIFFORD: In answer to the noble Earl opposite, I can only say that I have not myself gone into the question of building hotels, but it simply is impossible to get finance for building an hotel; and existing hotel interests of great experience are not building new hotels
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  simply because their calculations show that it is not economic. I do not think that now is the time to go into this matter in detail, but there are the enormous overheads, the staff, and everything else to be dealt with if you are going to link up those figures. The earlier figure I gave was a figure that the British Travel and Holidays Association worked out on the best information available.
  My first proposal is that cheap capital should be made available to those wishing to build new hotels or to modernise existing hotels which are considered suitable. As I have already said, banks and finance houses do not look favourably on requests from hoteliers, as they do not consider hotels to be an attractive investment. I should like to see the Government establish a body to be known, let us say, as "The Hotels Finance Corporation"—something on the lines of the Finance Corporation for Industry, which would act similarly to that body. Schemes put before this body would be carefully considered, taking particular account of their value as dollar-earners. In suitable cases no-interest loans would be made for this purpose and for major improvements designed to make hotels suitable for overseas visitors, the main requirement being more rooms with private baths. That is what is always wanted by people coming here from America. Many other countries are doing this, particularly Spain and Italy, with a consequent increase in the number of hotel beds since the war.
  Your Lordships have heard my suggestion about finance; but finance is useless and projects are doomed to failure unless hotels can be built on the right sites and can be planned to make the best and maximum use of the ground available. Several big property owners, usually in conjunction with American hotel interests, have been planning large hotels in this country since the war, but all except the Westbury in Bond Street have failed to reach fruition. There have been the Hyde Park Hotel plan, the Manchester Square project and now the Park Lane scheme. Big new blocks of offices have reared their heads all over the West End, but hardly any hotels, and the position has been made worse by the fact that hotels requisitioned at the outbreak of war, such as the Carlton and the Metro-pole, have been permanently lost.
  Why have none of these schemes been carried out? I believe that the answer

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  is that they have not received sympathetic and helpful consideration from the planning authorities. These authorities have old-fashioned ideas and seem terrified of tall buildings. And without height no hotel on a central and expensive site can get full value out of the site. It is an axiom that a first-class hotel must be in what visitors consider to be the right position. Many of them stay only two or three days and want to be right in the centre. For instance, Americans will not accept a hotel on what they colloquially know as "the wrong side of the tracks".
  I should like to give your Lordships a few more details about the Park Lane project, because I think it is one of the most important. I do not think I can do better than read from a letter from Mr. Charles Clore, published in The Times on March 24. He starts off by saying that the Parliamentary Secretary to the Board of Trade had spoken about the necessity for at least 3,000 more bedrooms and about how important it was to expand the hotel industry. He goes on:
  " I can only speak of matters with which I personally have been concerned. Some 10 years ago I and those associated with me came to the conclusion that the changes which had occurred and which were anticipated in travel facilities justified a vigorous policy of expansion in the hotel industry. We decided that it weed be good business as well as in the national interest to venture our capital in an industry which formerly had been regarded as one which was highly speculative. Accordingly we investigated a number of propositions, but our efforts were frustrated by various factors including the attitude of local authorities and Government Departments.
  " Finally in 1956 we were able to acquire a site which is generally agreed to be ideal for a new hotel. Months of discussion between the planning authorities and our professional advisers in efforts to bring the project within the rules and regulations (most of which were not designed to apply to hotels) resulted in a scheme being suggested to us which was clearly an economic impossibility.
  " Accordingly in May, 1957, we made a formal application to the London County Council for consent in principle to the construction of a large hotel on the site in the hope that this would force a speedy decision. In August we were advised that the matter had been taken out of the hands of the London County Council by the Minister of Housing and Local Government. A public inquiry was held in November and we are still awaiting a decision. In the meantime modern hotels to attract the ever growing tourist trade are springing up all over the world, except in Britain."
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  Since that letter was written there is still no definite action, and Mr. Clore's associates in the scheme, the Hilton Hotel Group, are becoming disheartened. They have already built large hotels in other parts of Europe, notably in Istambul and Madrid.
