THE ECONOMIC SITUATION

HL Deb 15 April 1959 vol 215 cc639-750

2.31 p.m.

LORD PETHICK-LAWRENCE rose to call attention to the economic situation; and to move for Papers. The noble Lord said: My Lords, I expect that it has been occasionally the experience of most of your Lordships, as it has been mine, to drive in a car whose chauffeur has recklessly pursued his path and driven on the horn and the brake. One arrives at one's journey's end somewhat shaken in body and agitated in mind, in consequence of the jerks which have been inflicted upon one in course of transit by the driver of the car. That is my feeling with regard to the financial policy of the successive Tory Governments which have been in charge of the finances of this country during the last seven and a half years.

Let me take, as one illustration, the bank rate. I happened to look it up only yesterday, and I see that there have been no fewer than fourteen changes in the bank rate in the course of the last seven and a half years, running from 2 to 7 per cent., backwards and forwards—to my thinking, very detrimental to the stable industrial and economic life of this country. Let me give some of the consequences of that fact. Take, in the first place, the additional cost to the Exchequer. For the last two or three years, or for part of that time, we have had a very high bank rate and in consequence of that Treasury Bills have needed a much larger rate of interest than they did in times gone by. Reckoning at, say, only a 2 per cent. difference over the period I speak of, we find that this has cost the Exchequer £200 million to £300 million.

That is far from all the consequences. During the same period, no fewer than six new funding issues have been made. Some people think that the Government have funded too much; I do not know about that, but that is the opinion of some people. In the aggregate, there have been funded loans to a total face value of some £2,500 million, at rates from 4 and 4½ per cent. up to 5¾ per cent., extending some into the middle 'sixties some into the middle 'seventies, and one at least, into the 'eighties. If we take the additional cost to the Exchequer of this high rate of interest over the whole period during which the loans will be unredeemed, we find that it will cost something like £500 million, owing to the bank rate which the Government sanctioned and which over a long period of time has been above the normal level. Taking these two items together, we find that the cost of the Government's financial policy to this country has been something like £705 million, which is a very considerable sum, even in these spacious days.

But that has been only one aspect of the situation. A still graver consequence, in my view, has been the stagnation which the Government have allowed to exist in the industrial activities of this country. What I am saying is not my personal view, but is directly found in the Economic Survey published shortly before the Budget. Noble Lords who care to have the reference will find it on page 12. They will find that in the course of the last four years, reckoning 1955 at 105, the industrial activity for the successive years has been respectively, 106, 107 and 106. So that practically the whole industrial productivity of this country has remained stationary during all those four years. I think that that is a very serious indictment of the way the financial and economic policy of this country has been carried out. As I say, this is not my statement. The situation is one which the Government Paper not only acknowledges but states fairly and openly. This is a very serious matter, partly because it means that we have fallen behind other countries and partly because it bodes ill for the future. If we have not kept up, it will be a very serious matter for us.

Let us see some of the consequences. In the first place, it is a waste of the capital and skill of industrialists, and it is a waste of our coal supply. We spent immense efforts to persuade the coal miners to work extra time in order to produce what was thought to be required for the needs of the country; but now that they have produced it, it is running to waste, and in consequence the miners are losing their jobs. With this stagnation of industry has come unemployment and under-employment, and these bring both a great deal of human misery and the loss of valuable production. Honest pairs of hands with good British heads behind them are not made use of and run to waste.

I certainly should not for one moment dream of suggesting that the Tory Governments who have ruled this country over the last seven and a half years have deliberately worked to produce unemployment. That would be quite untrue. If any Government did work for unemployment, it would be not only wicked but also very foolish, because, clearly, the electoral chances of any such Government would be gravely endangered by such an action. But that does not mean to say that there are not some people who have not been glad to see a certain amount of unemployment. In my opinion, and in the opinion of a large number of people, it is certainly true that the policies, financial and economic, which the Government pursue have been one of the direct causes of the unemployment that exists in the country at the present time.

I shall be told, of course, that something had to be done to stop inflation. I have always told your Lordships that there are few people who detest inflation more than I do, and I recognise that some serious step had to be taken to deal with it. I hope that inflation has been checked, and that it has been scotched, although I shall give reasons later for some apprehension lest it should be found that it has not been finally scotched. But even granting for a moment that it has been, I refuse to believe that, in dealing with this evil, it is absolutely necessary to empty out the baby with the bath—which is what the Government have done in bringing about stagnation, at great cost to the Exchequer, at the cost of great human misery, and at the grave danger of letting this country fall behind other nations of the world who did not deal with this evil in this way.

The question of inflation brings me to the price level. This is a complicated subject. We all know that prices (and when I speak of "prices" I mean the purchasing power of the pound, not in terms of international currency but here at home) rose considerably, both during the period of office of the Labour Government—I make no attempt to hide that—and during the seven and a half years of Tory Government; and under the Labour Government, of course, it even went so far, in one case, as devaluation of the pound. I am facing all the facts. But having done that, I must point out one big fact that I doubt whether this House, or the public at large, has really grasped at all: that the circumstances of these two periods were entirely different.

During the period of office of the Labour Government world prices were, if anything, going up; and, in particular, in the latter period of the Labour Government there was a catastrophic rise in the price of raw materials owing to the war in the East. But during the period of the Tory Government there have been two tremendous changes downwards in the price of imports, amounting in effect to several hundred million pounds a year; and it is largely to those two tremendous changes that such successes as the Tory Governments have carried through in the realm of finance are due. Let me read to your Lordships from page 24 of the Economic Survey, where it says: The volume of imports in 1958 as a whole was almost the same as in 1957; in the first three-quarters of 1958 it was slightly lower than in the corresponding period of 1957 but in the fourth quarter of 1958 it was higher than a year earlier. Thus all the decline in expenditure on imports from 1957 to 1958 was the result of the fall in prices; on average import prices were 8 per cent. lower in 1958 than in 1957. Eight per cent. lower in 1958 than in 1957 is a very large reduction; and, as I have already said, it amounted to a matter of several hundred million pounds a year.

What, in fact, did the Government do about these great windfall changes that no one would have expected. Well, they successfully neutralised them; and they did this in two ways. First of all, they took the opportunity at that time of cutting down, and, generally speaking, cutting off altogether, the subsidies on the necessaries of life, so that there was no apparent change in the retail prices of commodities owing to this large reduction in the world prices of imports. In the second place, they made rent conditions free, which put up the rents of a large number of people and meant that the cost of living index went up on that account, and cancelled out the reductions that would have taken place if the fall in import prices had been allowed to operate alone. I am not arguing to-day whether those actions were right or wrong. To some extent, they may have been wise, though we all know, of course, that a certain number of bad and greedy landlords took advantage of them to an exorbitant extent. I am only pointing out that what would have been a drop in the cost of living index was neutralised by the deliberate action of the Government.

The question arises and it is an important question: What is going to happen in the future? The extract I have just read out speaks of a comparison between 1957 and 1958. The Economic Survey says that the continued fall has ceased, and that prices are about stationary. I believe that there is some evidence that prices may be turning upwards again, although at this stage it is too early to judge. However, there is a considerable prospect that they may do so, because when the demand for raw materials increases—and in other ways—it may well be that the raw material producing countries, who have had a bad time during all these years, may demand and may be able to secure higher prices, which will affect our economy and increase our price level.

Personally, I should not call such an increase inflationary, because I do not consider that it arises from inflationary causes. But I think it might well set about an inflationary spiral, because, if such a thing occurs, the workers, and, naturally, the trade union leaders who fight for them, will urge that the prices of the necessaries of life are going up, and therefore the workers are entitled to higher wages to meet those increased costs. That may be reflected in the demands of employers, and prices may begin an inflationary spiral. That is one of the reasons why I think that, although we may have checked inflation, we cannot be entirely sure—I do not think one can be—that it may not arise again.

There is another point I should like to mention in dealing with Tory finance over the last seven and a half years. Mr. Butler introduced investment allowances—I do not remember exactly how many years ago it was. But after they had been running for a comparatively short time the present Prime Minister, when he was Chancellor of the Exchequer, took them all off again. It was very disconcerting to industry to have that chopping and changing about. Not only that, but in the Budget of 1955 Mr. Butler, as Chancellor of the Exchequer, made large cuts in taxation—I think between £150 million and £200 million. That was in his April Budget. He had an Autumn Budget in the same year, when he put on £140 million in taxation. He did not put it on to the same people to whom he had given relief, but to entirely different people. If I may use a Churchillian phrase of understatement, I would say that it is a curious coincidence that a General Election happened in between those two events.

That brings me to the present Budget. There are two main features in this Budget which it is my business to discuss this afternoon. The first main feature is the enormous cuts which the Chancellor of the Exchequer has seen fit to make in his Budget proposals. When they were first announced there was an idea that they were something less than £300 million, but that would be an understatement, because if you add together the income tax relief, the purchase tax relief, the beer tax cut and the post-war credits proposals, you get far more than £300 million—I think you get about £365 million. I was reading an article last Sunday in Shonfield's financial column in the Observer, and he puts the figure much higher than that. He points out that that computation takes no account of the investment allowances which he thinks will work out at something like £130 million, and no account of the large extra expenditures which the Government are promising in the nationalised industries and which are now paid for out of the under-the-line expenditure in the public accounts. I am not saying they are right or wrong. The only point is, what is really the figure of reduction, and what is the figure which is going to be left of the shortage in meeting the requirements of both the above-the-line and the below-the-line expenditure contemplated by the Government. Of course that is considerable.

I am an unrepentant Keynes-ite. I supported Maynard Keynes all through, and afterwards as Lord Keynes, and in a time of unemployment and stagnation I am never ashamed of supporting a considerable deficit in order to re-stimulate the economy and start work going. Therefore, neither I nor my colleagues here nor our friends in another place have taken any very firm attitude with regard to that. What they have said, and what I repeat, is that it would have been better if some of this had been begun a little earlier. I remember the years after the First World War. A deflationary policy was started then, and a high bank rate, and all the rest of it, was held to for a very long period. By the time it was released it was too late, and the economy of the country had largely gone to wrack and ruin. Looking back at it—it may be with hindsight—I think the Government have waited rather long to give this stimulus to industry. I know the Chancellor has said that he did not feel that the time was quite safe; he thought that some part of the bug of inflation was still hanging about. But personally I think he left it very late. However that may be—it is easy to be wise after the event—it is a very large sum, and I think we all hope devoutly that it is not too large and that we shall not see a situation in the autumn, or whenever it may be, when we shall have to restore some of the cuts that have been made.

