§ 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 387 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 388 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 389 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, 390 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 391 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, 392 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 393 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 394 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 395 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 396 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.
397 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 398 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.
399 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 400 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. 401 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 402 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.— 403 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- 404 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 405 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 withWhat 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 406 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 407 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.
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 408 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 409 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.
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 410 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 buyThat'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, 411 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 412 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 413 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 414 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?
415 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- 416 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, 417 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 418 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 419 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 420 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.
421 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 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 422 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.
§ 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. 423 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 424 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 425 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- 426 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 427 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.
428 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 429 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 430 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 431 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.
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 432 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 433 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 434 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 435 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 436 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 437 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.
§ 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 438 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 439 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 440 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 441 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.
§ 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 442 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.
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 443 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.
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.
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 444 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 445 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 446 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 447 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 448 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.