  The London hotel planned would have had 700 double bedrooms, each with bath and dressing room. It was estimated that it would earn six million dollars a year, and, of course, tourists would spend many times that amount outside the hotel. There was also to be internal parking for 260 cars, which would help another acute problem in London. The Hilton Hotel Organisation believe that they could arrange conferences and conventions at the hotel, flying Americans over for these conventions, and this would help to fill it during the off-peak seasons. This scheme was turned down altogether in May, 1958, after a whole year of negotiations. The Minister is now considering a scheme for a 500-bedroom hotel as an alternative, but, of course, this proposition is much less attractive; the cost per bedroom rises by at least£1,000, probably more, and the hotel will be much less economic and probably impossible unless some cheap finance goes with it. In any case, there is still no decision after all these months. All we know is that the scheme is under active consideration. I hope that a decision, long overdue, will soon be given. Another group, Messrs. J. Lyons & Company, are considering a large scheme on the Trocadero site. I hope that their plans, when submitted to the Minister, will be dealt with quickly and sympathetically.
  I have spoken about cheap finance and help with regard to planning, but there are several other ways in which help can be given to the hotel industry, and I should like to mention those ways briefly. Many hotels have been built in the United States and Canada since the war. One reason for this is a generous depreciation allowance for tax purposes on all hotel buildings. I see no reason why hotels should not be treated in the same way as industrial buildings, with an initial allowance of 12½per cent. and an annual allowance of 2 per cent. Similarly, hotels should be treated as industrial premises for rating purposes, or rating concessions should be given where bedrooms of a certain standard are provided.

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  Hotels must keep their décor up to date and their interior appointments in line with modern taste in decoration. It is only right that this cost of decoration and modernisation should be allowed as a trading expense for tax purposes. There is also a curious anachronism called monopoly value, which is imposed on premises licensed since 1904. Few people realise the existence of this burden and I think that its abolition is long overdue, as it is one more unnecessary straw which may break the back of the industry. Finally, I come to the much argued subject of purchase tax on catering equipment—china, glass, linen, et cetera—the tools of the trade. Passenger ships buy this equipment free of purchase tax. Why not hotels? I know that there are administrative difficulties, but I believe that they could be overcome and I would ask the Minister to give another thought to this matter.
  Before I sit down I should like to compliment the Government on their expressed intention of repealing the Catering Wages Act, which has created many anomalies and has added greatly to the difficulty and expense of running hotels. I only hope that the new catering wages boards will give greater flexibility, which is very necessary to enable hotels, particularly smaller ones, to give better service to their guests. I think it only fair to say that certain existing hotel interests, whose opinion demands respect, maintain that the existing hotels now erected in London cannot be filled throughout the year, but the fact remains that it is most difficult for all those concerned with travel ever to obtain a room in any of our leading hotels. That is an experience common will all travel agencies. My hope is that if some or all of my proposals are adopted, those with the greatest experience of running hotels will concern themselves with building new ones, confident that they can be made to pay, even though there must be some periods of the year when it must be accepted that a substantial number of rooms will be empty. My remarks have been largely concerned with London, but they apply to other large cities where overseas visitors on business or on holiday wish to go.
  I should like to conclude by summarising my specific proposals. First, a finance corporation for hotels. Secondly, much
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  greater and speedier assistance from the Government in obtaining permission for tall buildings. Thirdly, generous depreciation allowance on hotel buildings. Fourthly, hotels to be treated as industrial premises for rating purposes. Fifthly, the *cost of new decoration and new décor to be allowed as a trading expense. Sixthly, abolition of monopoly value; and lastly, abolition of purchase tax on the tools of the trade—china, linen et cetera. I believe these are practical suggestions, and they are supported by many people with much greater knowledge of the hotel industry than I have. I therefore commend them to your Lordships and to Her Majesty's Government. When opening the new wing of Grosvenor House last year, the previous Chancellor of the Exchequer said:
  " Everybody knows that there is not enough first-class hotel accommodation in London. Everybody has been saying this for years."
  My Lords, let us stop saying and begin doing. If, in the next twelve months, I can look up and see the steel framework of a modern hotel towering against the London skyline, I shall feel well rewarded for having raised this matter to-day. I beg to move for Papers.
  6.32 p.m.