With regard to that matter, I should like to say that neither I nor my colleagues in another place have attempted to create any attitude of alarm or fear in the minds of the world as a whole with regard to the prospects brought about by this Budget. We none of us can fore-see what the Election will bring about, and I think it is not our business to cry "stinking fish" of our own country. Where it comes to a belief in the stability of the pound and that sort of thing, we have to be rather careful that we do not introduce our Party differences too much into the matter, because, after all, we are all British and we do not want to see our pound called in danger on Party lines. The noble Viscount, Lord Hailsham, can have his usual fun at the expense of our Party on internal matters, and it does not very much matter. We shall not always agree with him, and we shall not always think he is fair, but that does not matter. But I believe he will share with me the view that we must not endanger the future solvency of our country by introducing Party political warfare into such a serious and important subject.

That brings me to the last point about which I want to speak, and that is the distribution of such economic stimulus as the Chancellor had to give away among the different personages to whom he might have given it. It might surprise some Members on the other side of the House to know that I. for my part, and, I think, the great bulk of my colleagues in the Labour Party, are of the opinion that this may well be the time to make some reduction in income tax. I do not know whether noble Lords realise that the largest single reduction in income tax since the war was made by a Labour Chancellor of the Exchequer. I recognise fully that in a free community, with free enterprise in which people sell their labour and their time and invest their money, they must have a reward which is adequate to bring their labour and money into the market, and if you take too large a slice away it is not good for the economic health of the nation.

I agree with this also, which may surprise noble Lords opposite. I recognise that when you give reductions in income tax it is obvious that the well-to-do people who pay the larger amounts of income tax will get a much greater relief than the people who pay very little or no income tax at all. Even more than that, it may well prove to be—and I shall give your Lordships the figures as I have worked them out—that the vast majority of the income tax relief has gone to one class in this country. I have taken the dividing figure—which is the one the Government have chosen in their super-annuation allowances proposals—of £15 a week as a sort of dividing line between a man of more or less working-class position and the more or less well-to-do. According to my rough calculation—I may be wrong in detail, but broadly speaking I think I am right—one-third of the whole relief goes to people whose income is under £15 a week, and two-thirds to people whose income is over £15 a week, although the former class number about 15 million of income tax payers and the other class number between 4 and 5 million. I do not take any exception to that, because it is inevitable; it is impossible to do anything else. What I do say to the Government—and this is the point—is this: that if you are going to make a substantial reduction in income tax which is bound to benefit the wealthier section of the community, if you want the workers of the country to feel that they have been given a fair deal you have to make a corresponding reduction in the taxation of those people. It is because I do not think that the Chancellor of the Exchequer has done that that I think his distribution of the stimulus to the economy which he has given to individuals is unjust.

In order to complete the picture let us look at the other things. First of all, there is the repayment of post-war credits. I am all in favour of that, and so are all my Party, without exception. But there again I should imagine—I cannot tell; probably it is a matter of income tax which was collected some years ago—that the majority of the benefit will go to the comparatively well-to-do. If it is not so, I am glad. I have not seen any figures. Possibly in the course of the debate, or later, the Government will have some figures from which they will be able to tell how that advantage will be distributed. But, as I say, I think that probably the greater part will go in the same way as the income tax reliefs.

Then we come to purchase tax. Here I think the Chancellor missed a great opportunity. He should have recognised that there are certain household necessities, things which are taxed at the present time, which he should have freed from taxation. Instead of that, he has focused nearly all his relief on articles of luxury and things of that kind; and I venture to suggest that in doing so he did not have "fair do's" with the poorer section of the community. I take no exception (I do not think any others of my Party do) to the industrial investment allowances, but they certainly do not go, as such, to the workers of this country.

For these reasons, my Lords, I feel that the Chancellor of the Exchequer has missed an opportunity. He has a reputation, quite well-deserved, for fairness and playing straight. I think he has been a little too much influenced to produce a Budget which will go down well in the Tory Party in accordance with Tory procedure—a thoroughly good Tory Budget. It is a temptation to many Chancellors of the Exchequer, and perhaps it is a tribute to the present incumbent of the office that some of us thought he might rise above that purely Party attitude. There are quite a number of small points of income tax procedure to which I think the Chancellor might have paid his attention. There are many matters that need to be remedied, and I feel that while he was altering the income tax he might have tackled some of those. I have always taken the Treasury view about the aggregation of the incomes of husband and wife for the purpose of taxation on investment income, but I think the time has come where a slightly different attitude could be taken where the incomes of husband and wife are earned incomes. It seems to me that the reasons why it is necessary to aggregate them where the income is investment income do not apply in the case of earned income. I think that is one of the points the Chancellor of the Exchequer might look at in future years.

I want to sum up what I have said. I take exception to the financial and economic policy of the Tory Governments of the last seven and a half years, first of all because I think they have been jerking; they have put things on and taken things off, to the detriment to the stability of the economy of the country. Consequent upon that we have had this period of four years of stagnation, without any advance, in the teeth of the advance of other parts of the world. That, I think, has been a disastrous thing for the British economy. Then a great amount of money has been wasted by having to pay these high rates of interest on various sections of the loan, something like £750 million in the aggregate, a very large sum to waste, as the Government have done. I agree, of course, that that is the gross sum; there may be some rebate on it by taxation, but that is not the point.

Finally, I think that the Budget is a thoroughly typical Tory Budget, and that it will be so recognised when it comes to be analysed in detail by the workers of this country. If we want stability in this country, as I think we all do, on both sides of the House, we must not only be fair, we must appear to be fair. I do not think this Budget either is or appears to be fair between different classes of the community; and if, as a consequence, the Government do not command the allegiance of the leaders of the working folk of this country, it will be because they will feel, "Well, when the Tories are in they are going to get for their people what they think is to their advantage. We are going to use our influence, when our time comes, to get what we think is right for ourselves." That is not a very good spirit, but I believe that it is the effect which the Tory finance over the last years will have on the working people of this country. My Lords, I beg to move for Papers.

3.8 p.m.

LORD GRANTCHESTER

My Lords, it is always an honour and pleasure to follow the noble Lord, Lord Pethick-Lawrence. I do not share his belief in the efficacy of planning on a grand scale. No doubt it is true that if we knew enough and knew it soon enough, which really means in advance, the economy could be planned satisfactorily; but that can never be while freedom of choice is left to millions of individuals. I am sure that, with his kindly disposition, in practice the noble Lord himself would not go far in repressing what I may call the innate instincts of the individual to seek his own way, although he might deplore the perverseness of the individual in making planning from the top impossible. But this is how I believe men are made, and I am not prepared to see them conditioned to conformity. I believe variety gives colour to life and preserves the human spirit from degenerating into a mere machine. I am prepared to let human variation determine the pattern of the economy and not try to lay down any general pattern to be imposed. That is the difference between us in outlook. Some love to see order planned. I am a rebel and I think order must come from a synthesis of individual choices.

In these days we are treated to innumerable statistics and economic surveys by experts of international organisations such as the United Nations, by the experts of regional organisations such as the Organisation for European Economic Co-operation, quite apart from Her Majesty's Government's surveys and White Papers. It is an eye-opener to-day to walk through the rooms where books of statistics are displayed by the various organisations which are responsible for their preparation. The inevitable result of all this is to create the impression that there should be, and can be, direction of the economy—in other words, to promote interventionism. Unfortunately, many who reject the thesis of Socialism are affected by the impressive productions of these costly organisations, so that the simple processes of daily life have come to be discussed not in terms of human need but in terms of factory production.

In listening to the Chancellor of the Exchequer last week, one had the impression that the Treasury has been almost persuaded that the citizens live for the benefit of the factories rather than that the factory exists to supply the needs of the citizen. It took the Chancellor some two hours of elaborate economic theory and analysis to justify what at any rate the more simple-minded among us would have thought evident: that those who impose taxation have to justify it to the citizen who is called upon to pay; and that to take it without so doing is, to put it, in plain English, without any economic niceties, nothing but extortion.

I agree with the Chancellor that the first priority to-day in the list of possible tax reductions is income tax. Incidentally, I think it is a fact that to-day some seven-eighths of the working population of this country pay income tax, which I regard as a sign of material prosperity and progress—and a very welcome one. I suggest that the emphasis to-day—I would commend this thought to the trade unions—should be, not so much on wage increases as on tax decreases. This would give greater rewards to workers without adding to the costs of production which may hamper sales and so restrict employment.

Increased reward is effective as an incentive only if that increased reward can be used to satisfy the personal ambitions of those who do the extra work. Personal ambitions vary greatly, and extra effort seems to me to be largely made to obtain what are often called luxuries. That is why I do not believe in discrimination against what some people call luxuries. The noble Lord. Lord Pethick-Lawrence, used the word "luxuries" as if they were something different from necessities. They may be. But it is only when we get into the field of luxury—that is, to what is not strictly necessary for material subsistence—that we enter the field of culture. Let us be clear that the greater the field of desire and the greater the opportunity to indulge it, the higher will be the level of production and employment. No other basis is dependable. In short, production must be determined by the choices of individuals and not dictated ex cathedrâ.

That is why I criticise discriminatory investment allowances. Employment ultimately rests upon demand, and the only method, even in these days, of anticipating demand is by the correct guesses of individual manufacturers. I therefore want to get rid of discrimination and secure a forward look all round by an adequate and sensible system of depreciation allowances. In my view, depreciation allowances should apply not only to machinery and to industrial buildings but to every form of structure. This is the only method by which, in a rapidly changing world, our equipment and buildings will be kept up to date.

If I have been somewhat critical of the compilation of statistics and surveys in the form in which they are written, I should also like to say that I think there is a gap which needs to be filled in constructive thinking about the position of this country in the world, and the rôle that it may play politically and commercially in the future. At the moment the economic position is very encouraging. Her Majesty's Government are entitled to their share of the credit, as are also all those citizens who have contributed to the results which we are reviewing in the course of this debate. But I think we all have a feeling that the position in which we find ourselves is somewhat precarious. We have a feeling that the prosperity which we are enjoying is not sufficiently firmly grounded; that there are too many factors operating in the world at large which may have a sudden adverse effect upon our economy.

The Government have been exploring, and are still exploring, some method of association with the countries which, by the Treaty of Rome, are establishing in Europe a Common Market. Her Majesty's Government have been engaging in talks with Commonwealth countries. They have joined in recent discussions in Stockholm with European countries outside the six in the Common Market. They have had talks and lodged protests with the United States Government over discrimination against our exports. I do not believe in Governments indulging in trade, but it is the duty of a Government to try to keep open the channels of trade. There is therefore every justification for the discussions which Her Majesty's Government have been having all round the world on this matter of keeping open the channels of trade. But these talks have, I think, brought out conflicting considerations, both commercial and political. For instance, entry into the Common Market would involve the acceptance of a common tariff without the right to alter it without the unanimous agreement of the other parties to the Treaty of Rome.

The Common Market countries are developing a philosophical and political association, as well as a commercial market. It is apparent, or I think it should be apparent, that if we wish to pursue trade negotiations with the countries of the Common Market we must accept the basic philosophy of the Treaty of Rome (this was said at a recent meeting in Paris of the Economic Committee), with an overall federal constitution in the distance, 50 years ahead maybe, but probably much nearer than we think. Discussions with the United States have on many occasions during visits of the Prime Minister, stressed interdependence. "Interdependence" is one of the words which is very frequently heard to-day, particularly in our relations with the United States.

Interdependence must involve overall political control, if it is to be continued as a long-term policy. So I should like, therefore, to see more evidence of thinking on these problems. What kind of association do we envisage between this country and other parts of the world? What choices are open to us at this moment, some of which may gradually be closed? Could we not have, from Her Majesty's Government, a White Paper on these wider aspects of our position in the world?

I believe that this country is somewhat dangerously poised at the moment. Her Majesty's Government have resisted sonic of the dangerous siren songs for more restrictions, but there is still the danger of shipwreck on a European Scylla or an American Charybdis. The European discussions at the moment are bogged down largely because the French and Germans are concentrating their thoughts on a different objective from that of Her Majesty's Government. After talks which I have had recently in many circles in Paris I am sure that it is desirable that the British Government should take some new initiative, if possible on a completely different level. The position in the trade negotiations is so difficult, and has given rise to such feeling, that some new approach outside those commercial considerations is desirable. I should like the British Government to propose the institution of a common European citizenship (additional, of course, to existing national citizenship), or, at least to support the idea. I feel that we must do something to convince Europeans that we do feel ourselves part of Europe and value the inheritance of the European tradition which we share. This proposal would open up for consideration many relevant matters which have not yet been sufficiently studied.

In this country every citizen enjoys, as we well know, the protection of Habeas Corpus; we have a police force which is almost unique in its methods; we enjoy a high standard of administration and of commercial probity; we have a tradition of separation from politics in the domains of justice and military command. How fortunate we in this country are is not always sufficiently appreciated. A proposal to institute a common and additional citizenship in Europe would give the opportunity to raise these questions in European discussions, and I believe that we should all consider that this should be a condition precedent to any closer political association. Progress in harmonisation—if I may use one of the latest fashionable words—in this field might well prove a most useful approach. It is a pity that we have not had in this House a discussion on the Council of Europe before the meeting which is to take place next week. If Her Majesty's Government think anything of this kind of approach perhaps we might be able to make a contribution to the discussions which are to take place next week in Strasbourg.

On the commercial side, the Common Market countries have set themselves a term of twelve to fifteen years, at the end of which all restrictions between them are to be eliminated. I have indicated that, in my view, the position of this country is somewhat precarious, and that we have to make a decision determining our relationship with other nations. I would commend to the earnest consideration of Her Majesty's Government one way in which I believe this country could stand on a firm foundation and hold its own with a maximum of good will and friendship from the rest of the world. That is, by giving this country the status and footing of an open and free port. I should like to see this country give notice of its intention, say within five years, subject to negotiation in the meantime with the Commonwealth, to end all barriers to trade with this country.

Her Majesty's Government have taken some courageous steps in legislating against restrictive practices. which are making our traders more self-reliant. I believe that, with the ability and ingenuity of our people, we could play a very important part through the action I have indicated in the expansion of world trade. One thing is necessary, but I think this is possible of achievement within a very short period; that is, that the pound should become again, in every way, as good a medium of exchange as the dollar; that is that it should be as freely convertible as the dollar. For this, the confidence of the world in the future of this country is essential, together with a general outlook here of greater self-reliance and independence as our standards of life rise. In a position such as I have envisaged our attitude would be no less European than the keenest Europeans, and we should at the same time avoid any discrimination against any country in the world.

There is another matter to which I do not think sufficient consideration is being given. There is a great deal of talk about helping the less developed territories of the world. If forced labour is to be ruled out as a method, development can be brought about only by the same process as raised the standard of living in Europe in the last century. Investment in these less developed territories is necessary, but it cannot be demanded: it must be attracted. A German society for the protection of foreign investments has been instituted, under the direction of Mr. Abs, chairman of the Deutschbank; and an American Society has recently been formed. I believe that, basically, the people of this country believe most profoundly in private enterprise. In the study which I should like to see issued as a White Paper I should hope to see the story told of private investment by this country in less developed territories; and the conditions which would make it possible for private investment to take place should be clearly laid down. Investment is not encouraged by a proneness to indulge in confiscation, or even nationalisation.

Lastly, and not least important, may I say one word about expenditure in the public sector? I entirely agree with the method of the right honourable gentleman the Chancellor of the Exchequer, in the presentation of the Accounts, in the separation of capital from income. But as he has made clear, he is left with a deficit on Capital Account of some £721 million which has to be met by borrowing. Whether our position will be undermined, and inflationary trends again started, will depend upon how this money for capital expenditure is raised. If this money is not raised by the Government in the market, as in my opinion it should be, it is vitally important that the expenditure be balanced by the saving of individual citizens and not by an increase in the money supply. If it is not found out of savings we shall again be landed in the throes of inflation.

My Lords, I am afraid that I have dealt at some length with general matters, so I will not refer to specific choices which the Chancellor of the Exchequer has made for other reductions in taxation—after all, there is room for different opinions about which relief will give the greatest advantage. But I am a little surprised that when it is desirable—as is admitted by all to-day—to attract the small investor into industrial investment, a reduction in the stamp duty has not been made. Perhaps this omission could be reconsidered.

3.30 p.m.

THE LORD PRESIDENT OF THE COUNCIL (VISCOUNT HAILSHAM)

My Lords, we have certainly listened to two very interesting speeches. I feel that they present a difficulty to me in the duty which I must fulfil by answering them. It would be almost impossible, in the time available, to answer both, because they dealt with such different subject matter; indeed, if I answered each in detail I think I should fail to say anything constructive myself. I should like, however, to say this to the noble Lord, Lord Grantchester. I was greatly interested in the various remarks which he has made. He gave me this morning some inkling of some of the things which he intended to say, and I considered very carefully to what extent I should in the time be able to assemble some coherent thoughts by way of reply. I came to the conclusion that to some of his more interesting suggestions it would probably be a mistake for me to attempt anything so ambitious.

He raised, for instance, the most interesting suggestion of a common citizenship for Europe. I personally think that this is a very interesting suggestion, and it is one upon which I expect many of us have reflected at some time in our lives. I feel that the common citizenship of the Commonwealth provides some kind of precedent. It might also present a certain number of legal difficulties, as I imagine that we should wish to retain some special relationship with Commonwealth countries. Perhaps, therefore, the noble Lord will forgive me if I say that, while the last thing I wish to do is to discount the value of what he has just been saying, remembering that I am replying on behalf of the Government, I think I should be unwise either without reflection to endorse, or without further reflection to condemn, any of these most interesting suggestions.

I doubt whether it would be possible unilaterally (and I understand that he meant, as regards Europe, unilaterally) to declare Great Britain an open country to the exports of the world. In most negotiations I believe that unilaterally giving away one's points of bargaining in advance of negotiation is probably a mistake; and although the noble Lord, quite reasonably, reflected upon the necessity of negotiation with the Commonwealth, whose position would have to be safeguarded in any such action, and who might well object to the loss of the advantageous position which they possess by Treaty at the present time, I feel that to encourage him to believe that unilateral action of this kind would be possible within five years would probably be an error on my part.

I therefore turn, after thanking the noble Lord, Lord Grantchester, for what has certainly been an interesting and an imaginative contribution to our discussion, back to the speech of the noble Lord, Lord Pethick-Lawrence, who has put down this Motion for discussion. I think it is convenient for the House that the noble Lord has put down a Motion drawing attention to the economic situation a week after the Budget, since it enables the House to examine my right honourable friend's general proposals while the matter is still topical, rather than wait until shortly before the Summer Recess when the Finance Bill comes to us for approval. I would wish partly to follow the noble Lord's intention, as I understood it, of putting the Budget in some kind of economic context and partly to discuss the proposals contained in it and the criticisms which he and others have made of it.

My Lords, the noble Lord began with a motoring analogy, which he took up again in his peroration. He compared the Government in their economic policy to a driver who excites the noble Lord's alarm by driving perpetually on his horn and on his brakes, a process which the noble Lord described at the end of his speech as jerky. The noble Lord is an exact contemporary of my father's, and I am bound to say that, reflecting upon his quality as a driver, I was wondering how expert a driver the noble Lord is himself. My father's one contribution to the art of driving was to drive a "T" model Ford in 1914 backwards against a lamp-post, and to leave my mother to get it off the lamp-post. He never drove again.