  LORD HADEN-GUEST: My Lords, the noble Lord, Lord Gifford, has given us a general suggestion about the value of good hotels. I speak as one who for a good many years was the medical officer called in at all times of the day and night to help one of the best known hotels in London—I will not mention its name. I have therefore a great knowledge of hotel life, organisation, and so on. One thing I can tell the noble Lord is that the prices charged by the particular hotel I am thinking about—which I am sure the noble Lord knows well—and the prices he has quoted are out of all comparison. It is not necessary to have prices of the kind he has given. I am not sure whether the noble Lord said£1,000 for a room with a bath, but that seems to me to be nonsensical.
  LORD GIFFORD: I think we are at cross purposes. I am not dealing with existing hotels, built before the war, of which the leading ones are doing quite well and their balance sheets show a profit. But that is a different thing from building a new hotel from scratch now, when the capital costs of building are

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  many times greater than they were. It is riot considered possible to build a new hotel which, when completed, will be an economic proposition, because the capital costs are so high. That does not affect the hotels that have already been built which are on quite a "good wicket."
  Loma HADEN-GUEST: I intervene only because of my special knowledge of this matter, and I do not think any very high prices such as the noble Lord suggested—was it£1,000 for a room?—are necessary.
  LORD GIFFORD: I am not talking of what the guests are charged, but about the capital cost of building a new hotel, which is a different matter.
  LORD HADEN-GUEST LORD HADEN-GUEST I agree that that is a different matter, but I think the prices which are being charged are quite excessive.
  6.35 p.m.
  LORD JESSEL: My Lords, I have no interest in the hotel or catering industry other than as a consumer. I am sure your Lordships will all be most grateful to my noble friend Lord Gifford for putting down this Motion, which draws attention to what is obviously an unsatisfactory situation in a large capital city. It s not only the tourists who suffer; people coming here on business have the same sort of difficulties. I have spent many frustrating hours on the telephone trying to get accommodation for overseas visitors coming here on business, especially during the summer months. So there is no doubt that there is a shortage of suitable hotel accommodation, during the week much more than at week-ends, and probably for about three months in the year.
  Here I should like, with your Lordships' permission, to quote a few sentences from the speech made by Mr. Wontner, the chairman and managing director of the Savoy Hotel Company, at their last annual general meeting. He said:
  " Judging by official figures, the peak months last year for- the overseas trade were July, August, and June, in that order, with September and May as the next most important months. In November, December, January. February and March, all five months combined, there were fewer visitors in the aggregate than in the four weeks in July. This demonstrates the essential difficulty about new hotels built for the overseas tourist trade: the demand for rooms is so heavily concentrated in far too short a period of the year."
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  So, with present-day building costs and current site values, the total cost of equipping a new hotel would, I think, as my noble friend Lord Gifford said, almost certainly prove to be uneconomic. I think it is true to say that many capital cities and large towns all over the world are faced with the same problem. But I do not think the solution is the simple one of building more new hotels. For instance, I do not think anyone is going to be foolish enough to build a new hotel in Dublin just for the week of the Horse Show, because if they did, they would find it empty for practically the whole of the rest of the year.
  But in spite of this rather discouraging picture I have painted, I am glad to see that, even under existing conditions, there are some optimists about, because I have seen from the newspapers that permission has been recently given for the building in the Lancaster Gate area of a new hotel comprising some 600 to 800 bedrooms. I wish the backers of this enterprise every success. My noble friend Lord Gifford has emphasised the need for helping the promoters of new modern hotels, but I think it would be unfair for the Government to grant any favours only to newcomers, and any concessions which are going to be made should be made for the benefit of the whole industry. I think the most practical way of dealing with this problem is for the Government to encourage existing hotels and restaurants to carry out extensions and improvements. Some could expand and others could bring the standard of their accommodation up to what is now demanded by every overseas visitor who has any money to spend.
  How can this be done? I suggest that there are several ways in which the Government could help to reduce the operating costs of these establishments. For instance, under the present law all expenses on buildings and equipment of hotels which are not specific replacements of existing assets are treated as capital items. So the cost of modernisation has to be met out of taxed profits. But with taxation as high as it is to-day, it is almost impossible to set aside a sufficient amount of money from this source to do what is necessary. It would undoubtedly be a great help if all alterations within the four walls of existing hotels could qualify for relief from income tax and profits tax.