Living, as I know he does, in the salubrious neighbourhood of Lincoln's Inn, it may be that the noble Lord has not the same opportunities of driving a sports car over the modern roads of this country as the younger generation have. But if he sits down at the wheel of his Magnette, or whatever it is that he favours, I think he will notice something about driving in modern traffic conditions. I think he will notice that sometimes he has to put the wheel over to the right and sometimes he has to put the wheel over to the left, and that occasionally the lights hold him up for a time and then he will have to touch the brake. Then there are times when he will want to go faster afterwards, and he will touch the accelerator.

I think that if the noble Lord has a passenger, who I am sure will be anything but alarmed at these proceedings, which he will regard as a perfectly normal process of modern driving, the noble Lord would be entitled to resent it if he said, "This is a most inconsistent policy which the noble Lord is following at the wheel. He is putting his foot on the accelerator and then on the brakes, and then moving the steering wheel to the right, and now to the left. There have been no fewer than fourteen changes of direction in the last ten minutes." That is what a person might say, and I think that the noble Lord would be entitled to reply, "My friend, you know nothing whatever about the problems of modern driving." There is, therefore, a good deal of sense in the kind of analogy that the noble Lord was drawing, but I think that he was drawing exactly the wrong moral from what he said.

I would start, therefore, by taking up the thread of the argument where I attempted to drop it at the end of our last economic debate. That was a debate about unemployment: it took place before the publication of the March figures of unemployment, which showed such a welcome drop of, 58,000 in the numbers unemployed. But there again we had this allegation of the alleged stagnation in our economy. I ventured to tell the noble Lord then that he was not really applying his mind to the real issue in the case, and I venture to repeat that statement now. Our country depends, by and large, upon the volume of world trade for its level of industrial prosperity—to what extent I want to discuss in a moment. For the last eighteen months or two years, perhaps a little longer, the world has been going through a recession, a recession which I think it is legitimate to say was more serious than the recession in 1949 which led to a devaluation of the pound. Of course there will be some degree of industrial recession in this country reflecting it; and it really does not help the noble Lord's case to attribute the whole of that to the Government.

The question under discussion is whether or not the Government have taken appropriate measures to deal with it. I was particularly glad to note from the noble Lord's speech that he frankly conceded that no Tory Government has worked for unemployment. I must point out to him that on this issue he is a Dr. Jekyll, but that in his Party there are plenty of Mr. Hydes. Indeed, what he has said so generously this afternoon is in striking contrast to a speech which I remember was made on the last occasion—I think from the noble Lord, Lord Stonham, who does not happen to be here to-day. I remember the phrase he used; that the unemployment figures had been "planned, predicted and achieved" by the Government. That has been wholly repudiated from his Front Bench this afternoon—and very grateful I was for it.

My Lords, to-day's debate enables us to take the deployment of the Government's policy a stage further. Our policy is to foster full employment and to create an atmosphere of confidence and expansion, now that, as we believe, we have created the conditions in which these policies are practicable. It is in the context of that policy that the Budget proposals should be seen. When we last debated economics both my noble friend Lord Dundee and I myself pointed out how disastrous it would be, as we believed, in the context of world recession, to attempt, as I think my noble friend put it, to run the industrial economy of the country "flat out". That would be disastrous, partly because it is impossible, as we believe, to run a modern industrial economy "flat out". that sense, without losing either flexibility or efficiency, or more probably both; but also because, in a context of world trade such as that upon which we depend, it is vital to maintain a competitive situation sufficient at least to maintan our foreign investment programme—if that is thought to be a good thing, which I know noble Lords would agree that it is—and sufficient to pay for the import content of the goods we produce for our home market: and not least, also, because, of course, our industrial economy does not present a static pattern but contains structural features where certain industries are becoming obsolescent and therefore inevitably present the appearance of a contracting use of an industrial capacity.

At that stage we could not, of course, anticipate the Budget proposals; but, quite clearly, none of that is to say that expansion is not in itself intrinsically desirable, especially when it can be established, as, at any rate in our view, it can, that a substantial amount of unused industrial capacity in the country is available, and that conditions exist which render it possible to stimulate the home market to some extent to avail itself of it.

I ventured to say last summer that we were a Cabinet of economic expansionists. I have said this several times in this House, and my right honourable friend said it in another place on the occasion of his previous Budget, in the spring of 1958. My Lords, now that we have created the conditions for expansion—that is, now that we have been able to take the opportunity, admittedly offered to us by an improvement in the terms of trade, to create an unusually favourable balance of payments and what I think we can claim to be relative price stability—we can move forward again along the road of expansion, as we have always said we proposed to. We do not believe that our caution is something to criticise. We remember the debates in this House when we were repeatedly assured, and when we accepted, that inflation was the enemy against which we must then fight, and we regarded our measures against inflation not as the enemies of expansion but as the necessary prelude to the expansion which is now taking place, as we always said that it would.

It was not of course possible then to anticipate the Budget, but the corollary of what we then said is that it is possible now to take up the slack in our industrial potential by stimulating home demand to the extent that our balance of payments position is sufficiently strong to pay for the imported raw material content of our increased production, and to the extent that the price level can be held sufficiently stable to prevent inflation resulting from increased production. This was what my right honourable friend meant when he warned the House in another place, and the country, that everything really depends—this Budget depends, and much else besides—upon our ability to remain competitive in the world markets; and much that we have ventured to do in this Budget would prove, I believe, to be an error of judgment if it should turn out that it was not possible to do this.

These are the objects which my right honourable friend's proposals are designed to achieve, and I was very glad to notice that the noble Lord, Lord Pethick-Lawrence, declared himself to be an unrepentant Keynesian—if that is the noun of which the late Lord Keynes is the eponymous hero. The Budget, as I understand it, despite the noble Lord's criticisms, was conceived on the lines of what I suppose may now be called the classical theories of the late Lord Keynes. They are at once the consequence and the reward of the measures of 1957 which enabled us to restore confidence in the pound and to fortify the balance of payments. Therefore, my right honourable friend has thought it legitimate to inject into the economy, let us say, about £360 million—I do not want to enter into the particular matter which the noble Lord raised—either by way of tax relief or by way of increased repayment of post-war credits.

Of course, one result—I think it was the noble Lord, Lord Pethick-Lawrence, who referred to this, but it may also have been the noble Lord, Lord Grantchester—is that the so-called overall deficit has risen to the figure of £721 million. But I think your Lordships will all agree that this figure is not, in a true sense, a deficit at all. It is a measure of the extent to which investment must be paid for by borrowings; and it is not inflationary so long as—and I would say, with the noble Lord, Lord Grantchester, only so long as—the borrowings necessary to meet it are covered by genuine savings of one sort or another. On the other hand, the £360 million injected into the economy will, we should hope, affect our imports by nothing much worse than £60 million to £70 million. Moreover, as my right honourable friend the Paymaster General pointed out in another place, the multiplier effect on the economy, as it is called in the jargon of the economists will be such, it is hoped, that the actual improvement created will be somewhat more than the amount actually injected.

I would therefore say that the Budget is an assignment with full employment rather than, as has been suggested, an assignment with a General Election. It will, I think, prove to be a popular Budget; and, unlike the noble Lord, I would say that it is a just Budget. I would not agree that it is an electioneering Budget, if by that is meant a Budget which makes tax reliefs which are unjustifiable in the light of economic conditions simply for the purpose of buying popularity. I would not myself accept the implied view of some critics that the Government is under an obligation to make itself as unpopular as possible before a General Election, when the success of its policy genuinely justifies tax reliefs to be made.

Indeed, I could not help being struck by the great similarity between my right honourable friend's Budget proposals, especially in the case of tax reliefs, and those indicated by a Gallup Poll which was published by the News Chronicle on the morning of the Tuesday on which my right honourable friend made his Budget speech. The outstanding feature of this poll was that there was no very significant difference in the order of preference for relief between the supporters of the Labour Party and Conservative supporters, which, I think, sheds a curious light upon the criticism of the noble Lord, Lord Pethick-Lawrence, that this was a typically Tory disposition of the reliefs. The only difference of real significance in the order of preference between the two sides in the country was that whereas only 15 per cent. of Conservative Party supporters supported a reduction in the beer tax, not less than 28 per cent. of Labour supporters did so. The Party opposite ought to be grateful for our consideration.

The two leading preferences were, first, purchase tax, for which 70 per cent. of Conservative and 68 per cent, of Labour supporters voted, and, secondly, income tax, for which 75 per cent. of Conservative and 60 per cent. of Labour supporters voted. I was glad to notice that the noble Lord expressly said that he was in favour of this reduction in income tax, though he thought it ought to have been compensated by some unspecified measures in some other field. In that he was following a more enlightened and progressive view that his colleague in another place, Mr. Jay, who, when this point was put to him by an honourable friend of mine and he was asked whether the Party opposite intended to oppose tax reliefs, said [OFFICIAL REPORT (Commons), Vol. 603 (No. 89), col. 397]: And I am telling the right honourable gentleman that at present we do not think that that part of it"— I take it, of the Budget— was necessary". What the view of the Labour Party is now, especially in the light of the strong preference of their supporters in the country for such relief, we must leave to time alone to show—that is to say, if time succeeds in showing it.

To sum up this part of what I have to say, the Budget is seen in context as part of a logically developing policy the purpose of which is economic expansion and social and cultural advance. It is rendered possible by the preceding steps, whose objects were to correct inflation and create a favourable balance of payments. The object of the present measures is full employment, and the selected means are tax reliefs and a beginning to the discharge by the Government of the long outstanding obligations of successive administrations to redeem post-war credits. From the absence of criticism on either side of your Lordships' House, I take it that this is something which is generally welcome.

Now may I deal with some of the criticisms which have been made? Following G. K. Chesterton, the first point I should like to make is the comparative absence of really fundamental or effective criticism. On the whole, I would say that it has been accepted that the economic policy underlying the Budget is sound, and that an injection into the economy of the order of £360 million is about right. If this is so, the only criticisms which merit attention are those directed to the particular reliefs in fact given.

I would say, by way of general comment, that I do not think that it is right to ask any Chancellor of the Exchequer in any one year to give something to everybody. If he did so, or were to attempt to do so, he would give nothing of any particular significance to anybody. What I think he must do is to pursue over a series of Budgets an economic policy by which every year one or two or perhaps several injustices or wrongs or evils of excessive taxation or economic difficulty can be eliminated. It will be remembered that this is the ninth successive Budget of Conservative Chancellors. Eight of them have reduced taxation by varying amounts.

I know that almost any generalisation one makes about eight Budgets, each of which amounts to a sum of the order of £5,000 million, is apt to be misleading, but I would say that, broadly speaking, in recent years we have dealt largely with allowances by way of relief. We thought that this year there were no tax reliefs of more general benefit to the taxpayer or so urgent as relief of purchase tax and income tax. That was borne out strongly by the feeling of the Gallup Poll which I have mentioned. I am not an unmixed admirer of this new form of cephology. Sometimes it seems to show that one is going up and sometimes it seems to show that one is going down. Personally, I am more interested in what is right and wrong than in what is popular or unpopular. But, at least, in matters of tax relief such a poll might be expected to give some indication of where the shoe is pinching; and the popularity of purchase tax and income tax as subjects for relief, in that order, is established by that poll. I think that, on the whole, this disposes of the argument which was directed to the omission by my right honourable friend to deal with particular grievances, both those which were made by the noble Lord and those made by members of my own Party and by other people.

LORD PETHICK-LAWRENCE

My Lords, of course, the relief of purchase tax is rather an omnibus expression. I imagine that the people who wanted relief did not contemplate that nearly all the relief would be concentrated on the semi-luxury articles in the higher categories. What I imagine they were thinking of was relief of purchase tax on home utensils and clothing in the lower categories, which have not been relieved at all.

VISCOUNT HAILSHAM

My Lords, I think that the noble Lord is just as about as old-fashioned about this matter as about his driving. I was about to deal with that point in a moment. After every Budget, after the preliminary congratulations, a chorus of complaint is generally heard. For instance, many people are disappointed that we did not abolish Schedule A. I do not suppose that they include noble Lords opposite. It would be quite wrong for me, speaking for the Treasury, to suggest that this is a proposal that has ever been accepted in principle. I think it is quite enough to say that this year it could have been accepted only at the expense of the general rate, from the reduction in which Schedule A taxpayers benefit no less than any other, or at the expense of the reduction in purchase tax or repayment of post-war credits. This is broadly true also of the suggestions relating to petrol tax and entertainments duty. No doubt these suggestions are all meritorious. I accept the philosophy of the noble Lord, Lord Grantchester, that taxation has to be justified, otherwise it is extortion, but this year that relief could be given to taxpayers only at the expense of other reliefs. And we believe that we have chosen rightly.

I would also protest, I hope in a good-natured way, against the view that the lowest rate of purchase tax should have qualified for relief but not the higher rates. This is the view pressed upon us by the noble Lord, Lord Pethick-Lawrence. I always find myself up against immense practical and philosophic difficulties when I try to draw a distinction between luxury and necessity. I myself need neither lipstick nor cigarettes nor beer, but other people appear not to be able to live without them. I strongly dissent from the view, which apparently is held by the noble Lord, that in the modern world the various articles covered by the higher rates of duty are things to be permanently excluded from the wants of the wage-earning population.

On this point I take a directly opposite view from that of the noble Lord. I do not regard a motor car as something which the wage-earner should not have or which should be regarded as an absolute luxury. In fact, one family in four in the country owns a motor car. Again, if the noble Lord will join me in the fellowship of the road one week-end, and consent to be driven, sometimes moving my steering wheel to the right and sometimes to the left, I shall be able to show him that the people who use these things are, by and large, very ordinary people, who would be profoundly surprised had they been able to attend your Lordships' House this afternoon and hear the noble Lord describe them as "well-to-do".

The same I would say is true of television sets (all these are in the highest category), wireless sets, gramophone records and also lipstick. In the streets of this city there are many people not well-to-do who wear lipstick; and, let me assure the noble Lord, Lord Pethick-Lawrence—I have to talk to him as to a father, because he knows very well he was at school with my father—who actually have to wear lipstick in order to present a decent appearance at the office in the morning. Hitherto they have had to pay 60 per cent. tax. But they are not necessarily well-to-do. Nor does the fact that the noble Lord does not use it himself necessarily mean that it is not a necessity.

The same is true of the washing machine, the refrigerator, the spin-dryer, the vacuum cleaner, the camera, the electric blanket, even the umbrella and the photographic film. Those are characteristic items in the second bracket of 30 per cent. tax with which my right honourable friend proposes to deal. It is a fanciful picture that the wage-earners do not use these things, or the carpet square, the canteen of cutlery, the carpet-sweeper, the hand-wringer, the saucepan, the linoleum and the wallpaper in the next category to enjoy the benefit of my right honourable friend's tax relief. We do not think that these are necessarily things which should be penalised by an extortionate rate of taxation in the average working class budget, or which should be put out of the reach—and this is the implication of the noble Lord's argument—of any but the very rich to afford.

By a property-owning democracy we on this side of the House mean a democracy in which ordinary fathers, mothers and children own property, valuable articles costing a good deal of money; and although the purchase tax may be a necessary evil as a revenue producer, we do not share the view apparently held by the noble Lord and by the Party opposite, that it should be allowed to continue as an engine of policy, the effect, if not the purpose, of which is to keep the wage-earner in a perpetual state of envy of luxuries which he is unable to afford. Neither do I personally subscribe to the view, also apparently held by the Party opposite, that at present wage-rates the 5 per cent. rate on a wide range of goods which is not affected constitutes an unbearably heavy burden of expenditure if taxation has to be raised. On the contrary, I would say that the fact that it does not constitute a significant factor in the cost of living is proved by its minute effect on the cost of living index.

This leads me in parenthesis to deal with one misconception about the cost of living index which appeared in connection with the beer tax reduction in two prominent and otherwise well-informed newspapers. Their argument appeared to be that if a reduction in the beer tax reduced the cost of living index so significantly, then there was something wrong with the cost of living index and it ought to be altered. But, my Lords, the cost of living index is not a moral judgment. The cost of living index is a mirror held up to the habits of society. If beer, cinemas or television sets enter into the index, they do so only to the extent that people actually enjoy the delights these things offer; and if my right honourable friend reduced the beer duty it was not because he desired to make a moral judgment or to enter into a cooking of the statistics, but because he thought that this indirect tax affecting statistically more than half the adult population at the rate of 150 per cent. was neither just to the taxpayer nor, in the long run, of benefit to the revenue.

LORD WILMOT OF SELMESTON

My Lords, the noble Viscount will forgive me for interrupting. Before he leaves this interesting point of beer and the index, both fascinating topics, in my view, would he not agree that if the index is not adjusted frequently to conform to the changing habits of the nation the mirror becomes a distorting mirror?

VISCOUNT HAILSHAM

Yes; but that is what the apparatus for arranging the index and the panels of arbitrators are designed to provide. I do not think it is possible to suggest—it may be that the noble Lord's experience is different from mine—that on this subject of beer the cost of living index is a distorting mirror. On the contrary, I believe it is a beverage which is enjoyed by many millions of people, although not so much by me.

While the noble Lord did not expressly touch on it, I hope I may come at last to the most considerable, and what at first sight might be considered the most plausible, but also, I personally would say, the least reputable, of the criticisms levelled against my right honourable friend's Budget. One Opposition speaker, who I think enjoys to indulge in hyperbole more than in restraint, went so far as to describe my right honourable friend on this topic as having a "heart of stone". He said that the Chancellor must have a heart of stone" in refusing, inappropriately as I shall endeavour to show, to make the Budget a vehicle for a direct increase in the retirement pension, "in a year", he added for good measure, "in which it would have been so easy to do so".

I wish to deal with this criticism. It is perfectly true that this year tax reliefs and other benefits amounting to £360 million have been granted, and it is also true that the Budget itself has contained no general increase in the retirement pension. But I would say this. One reason, at least, for that is that we put the old-age pensioner at the head and not at the base of the queue. It is true, as our critics say, that it was far more difficult economically for us to increase personal incomes last year than it is now. That is why it was all the more impressive, as a tribute to our action in the matter, that we chose last year to put the retirement benefit at an all-time high, at the height of the economic crisis, at the height of inflation and in the midst of the measures of September, 1957. I would not accept the view which this speaker held, apparently, that the particular circumstances of the year are necessarily relevant to the subject. An increase in the general rate of the retirement pension must not be related to the circumstances of a particular year, because it is a permanent increase. If you once allow this doctrine to get abroad. as this Labour spokesman would have done, that in a year—

LORD PETHICK-LAWRENCE

My Lords, perhaps I may interrupt the noble Viscount. He keeps talking about "this Labour spokesman". I do not know who he is, if he is a Member of the other place, or whether the noble Viscount is quoting from the debate. I would remind the noble Viscount that he is going beyond the Rules of Order of the House. We cannot follow these particular people; we are not responsible for what they say; and we do not even know, in the context, what they have said. I want to draw the attention of the noble Viscount to that point, because, though we do not disagree with what is said in the other place by our people, we cannot be responsible for all that they say.

VISCOUNT HAILSHAM

I can understand the noble Lord being somewhat diffident in this matter, because as the noble Lord will do me the credit of saying, I was careful not to quote more than a single phrase. The speaker was, in fact, a Member of the other place: it was Mr. Patrick Gordon Walker, who was speaking officially for the Labour Party. I think there is a limit to this Jekyll and Hyde act which can reasonably be played in this House.

LORD PETHICK-LAWRENCE

My Lords, I cannot let the noble Viscount get away with that. We must stick to the Rules of Order in this House, and the only exception which is permitted in this House is a statement by a member of the Government. We are entitled to quote statements made by a member of the Government in another place, because they are the policy of the Government in this House, and all the Government are responsible together for statements of any one Minister. But the noble Viscount has erred on several occasions to-day. I have not risen before because I did not want to object unduly. The noble Viscount was having his bit of fun against our Party, and I am quite ready to listen to that. But if he is going on quoting from Member's speeches in another place, that is specifically forbidden.