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  Another form of assistance, as my noble friend Lord Gifford has already said, would be an extension of capital allowances. I understand, for instance, that these allowances can be claimed on the cost of such items as furniture, curtains, carpets and linoleum, but not, for some reason, on linen, cutlery, plate, glass and china, which are all essential tools of the trade. Another suggestion is that interest-free loans might be given on the lines of the National Industrial Fuel Efficiency Service, which has greatly assisted the installation of modern equipment designed to effect economies in fuel. For hotels, a similar sort of scheme might be put into operation to cover the costs of such work as the installation of new bathrooms and central heating, both of which are demanded by the overseas visitor to-day.
  Another possibility which Her Majesty's Government might consider—and my noble friend Lord Gifford has also touched on this—is the possibility of de-rating. My noble friend has emphasised the need for encouraging the building of new hotels in London, and in my opinion he has made out a strong case for this and has contributed many useful suggestions. I have dwelt more on the need for helping existing hotels to expand and modernise. My hope is that Her Majesty's Government will be able to do something to help both of us. As I see that my noble friend Lord Mancroft is to reply, as he always seems to do on the few occasions when I have the temerity to address your Lordships' House. I am full of hope.
  6.43 p.m.
  LORD LAWSON: My Lords, I think there must be general regret that this debate has come at the end of a long day. It deals with accommodation for visitors to this country, and one of the things I have been pleased to notice, particularly during this summer season, has been the number of visitors from every part of this country, not only going about this great city, but particularly visiting the Houses of Parliament. I say that in order to point out that, so far as increasing the number of visitors is concerned, I should welcome some sort of consideration to it. But let the House be fully conscious of what it is considering—
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  "…to consider creating more favourable conditions to those wishing to make economical use of valuable sites in the West End for the erection of large modern hotels.…"
  Now the people who can supply the capital for valuable sites in this great city are comparatively few, and I suggest that this is a piece of special pleading for a particularly small class of people who, so far as I can see, are well able to look after themselves. I would suggest to the Government that they think seriously about this matter before they make any concessions at all. In his Motion the noble Lord is asking for this special privilege to be given to a very small class of people who are more than able to look after themselves. So I suggest to the Government that they should be careful before they give any promise such as has been asked for to-day.
  LORD GIFFORD: May I interrupt the noble Lord for one moment? I am not interested in development as such. I am interested in getting these hotels built, so that this country can earn the dollars. If building hotels was a profitable and economic project in present conditions, they would be built. But they just are not being built, and therefore I think some encouragement needs to be given.
  6.46 p.m.
  LORD BARNBY: My Lords, this is a most interesting subject. I personally have no interest in hotels, and I know nothing about how to run one, but I am often a guest in a hotel—and I refer particularly to the Provinces and not to the Metropolis. I would echo the words of my noble friend Lord Jessel, that we owe a debt of gratitude to my noble friend for moving this Motion. I say that with a profound belief that there is something wrong, and that the lack of proper accommodation and in the services which are given in hotels in this country, particularly in the Provinces, is marked. In that I should find myself in complete disagreement with the noble Lord, Lord Lawson. Far from caring whether the hotel people can look after themselves, what I want is that the people who run hotels should look after their guests. That is a much more important point. It is because I find the services given to guests in the Provinces so infernally bad that I particularly support my noble friend.
  My noble friend laid emphasis on the Metropolis. I repeat that I think more

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  of the Provinces. I say this because all those in the big industrial cities want to see as guests the buyers of our products and our machinery, and those who are going to bring skilled knowledge to us. I am confident that compared with hotels in North American towns of much smaller size than our big cities the facilities are insufficient. I will not mention the names of any cities, but your Lordships can all look at the population figures, and many big cities in this country have appallingly poor hotels. The service they give would not be accepted in North America.
  There is no need to support at length the recommendations which my noble friend made, but with the indulgence of the House I should like to add one or two personal reasons why I feel there is scope for something to be done. Much has been said about the finance of hotels. My noble friend suggested a finance corporation, and that thought should be given to the structure of the Trade Facilities Act which was passed after World War I. Much of its terms could be applied to this particular problem. I suspect that in the operation of these hotels there must be difficulties because the reward is not sufficient to produce efficiency.
  My noble friend referred to amenity, and other similar questions. He omitted to refer to one matter, and I should regard this as an important one—that is, the cooking in the hotels. Take the cooking of simple things like vegetables—it is deplorable. There is no training for cooks in this country, and I would submit—and I hope my noble friend who replies will not omit to make a note of this—that if the Home Office would licence the importation of more foreign cooks who know how to cook, they could teach more people in this country and we should be, I am sure, better off. We recently had a debate in this House on the general projection of this country's advantages to the world. What is the good of spending a great deal of money on that if the tourist trade, which has made the most important contribution to our balance of payments position, is impaired by reason of insufficient accommodation to receive the tourists when they come here?
  I could have hoped that many more Members of your Lordships' House would have come this afternoon to
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  support my noble friend in this Motion, because there is undoubtedly substance in it. I suppose that the frugal habits of this country make the operation of hotels at week-ends, when people eat at home and will not eat at hotels, difficult; but whatever the reasons are, there should be sympathetic support for the Motion. I am glad that the noble Lord, Lord Mancroft, is going to reply. He is, as should be the case, a particularly well-qualified judge of good food and good comfort. He has in addition a particularly acute commercial brain, and with all those qualifications I hope he will, as I believe he will, give sympathetic reception to my noble friend's Motion. I trust we shall get some encouragement to hope for concessions of the character that my noble friend has raised. I have much pleasure in supporting the Motion.
  6.52 p.m.
  THE EARL OF LUCAN: My Lords, it is surprising how the most innocuous-sounding subject can bring up quite controversial matters, and while we have every sympathy with the noble Lord, Lord Gifford, in his ambition to increase the possibility of earning dollars and foreign currency in this country, his speech and the subsequent speeches raise one or two matters on which I hope the noble Lord the Minister will comment. We had, of course, the financial side, and I thought it a pity that the noble Viscount, Lord Hailsham, was not here, because there were echoes in it of his speech in the last debate, on the Finance Bill. It seamed to me that there were some traces of pleading for special treatment for special interests, which the noble Viscount castigated in his speech. Then we had the attack on the planning legislation of this country and particularly of this city. I should like to remind the noble Lord, Lord Mancroft—I am sure he has remembered it—that we as Londoners have to live here all the time; the planning regulations are designed to safeguard our city and to prevent undue congestion in the central areas of London.
  LORD BARNBY: May I remind the noble Lord that one of the Members of this House raised the question of the improper siting of the Westbury Hotel; it seemed the most stupid place in London to put it. There were only three noble

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  Lords who took the trouble to support the one who raised the opposition to it. I raised it.
  THE EARL OF LUCAN: I thank the noble Lord. I am sure that many noble Lords read the account in Hansard.
  We also had mention of the Catering Wages Act—a very big subject, and a highly controversial one. It was one of the points the noble Lord mentioned in his speech. Finally, there is the question of the standards which the noble Lord, Lord Gifford, is advocating. He talks of hotel interests planning hotels with 700 rooms—I think he said double rooms, each with bathroom and dressing room. I wonder how many of our visitors are really prepared to spend the sums that would represent in room rent. This summer I have seen a number of visitors from overseas, America and Canada. And most of the complaints I have heard have not been that they cannot get rooms of the right standard but that they cannot get rooms at the right price. Many of them would be quite willing to go a little outside the centre of London, and I suggest that the planning authorities should be slow to give permission for further development of this kind right in the middle of London. Let there be development on the Underground lines outside London, from which access to the centre is very easy, but do not let us clutter up the centre with too much new building.
  6.58 p.m.
  THE MINISTER WITHOUT PORTFOLIO (LORD MANCROFT): My Lords, I can assure your Lordships that Her Majesty's Government do indeed recognise the importance of the British hotel industry. It is, of course, an integral part of the whole tourist trade, and our tourist trade last year earned£128 million. This year we hope that the constantly increasing number of overseas visitors will spend nearly£140 million in this country. About 9s. 6d. in every one of those pounds is spent in hotels and restaurants. One first-class hotel bedroom can earn between£3,000 and£4,000 a year in foreign currency. This means, if I have done my sums right, that a hotel of about 500 bedrooms can earn at least£1½ million a year in foreign currency. I repeat, therefore: the Government fully recognise the importance of the hotel industry.