VISCOUNT HAILSHAM

The noble Lord has got his Rules of Order wrong. But I do not want this debate to degener- ate into an argument about what the Rules of Order are. I am quite clear about this point. It is perfectly legitimate to refer to the attitude of the Party opposite, and that I am entitled to do by citing examples. What I have not done, and what I have been careful not to do, is to quote from a speech. I told the noble Lord, as a matter of courtesy, that I was referring to a particular man, but up to that moment I had referred to nobody. I was careful not to quote from the speech.

LORD WILMOT OF SELMESTON

My Lords, I think this is really important, because the noble Viscount has already referred to one Member of the House of Commons by name, Mr. Jay. I read Mr. Jay's speech this morning. I am sure that inadvertently and without intention the noble Viscount has given an entirely false impression of what Mr. Jay really said by taking a sentence out of its context—a very tempting thing to do. I have not read recently the speech of Mr. Gordon Walker, but I know him very well, and I doubt very much whether he seriously charged the present Chancellor of the Exchequer with having a heart of stone. Was it not a quotation he was making?

VISCOUNT HAILSHAM

The noble Lord is quite mistaken and he has not been listening to what I was saying. I never suggested that Mr. Jay said that. He did not say it. In fact, I gave the name of the speaker who did say it.

LORD WILMOT OF SELMESTON

The noble Viscount quoted Mr. Jay.

VISCOUNT HAILSHAM

The noble Lord must not take up the time of the House—

SEVERAL NOBLE LORDS

Order, order!

LORD WILMOT OF SELMESTON

I insist on taking up the time of the House, if the House will allow me, if the noble Viscount not only misquotes a Member of the House of Commons who is not here, but misquotes me when I am here. I said that earlier in his speech the noble Viscount referred to a statement by Mr. Jay, and so he did.

VISCOUNT HAILSHAM

I understood the noble Lord to be saying—and I think that he will find that he did, no doubt inadvertently, when he reads Hansard tomorrow: I do not want to waste time on this business—that I had named Mr. Jay as the person who had used a particular phrase.

SEVERAL NOBLE LORDS

No.

VISCOUNT HAILSHAM

I repudiated that. I did not in fact say so, and I am now glad to learn from the noble Lord that I must have misunderstood him when I thought he had said that that was what I had in fact done. I hope the noble Lord will not take offence when I suggest that the House is concerned with economic affairs. I hope he will forgive me if I say that I do not wish to take up the time of the House on this particular matter, which I hope is now cleared up in a perfectly amicable manner between us.

What I was drawing attention to was the attitude generally of the Party opposite, as evinced by its speakers. I have to view the matter in this way because it was such a conspicuous omission from the noble Lord's speech this afternoon. This has been the gravamen of the criticism of the Budget in the country. But nothing has been more remarkable (as is often the case) in the noble Lord's speech this afternoon than that he, with a greater wisdom than is often evinced by his Party, did not think fit to mention it at all. What I was venturing to say was that, so far from having a bad record on this matter, the subject matter of complaint arises from the fact that the Government have put the retirement pensioner not at the base of the queue but at the head, by providing, in the height of our economic difficulties at the beginning of 1958, and in the midst of the measures of 1957, a retirement pension which, in terms of absolute worth, is 10s. 7d. higher for a single man than it was when the Conservative Government first took office in 1951, and 14s. 4d. higher for a married couple.

It has sometimes been represented that this Budget has electioneering content in it. But I would say this seriously to the Party opposite: the only crude, reckless, cynical electioneering that has been indulged in in connection with this Budget is this "pensioneering" campaign. If we are to talk in terms of this kind of thing, I must tell noble Lords that a number of people in the country are getting a little disgusted when they see the ruthless exploitation successively of the anxieties of the tenant over the Rent Act, the anxieties of the unemployed when the unemployment figures were rising, and now the attempt to exploit, in the interests of Party politics, a sympathy which is well-nigh universal for the difficulties of old age.

Let us examine in a little more detail the merits of this criticism. The object of the Budget is to inject, as we have agreed, £360 million into the economy of the country and so to help full employment. Let me ask the Opposition this question. The cost of raising the retirement pension by 10s. is, with consequentials, in round figures, £200 million. That is approximately the same amount as the value of the relief on income tax. I do not think I was misquoting a particular speaker. I do not want to revert to that, because it is impossible for a consistent speaker to justify the relief of income tax and at the same time to demand extra expenditure of £200 million. But I should be glad to hear what noble Lords opposite think about it.

Do they seriously suggest that the sum of £200 million should be raised by borrowing? I think they obviously do not. Nobody seriously pretends that matters like retirement pension can reasonably be financed out of borrowing. Pensions can be paid, reputably, only by taxation or by contributions. If, therefore, their criticism of this Budget is that it contains no provision for increasing the pension, which do they advocate: an increase in the contribution to the amount of £200 million, which must ex hvpothesi be raised largely through the wage-earning class (called, I think, by Mr. Harold Wilson a poll tax), or a decision not to reduce the income tax? One of the two it must be, and I think we are at least entitled to know. But whichever of those two the answer is, unless it were to be done, in effect, by borrowing (which I do not believe is suggested) the net injection into the economy would be nil, and the object of a Budget which is to inject £360 million into the economy would be frustrated.

I should be misleading the House if I were to leave the matter there. We have, not once but three times, raised the amount of the general retirement pension: in 1952, in 1955, and again in 1958. Our promise is to keep the general level continuously under review; that promise is contained in the White Paper, in paragraph 34, and was repeated in another place by my right honourable friend. That is not the only thing we have done for the problems of old age. We have made successive reductions of taxation and particular remissions for the old. In 1953, age relief was raised from £500 to £600; in 1957 it was raised to £700, and again in 1958 to £800. The 1957 Budget introduced the age exemption, which provided that single people over 65 did not pay tax unless their income was over £250 a year, and married people would not be taxed until their income was over £400 a year if either were over 65. The following year the 1958 Budget raised the age exemption figures to £275 for a single person and to £440 for a married couple.

I would remind the House that the subject of a general increase in the retirement pension level has been dealt with in the Report of the Phillips Committee (I think it was called) on The Economic and Financial Problems of the Provision for Old Age. In paragraph 215 of that Report, which was presented in 1954, the Committee reported as follows: On the whole, the conclusion we have reached is that there cannot be any stereotyped formula for fixing the level of benefit and changes should not be made except at infrequent intervals and unless there are compelling reasons; when they are made their nature and amount should be decided on a balance of a number of considerations, in particular the following:

1. (1) The change in the cost of living, due regard being had to the circumstances giving rise to it and the likelihood of its continuance;
2. (2) the extent to which pensioners have recourse to National Assistance, this being broadly indicative of the relation between the pension rate and the cost of subsistence
3. (3) the amount of the additional contribution required by an increase in pension rates and of the increase in the future charge on the Exchequer."

I am wondering which of those considerations noble Lords opposite feel inclined to rely upon in the present case: because all we have said is that in 1958 we raised the pension to an all-time high, and we are still keeping the subject, as we are bound to do, under the terms of our White Paper, continuously under review. I am wondering whether, except in the atmosphere of electioneering, any possible fault can be found with that.

In view of the noble Lord's criticisms, I ask myself, by contrast, what would have been the main features of a Socialist Budget if that Party had had the power to impose one at the present time. It is difficult to say. What I have tried to do is to cost out the various commitments which from time to time they have made—in the hope, I suppose, of getting additional support in the country—and see how much it would cost. It is extremely difficult to do so, because the commitments are very largely open-ended; but the advice I received at the end was that if I said £1,000 million a year I should be under-estimating rather than overestimating. So startling was this figure, when I published it the other day, that a sub-editor, who was not familiar with it, changed the figure to £100 million, because he thought it was too much.

It is, of course, a matter of speculation. By contrast, the noble Lord, Lord Grantchester, says he does not believe in the kind of planning to which the noble Lord is adhering, but I am bound to say that I do not believe there is anything planned in Labour economic proposals. I think it is a mixture of concessions to extremists on their own side and attempts to buy popularity. By contrast, I believe that our own proposals stand justified as part of a coherent scheme. They are based on confidence in our currency, stable prices, levels of wages, income and incentive rising in proportion to national production and productivity, industrial expansion under free enterprise, and equality of opportunity based on an expanding educational system. I believe that, in a sense, every economic policy, this or any other, is truly an assignment both with history and with a General Election; and, for my part, I do not fear the verdict of either history or the people upon the proposals which I am this afternoon endeavouring to defend.

4.25 p.m.

VISCOUNT BRUCE OF MELBOURNE

My Lords, I welcome very greatly the initiative of the noble Lord, Lord Pethick-Lawrence, in putting down this Motion. He has done it several times in the past and I think it is invaluable that somebody should now and again bring us down to a serious consideration in this House of what is I consider the most vital subject we could have under review. The Motion is to call attention to the economic situation. That subject is vital, and I sincerely hope that we shall have a serious discussion, getting down to what are the fundamentals of the situation and obtaining the views of the Members of your Lordships House. I admit that the Budget is a very important thing, but, after all, the Budget is only incidental to the general economic situation, and, frankly, I am not particularly thrilled at the way the debate seems to be running towards a Party fight on the subject of what should or should not have been in the Budget. I am much more interested that we should consider the economic position of the country and express our views upon it.

I have felt impelled to intervene in this debate because over the past few years I have made numbers of speeches in this House and outside in which I have taken a distinctly gloomy view of the financial and economic position of this country. I venture to say that there were some grounds for the anxieties I then expressed, because your Lordships will remember that the pound sterling over those years has been in repeated danger; our balance of payments has time and again caused us grave alarm, and our vital exports have looked as though they were imperilled. I suggest that nobody could be very happy about the economy when we were going through circumstances of that kind. I have no regrets that I uttered those pessimistic thoughts.