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  There is a sharp contrast between the rapid growth of transport capacity, especially in the air—a capacity that is obviously likely to increase—and the static condition of the hotel industry. This, unfortunately, is a fact. It will be one of the main questions which will be studied in the course of a review of the long-term prospects of the tourist trade as a whole which the Board of Trade and other Departments are about to undertake. This review is intended to follow up the important conference on tourism, to which my noble friend Lord Gifford referred, held in May by the British Travel and Holidays Association, at which many proposals were put forward for expanding the tourist trade. All these proposals, which include, incidentally, most of the specific points your Lordships have raised this afternoon, will he carefully studied.
  The general economic principle of the Government's policy by which these problems will be judged is as follows. The industry as a whole is largely in the hands of private enterprise. Last year, the number of tourists was three times what it was ten years ago. The Government hope that this evidence of a growing demand for new hotel accommodation will encourage confidence in the hotel industry and stimulate more private investment. There is, indeed, evidence of a renewed business interest in hotels. In the last year or so the financial position of the hotel industry clearly improved. The profits of those companies in the hotel industry whose accounts were published during 1957 were about 20 per cent. higher than in 1956. This figure, I admit, is unevenly spread. London, for instance, is much better off than the seaside resorts.
  The Government's job, as I see it, is to let the hotel business get on with its business, rather than to interfere, yet at the same time to help to create the right atmosphere of confidence—especially in the City—in which that business can flourish. A number of suggestions have been made about the ways in which the Government could help, and these will all be carefully and sympathetically examined. There are, as your Lordships will appreciate, and as the noble Earl, Lord Lucan, and the noble Lord, Lord Lawson, have rightly pointed out, obvious difficulties about granting Govern-

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  ment subsidies to one particular industry. If to the hotel industry, which earns dollars, then why not to the motor industry, for instance, which also earns dollars? In any case, assistance of this kind inevitably involves Government inspection and control, and I do not think that that would be welcomed by the hotel industry in general, or even by the Gordon Hotels, in particular.
  There is another difficulty. There are about 50,000 hotels and boarding houses in this country; and a great many of them are obviously more concerned with catering for the domestic holiday maker than for the foreign tourist. The Dorchester and, say the Seaview Private Hotel (" Dogs not admitted ") raise slightly differing problems. Any form of financial assistance to the industry would therefore either have to be selective, which would raise difficulties about distinguishing tourist hotels from others, or it would have to be given to a great many establishments which earn little or no foreign currency. I do not want to pour cold water on the schemes which have been put forward, but these are just the kinds of problems which the Board of Trade inquiry will have to sort out.
  I do not want to prejudge the issues, but let me offer one or two observations on other points that are bound to crop up. My noble friend Lord Gifford suggests, for instance, that modernisation costs of hotels should be treated as trading expenses. Hotels are treated in the same way as other businesses, so far as being able to claim tax relief on repairs and maintenance. If we were to follow Lord Gifford's suggestion we should, of course, be placing hotels in a better position than any other class of business, industrial or otherwise. Improvements generally, moreover, in any non-industrial buildings are treated as capital expenditure for tax purposes: they do not qualify for tax relief. Your Lordships may ask "Well, why not make an exception here? Hotels are, after all, a great dollar earning business." Then I would say again: What about the insurance industry? That is also a big dollar-earning business. I think your Lordships will see that like so many of these suggestions, this matter is not quite so straightforward as it looks.
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  Take depreciation allowances. At present these are given only in respect of industrial buildings. Your Lordships will remember, of course, that hotels, like other industries, can claim depreciation allowances on such items as lifts, furniture and carpets. But here again I think it would be difficult to distinguish between non-industrial buildings such as hotels and buildings such as the new Lloyd's. This obviously presents a real problem—but it is a problem I think we shall have to look at carefully again.
  What about the question of de-rating, which the noble Lords, Lord Jesse] and Lord Gifford both mentioned? As your Lordships know, the industry is at present de-rated to 25 per cent., but is to be re-rated to 50 per cent. Once again I think it would be difficult to distinguish between commercial premises, such as hotels, and other commercial premises such as shops or offices. The valuation of hotels for rating purposes already makes due allowance for their seasonal nature. And your Lordships will, of course, remember that hotels secured 20 per cent. de-rating as recently as 1957. I must point out, therefore, that there are sizeable arguments against the fresh de-rating of any particular class of property. Only within the past few days the Local Government Act received the Royal Assent. This Act has the strengthening of the rating system as one of its main objects. It is in this context, and in the knowledge that any extension of de-rating adds appreciably and immediately to the rate burden of all other ratepayers, that any proposal to give hotels a larger measure of de-rating would have to be considered.