But I am particularly happy today that I can regard the position as very much better and that my anxieties are greatly lessened. For the first time for many years inflation has been halted. It is an ever-present danger. We have to watch it; we have to ensure that it does not really raise its head again. For the moment it has been halted. The retail price index has shown a rise of only 2 per cent., despite an increase in incomes larger than the increase in output. We may hope that now we have a steady economy. But I trust we shall never forget how vital it is to watch it and make sure inflation does not again raise its ugly head. Our balance of payments position is the best since the war. Our export performance is certainly showing a grati- fying resilience, and the pound sterling has now gained sufficient international strength to enable a considerable measure of convertibility to be introduced. That is a very big change in the last eighteen months.

Governments are always inclined to attribute to the sterling merit of their policies any improvement in conditions. That is not solely the case; but I think a tribute has to be paid to the Government for the policies, firm and decisive, they have pursued, and the action they took when at the end of 1957 the pound sterling was seriously menaced. We must also give great credit to the monetary mechanism which was put into operation and the manner in which it was used and controlled during the recession at the beginning of 1958. We have to give credit for both those things without going the whole hog and saying that the Government's policy has saved the nation or anything of that sort.

The position that has arisen in the last few months is somewhat strange, and I suggest to the Government that the people must be a little puzzled and that nothing could be better than to put out a short, concise and clear exposition of what has happened and why. What I think confuses the minds of the people is that ever since the war we have been told to export and to save. Up to the middle of last year the policy of restriction applied to practically everything. Credit stringency was rigidly enforced; hire purchase facilities were restricted and investment was curtailed by the spirited activity of the Capital Issues Committee. Then, suddenly, all this changes and we are told that we have now moved into an expansionist period. It would not be a bad idea if the people could know exactly why. Credit and hire purchase limitation has practically gone. Investments have been freed from crippling restraint. All this amounts to a pretty startling reversal of form, a volte face, of which I think the ordinary citizen is entitled to an explanation, so that he may judge for himself whether or not it is a wise and a sound move.

As I see it, this complete change of atmosphere occurred last year, when suddenly, for the first half of 1958, we had a surplus in our balance of trade of no less than £327 million. But we have to bear in mind that the entire reason for that almost absolutely miraculous change was the fall in world prices of our imports. They went down by no less than 8 per cent. and, as the noble Lord who moved the Motion has explained to us, that meant a tremendous figure of saving to the nation. As against that 8 per cent. fall in the price of our imports of primary products, the fall in the price level of the goods that we exported over the same period amounted to only 1 per cent. We should do well to keep those facts in our minds when we see the gratifying position that we have reached in our balance of trade.

It is inevitable that the price of our imports will rise. The noble Viscount, Lord Hailsham, quoted the very figure that I was going to use—namely, £60 million to £70 million. But that is on the basis of stable prices—that there is no change. It is almost inevitable that we shall have a rise in the price of the primary products which we import. And it is eminently to be desired. It will add to the cost of our imports, and we have to remember that we can meet it only by exporting more—I will say a word on that in a moment—but it is an excellent thing that the primary producing countries should recover. This move to expansion in Britain will he one contribution to it, because we shall take more of their products and, as I say, it is almost inevitable that that will be at an enhanced price.

Here, that result is brought about by a reversal of policy, by the creation of a greater demand in the home market, and also by the stimulation of the Budget. Having said that I do not want to have a discussion on the Budget, I will not say why I think that it contributes something. I believe that all these things are a timely stimulus to expansion. It is a good thing for this country at the present time, because if we can get a little expansion it ought to lead to the utilisation of a certain amount of plant and machinery which to-day is not in production, and that utilisation should in its turn lead to the absorption of our ever-to-be-deplored margin of unemployed. I believe that a stimulus to and a strengthening of the home market as a base for our great exporting industries is going to help those industries in the ever-increasing world competition which they are encountering.

For all those reasons, I think that the start of an expansionist movement is right; it is well timed, and it should be of the greatest help to the economy. But we have to remember that if that is going to happen—if we are going to get an expansion—our imports will cost more. Then we shall have to earn more, which calls for efficiency in our exporting industries. We have to save more, and we have to take to heart the words of the Chancellor, that we cannot afford to go off on a spending spree at the present moment. The whole position is much better and we have every reason to feel encouraged, but I cannot see the slightest ground for the almost foolish optimism that appears to prevail in so many circles that we have overcome every difficulty and that we are going forward into a period of unparalleled prosperity. We may do so; but it is going to depend entirely on our own efforts and how we conduct ourselves over the next few years.

There is one emphatic warning that I want to give—I have given it indirectly already: namely, that I do not believe that in the recently issued Economic Survey nearly enough attention has been paid to the consequences to our balance of payments of expansion which I believe is quite inevitable and in some respects most desirable. Those are the things which I suggest we are up against in the short term. I believe that there are compensating factors, but they will not operate very quickly. Take the position of the primary exporting countries. Why the strength of those countries is so important to ourselves is that they are great and valuable markets for our exports. But they have been through a serious period, during which they have had to impose restrictions. They have had to eat into their gold and dollar reserves, and it will be some time before they can recover the purchasing power that they have lost in the recent depression in primary products. We are up against that, and there are certain other factors that will also be troublesome.

World competition to-day is about as intense as anything could be. The United States of America is, to my mind, up against one of the most difficult problems that any nation has ever faced. She cannot contemplate the idea of unemployment, yet her problem in regard to exports is getting greater and greater every day. She must export to an extent of which she never dreamed before the war. That need has been caused by the great industrial expansion. She has to export or she will suffer unemployment. I believe that in the next few months the United States of America is going to add to the other strains under which we are now in finding markets. So unquestionably we have to show the greatest possible efficiency in our exports, or we shall not be able to face this increasing burden that we are likely to be up against.

I believe that we can do it, but (I am afraid that this is rather like reverting to King Charles's head), as I have said here and everywhere, not all the economists in the world, nor all the industrial efficiency in the world, will ever solve this problem until this gets into the minds of the general mass of the people of this country; until they understand what we are up against—how all the things for which they have striven, all the improvements in wages, conditions and social welfare, everything, could be imperilled unless we manage to show that efficiency which will retain our position in world markets and give us the exports that will enable us to pay for our imports. I admit that I have said that before, but I say it again because I believe it is most vital. If we can get over to the people, and if they can once understand, how everything they hold dear may be imperilled unless we in this country get on with the job, I believe that we can create an atmosphere in which it will be possible for us to accomplish anything.

There is little more that I want to add, except that there is one danger of which I will speak: and this concerns Governments and Government action. It concerns the situation that is growing up in Europe. There are these six nations joined together, and there is at present no provision for any co-operation with the rest of the nations of Europe or anyone outside. I believe that that will constitute a real menace, unless something can be done to meet the position. I cannot reconcile that what are almost trading negotiations between blocs of nations can in any way be reconciled with that for which we have all been striving ever since the war—free, open, multilateral trade. This European situation, if it goes forward as it is doing, can, I believe, create a tremendous problem, particularly for this country; for inside that little group they will, as a result (and from their point of view it is a very desirable result), increase their competitive power in the markets of the world to the detriment and serious discomfort of this country. I have no doubt that Her Majesty's Government are taking every possible step, and are alert to this danger; but I utter a word of warning that, so far as we are concerned, that can be a very critical situation.

I want to try to summarise the position as I see it, both as to the short term and the long term. I believe that the short-term position is going to be frightfully difficult, for the reasons that I have given: the intense competition that there is in the world to-day; the slow growth of world trade; the time lag that there must be in sorting out the European trouble that I have indicated, and the time that it will take for the primary producing countries to recover in their economy so that they can take more from us. All those things are going to make the short-term position very difficult. I believe, none the less, that we can hold our own during the short term if we can get that efficiency of which I believe we are more capable than any country in the world. About the long-term position I am much more optimistic, because I believe that the problem of the primary producing countries will be sorted out. The world cannot afford to have the economies of the great primary producing countries in a position where they cannot go on producing and expanding, as they must in the interests of the whole world. I believe that the situation in Europe will be sorted out, that everyone will see the danger and that, in the end, everybody will behave sensibly.

The other factor which I believe is of tremendous importance is the enormous investment that is going on now for the development of new resources, particularly in the backward countries. The United States of America, the World Bank and the International Finance Corporation are all pouring out money to a great extent for development in these backward countries. We in this country last year managed to save enough to invest £200 million abroad. We have commitments to some of the Commonwealth countries. It is essential that we should go on doing that: it is our traditional rôle. But we must remember that we can go on doing so only if we save; we must not go into what the right honourable gentleman the Chancellor of the Exchequer described as a "spending spree". I believe that by all those means world trade will be expanded. All those things together will bring about the one vital necessity, an expansion of world trade. In that world trade lies our great opportunity as an exporting country. An increase in world trade will give us our chance, and it all depends upon ourselves whether or not we are efficient enough to get our fair share of that growth of trade so that we in these islands can be prosperous.

I have only one other word—and this, again, is a little like "King Charles's head." Some three and a half years ago in this House I drew attention to the Paley Report on raw materials. That Report, which was prepared by technicians for the President of the United States of America, showed with the utmost clarity that inevitably owing to the great industrial developments during the war the world was going to be short of the raw materials needed if that vast expansion was to be maintained and even stimulated. It showed that, from being a great exporter of raw materials, the United States of America had become a deficit country in raw materials. The Report went on to point out that it was vital in the interests of all the great industrial countries that the necessary supplies of raw materials should be forthcoming, but that unless action were taken it was almost certain that there would be shortage.

I ventured to suggest in this House, three and a half years ago, that we should take a survey of all the resources of the Commonwealth and Empire and ascertain how far we were in a position to develop and meet that need. As a result, Her Majesty's Government accepted the idea, and the Commonwealth Economic Committee have produced a Report. It is a tremendous tome, far too voluminous and going into far too much detail. I believe, however, that it would be an admirable thing (it could quite easily be done and would not take very long, as all the information is available) to get a small group of experts on to the question of examining what, over the next ten years, are likely to be the shortages of raw material in the world, in the sterling area and in the British Commonwealth; and then to examine this Report, which would give all the details showing how far there is likely to be a demand for any raw materials we have in our resources in the British Empire and how far they could be economically developed.