  The most difficult example of drawing the line between hotels and other businesses occurs when we come to purchase tax. That it is a burden on the hotel industry. I do not deny; but a great many other people also think it is a burden on them. The honourable Member for Kidderminster, Mr. Gerald Nabarro, does not let us forget this argument; nor have any convincing figures been put forward by the hotel industry to show precisely what sort of burden it is.
  It is levied only at 5 per cent. on furniture; on most other items used in hotels the rate is only 15 per cent. I readily admit that purchase tax is a heavy burden when a hotel is being

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  furnished for the first time. It cost the Leofric Hotel at Coventry, I believe, nearly£35,000. I really do not know, however, how we could work out a satisfactory scheme for distinguishing between goods to be used in the hotel industry and those for ordinary domestic use. Purchase tax, your Lordships will remember, is levied at the wholesale stage by reference to the nature of the goods and not to the purpose for which they are to be used. Where again, therefore, does one draw the line?
  What about a special loan? Here there is one strictly limited field in which the Government can possibly make loans to finance the construction of an hotel. I mentioned this to your Lordships on the Second Reading of what is now the Distribution of Industry (Industrial Finance) Act, 1958. The Government now have power to make loans for any purpose likely to reduce, or contribute to the reduction in, the rate of unemployment in any locality in which a high rate of unemployment exists and is likely to persist. I hope that this provision may attract new people into the hotel industry. Such areas as the Highlands and the Islands, or parts of Devon and Cornwall, might conceivably qualify for a loan under these powers. The principal purpose of the Act, I must remind your Lordships, however, is to relieve unemployment, rather than to assist the hotel industry.
  My noble friend Lord Gifford has suggested that planning authorities could be more sympathetic, particularly with reference to multi-storey hotels. We are told that this is the only way that large new hotels can be made to pay. I can assure the House—and I am pleased to do so—that neither planning requirements nor the building by-laws stand in the way of new hotel construction, whether the hotel is to have three storeys or thirty. There is no preconceived objection to high buildings in London, though many people seem to think there is. What there is objection to is badly sited or badly designed buildings—and rightly so. I agree with the noble Earl, Lord Lucan, that a new building should not only look civilised but should be a good neighbour and fit well into its environment. This, surely, is particularly important if it is going to be a skyscraper.
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  Some hotel promoters have sought permission to erect huge buildings on sites which were much too small to take them. Your Lordships will be aware of the proposal to erect a new hotel of 700 bedrooms just north of Londonderry House, in Park Lane. This would not only have loomed up to roughly the same height as Salisbury Cathedral, but would have been four times bulkier than the size of building which the recognised planning standards would otherwise have permitted on that particular site. It would have stuck out like the proverbial sore thumb. The Government therefore called in the application and refused permission. I am sure that that particular decision was right, but it was not taken just because the proposed hotel was to have been 400 feet high. The promoters, incidentally, have now made another application for two different designs for a smaller hotel of 530 bedrooms on the same site, and this is under consideration.
  Meanwhile, as my noble friend Lord Jessel told us, my right honourable friend the Minister of Housing and Local Government has granted planning permission for another tall hotel, containing 700 bedrooms, on a larger site in Lancaster Gate. This building will be slightly less than twice as bulky as the maximum prescribed by planning standards for that particular site, but it will not dominate its surroundings anything like so badly as did the Park Lane example. I hope your Lordships will realise from this that the planners are indeed prepared to relax the standards to a considerable degree in order to encourage hotel promoters. Altogether since the war, planning permission has been granted for eight new hotels in London. These would produce nearly 4,000 bedrooms. They would also produce nearly as many bathrooms, which a few British hoteliers still seem to regard as an unnecessary refinement; and only yesterday the London County Council granted planning permission for a hotel of 255 bedrooms on seventeen floors rising to a height of 170 feet just south of Londonderry House at 11–15, Park Lane. In addition, as your Lordships know, the L.C.C. are now considering an application for permission to build an hotel of 1,000 rooms on the Trocadero-Corner House site near Piccadilly Circus.
  I readily admit that only one complete new London hotel, the Westbury, has actually been built. My noble friend

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  Lord Jessel referred, however, to the extensions that have been carried out to Mount Royal, Grosvenor House, the Washington, the De Vere, the Tavistock and several other hotels, not forgetting the penthouses at the Dorchester. Altogether 600 new rooms were added to London hotels in 1957.
  There has been a good deal of activity out of London, too. In addition to the Leofric at Coventry, there is the highly original Dover Stage Hotel which caters especially for cross-Channel coach tourists. Recent extensions include doubling the accommodation at the Chaucer Hotel in Canterbury, and an ultra-modern studio-wing (whatever that may mean) just opened at the Imperial, Torquay. Modernisation (especially adding bathrooms) can obviously be as important as new construction in coping with the tourist demand. The brewers have set a good example in the Grand, Leicester; and the Royal and Queens, Cardiff.
  But fashions change. Malvern, for instance, has far too many hotels. My tobacconist, who used to go to Cromer, now goes to the Costa Brava. More and more visitors now bring their cars to Britain; and here I agree with the point made by the noble Lords, Lord Barnby and Lord Lucan, that there are other parts to this country than Edinburgh, Stratford-on-Avon and London. We have to persuade visitors to spread their custom more widely. If we are to get the best value for money out of our hotels, we may even have to change our own views about the right month to take a holiday and the wrong hour to take a drink. We may also have to persuade a few lazy hoteliers that the Catering Wages Act does not prohibit them or their wives from rustling up a plate of bacon and eggs for a benighted traveller who arrives when the chef is off duty.
  -Your Lordships will see then that more is afoot than is generally realised. But I do not deny that the business is a chancy one, and to open a new hotel in Britain calls for courage as well as cash. There is many a slip between the blueprint and the grand gala opening day of the new hotel. Planning permission does not automatically result in the appearance of financial backing for the building. I cannot, therefore, guarantee that all the 4,000 rooms for which planning per
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  mission in London has been granted will necessarily see the light of day; but what I will guarantee is that this Government have not stood and will not stand in the way, through over-nice adherence to planning rules, of any bona-fide application to make more hotels available both in London and in the country.
  The points made in this debate will be carefully considered in the inquiry which I have told your Lordships is now under way. Her Majesty's Government fully recognise the contribution made by the hotel industry to our economy. New hotel building has not kept pace with the expansion of tourist traffic and transport capacity since the war. Tourists will not come if there is nowhere for them to lay their heads.
  There are, however, serious objections to singling out this industry, important though it is, for special help which will be denied to other dollar earners. The scope for Government help or interference is of necessity limited. Her Majesty's Government look to private enterprise to meet the challenge of the expanding traffic; but the Government will do everything that is reasonable and possible to improve and sweeten the atmosphere in which that challenge can be met. We must now look carefully at the Tourist trade as a whole and see what is reasonable and what may be possible.
  7.15 p.m.
  LORD GIFFORD: My Lords, I should like to thank the four noble Lords who have supported my Motion at this late hour of the evening. I am very grateful to them. I believe that when the noble Lord, Lord Jessel, reads my speech he will see that I appealed for help for improvements as well as for new buildings. I am glad to hear from the noble Lord, Lord Mancroft, that an inquiry by the Board of Trade will shortly take place. I am also grateful to the noble Lord for his sympathetic answer.
  I should just like to say that I believe that it is quite possible to be selective about this matter and that a committee of some finance corporation could review each case on its merits as a dollar earner. I do not think it is necessary to give the same help to the whole industry. I should say also that, pound for pound, the help given to the hotel industry will bring in far more foreign currency than

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  anything else, including insurance. We have had a comparatively short debate because of the hour, but possibly when the report of this Board of Trade inquiry is published it might be a good thing to put down a Motion in wider terms for discussion in the next Session. I should again like to thank the noble Lord, Lord Mancroft, and all who took part in this debate, and beg leave to withdraw my Motion.
  Motion for Papers, by leave, withdrawn.

  BRITISH TRANSPORT COMMISSION BILL
    TEES VALLEY AND CLEVELAND WATER BILL
    Returned from the Commons with the Amendments agreed to.
  FALMOUTH HARBOUR BILL [H.L.] CITY OF LONDON (VARIOUS POWERS) BILL [H.L.]
  Returned from the Commons, agreed to with Amendments: the said Amendments considered and agreed to.