Three and a half years is a long time. The idea was accepted then, but all that has happened is the publication of the volume I have mentioned, which would stagger anyone who tried to start sorting the thing out. So I would again make this appeal: that here is an opportunity of making a very considerable contribution to our own prosperity, and, in doing so, to the general wellbeing of the world, and I hope that some action will definitely be taken now that the necessary material is available. I apologise for wearying the House at length, particularly for bringing up my couple of "King Charles's heads", but I have discovered that if only one goes on saying something long enough, and by some miracle one happens to be right, sometimes something happens.

4.52 p.m.

VISCOUNT ALEXANDER OF HILLS-BOROUGH

My Lords, I must say at once how much I welcome the speech of the noble Viscount, Lord Bruce of Melbourne. He is quite right; he has said some of the things before, hut they have always been said at the right time and in the right spirit. Again to-day he has drawn attention to one or two particular factors which I had in my head before getting up to speak this afternoon, and before I turn back to the general debate which we had already begun I should like to say a word or two about some of the matters which the noble Viscount, Lord Bruce of Melbourne, has mentioned.

May I take his last point first, the possibility of actual shortages in certain raw materials. Of course, to the ordinary man in the street it seems almost like a suggestion out of Alice in Wonderland to think that that might be so. One's mind goes back to what has taken place since the end of the war in 1918: the huge stocks of rubber, and the gambling down in Mincing Lane in 1919 and 1920; then the restriction on the tapping of trees and output; and then the matter, on the other side, of synthetic rubber coming on to the market and disturbing this primary product of an important area. We had the setting up of the almost world-wide corporation to restrict from time to time the output of tin, one of the most valuable of our raw materials; and perhaps the one raw material on which we have experienced greatest hardship from time to time has been primeval lead. Nevertheless, the fact that we might be in very grave danger from a shortage of raw materials would lead me to start off (speaking, as it were, "off the cuff" and directly after the noble Viscount) by saying that I myself should very much welcome, and I think my colleagues would, the kind of inquiry he has suggested.

Next may I say to the noble Viscount that he took this afternoon a line which again has been very much in our minds, because in the last eighteen months or two years we have had one or two difficult situations arising between this country and certain members of the Commonwealth as a result of what has happened. It is a great pity (leaving out what are the future possibilities of the European Common Market) that we had to come to an upsetting kind of feeling between New Zealand and Australia and ourselves because of this mishandling of the situation in relation to surplus exports, at below cost of production, of butter from Finland, Sweden and Holland, with a very severe reaction in New Zealand upon what they might be able to import of our finished goods in return because of the drop in their market here.

Apropos what the noble Viscount has been saying, there is not the slightest doubt that this country of ours, with this great interest which he stressed for exporting goods if we are to keep the kind of population we have, and the United States can, between them, very largely control the kind of organised demand that exists and the price for the raw materials from the primary producing countries of the world. Certainly they have a very big effect upon it. We can look not only at raw materials but at essential food products, which become part of our raw materials for our productive industry. We can consider the grave mistake, in my view, that was made in 1951 and 1952 of refusing to go on with our membership of the International Wheat Agreement, for example—a mistake about which I want to say at once to the Government that I think they have at long last done quite right to make some approach at coming back to the previous position. That mistake has no doubt had a very serious effect upon places abroad and upon our own agricultural industry.

I should like to say to the noble Viscount. Lord Bruce of Melbourne, that perhaps two things stand out in my mind in regard to the Dominion side of these primary producing countries. I did not happen to meet him in Australia in 1926, when I was out there, because he was then on a visit to this country; but I did see local conditions in the course of a three months' study of them. On my way out I went through Canada, and I remember the dire condition to which her great wheat-producing areas in the mid-West of Canada had been brought down because of our complete lack of planning in this country as to what we ought to do, with wheat down to 27 cents a bushel, and the Canadians unable to buy back finished goods from this country in exchange. I mention that as an example.

If in the very different and changing circumstances of the future we are to be able to live in the sort of world in which we live to-day,it seems tome we must have a real plan on this matter. And we must see in that plan that the primary producer, in whatever part of the world he is, not only receives a proper price for his products, but receives, in fact, a price which will enable him, in return, to purchase our manufactured goods. I hope very much that the noble Viscount. Lord Bruce of Melbourne, will press his request for an inquiry into the question of raw materials: perhaps the Government may listen to him, even if they do not listen to me, and see that something in that direction is done.

We had a long opening stanza in the speech of the noble Viscount, Lord Hailsham, in which he was very humorous and endeavoured to play off the reference of my noble friend Lord Pothick-Lawrence to the stop-and-start jerkiness of the Government's policy. The noble Viscount went off on rather curious asides, which did not seem to me quite to meet the bill; although when he was talking about going for a drive and sometimes turning to the left and sometimes turning to the right, I had a shrewd idea that the expression of confidence which he made at the end of his speech is not yet likely to be fulfilled, and that perhaps someone else will be driving and taking a real turn to the Left in the very near future.

The reason for our debate to-day, as the noble Viscount, Lord Bruce of Melbourne, has pointed out, is to consider the economic position. My noble friend Lord Pethick-Lawrence always uses this phrase, because the Budget of a British Chancellor of the Exchequer has such an important bearing upon our economic position; and it is that which we are discussing this afternoon. In relation to that economic position let me say this: that none of the noble Lords on these Benches is any less than pleased with the fact that things are a little easier than they have been in the last two years. None of us feels any less pleasure than do members of those Parties who support the Government at the fact that unemployment is at the moment being reduced. Nobody who has had to grow up in a working-class family himself and who has had to see the effects of unemployment on all the families around him can ever take any different view about unemployment than that, whatever may be the motives sometimes attributed to those of us who have, since those days, transferred our activities into political channels.

We are very pleased that, so far, there is that much improvement. I shall come to deal with the social effect of the disribution of the Budget in a few minutes, but I am bound to say that the general economic situation arising out of the Budget is by no means yet secure. I sympathise entirely with the noble Viscount, Lord Bruce of Melbourne, in the phrase that he used just now, when he said that he could not understand the almost foolish optimism which prevails. We all want to be optimistic about the situation and to do our best to see that those conditions prevail; but the noble Viscount, Lord Bruce of Melbourne, with all his experience of the City and the Commonwealth, said he could not understand the almost foolish optimism as to the promise contained in the present condition of affairs. I think he is right.

It seems to me exceedingly strange to hear the noble Viscount, Lord Hailsham, speak of the conditions which the Government have created in order to make a Budget of this kind possible. When I look back over the years of 1951 up to 1959, and to all the different financial crises which we have been through—not under a wicked Labour or Socialist Government, but under a Conservative Government since 1951—I wonder which of their special actions has been most responsible for creating the conditions for expansion and for the optimism that there is now. There was the crisis of 1952; there was the crisis of 1955; and there was a hint at another one in 1956, but it actually happened in 1957. One would imagine that we had come out of the crisis of 1957 all cleat: but is that so? My noble friend Lord Pethick-Lawrence this afternoon, in his remarkably able speech, such as he always delivers to us, referred to the windfalls that had come to the Government in the shape of falling import prices; and the noble Viscount, Lord Bruce of Melbourne, correctly assessed them this afternoon as being a reduction of at least 8 per cent. That has been a very considerable factor.

When one looks at the reason for the crisis of 1957, one begins to understand why those who do not hold the Government's political views question very much their policy. What was the cause of the 1957 crisis? It surely was not any action on the part of the Labour Party. It is attributed to the Conservative Government by the Engineering Employers' Federation that, when they were seeking to be really tough and to resist altogether, even to the point of a general lockout, the demands for more wages, the Government who, all the time up till then, had supported them, at least in spirit, felt that, with the results of the Suez venture, they could not then face the results of an engineering strike. You were in a dire economic situation because of the Suez adventure. You were losing all the business; you lost the great Egyptian trade; you had the grave reduction in the actual shipments of oil; you had the damage to your pipelines, which had to be repaired; and you had the resultant effects upon almost every department of your productive industry because they could not get on with the job or get their exports going. That was in 1957. You also had costs to industry going up in the way of the price of fuel, both for transport and for other types of power production, and these increases have never yet been much relieved by the Government.

When he looks at the settlement we have just made with Egypt and sees what the total loss to the country is, the ordinary man in the street begins to wonder what really has happened to the economy that makes it suddenly possible for the Tory Government to produce a Budget in which they will hand out about £370 million this year and, in a full year, something well over £400 million. If this is the way you, as a Government, go about creating the conditions for throwing about this money at this sort of rate as an expansionist policy, then it is beyond the belief and the understanding of the ordinary working man in the factory and in the street; and perhaps it would be just as well if you were to follow the advice of the noble Viscount, Lord Bruce of Melbourne, and tried to get something over to the workmen of the country explaining what it is all about. Certainly, in those conditions, when one hears of all these very large sums which are suddenly made available for distribution after such a period of stringency, in which our unemployment went up to 621,000 in December-January, it is not surprising that it is thought that the handing out of these sums cannot be altogether divorced from the idea that an Election cannot be long delayed.

Then we come to the question whether it is all sound. Perhaps I shall be accused of rocking the boat a little with what I am going to say, but I do not say it from that point of view at all; it is simply because I want the country to be cautious in this particular matter. As my noble friend pointed out, no one wishes to criticise the steps that have been taken to bring some relief to those who are paying taxation, although I would go so far as to say that while the rate of tax you have been paying in the past may have a good deal to do with any flat rate reduction, nevertheless, before you choose what you take off your taxation, you should have due regard to what is the situation of the people at the other end of the scale. It is perfectly true that taxpayers with incomes below £900 a year, if they have families, have been very largely exempted by previous allowances made by Governments of both Parties, but you have to remember that those people also are facing the increased cost of living and that they should have some share of the relief to be given out in a particular Budget if it can be shown that over £400 million is there for distribution in a full year.

To take some figures which I have got from to-day's issue of a good capitalist paper, the Financial Tmes— and the noble Viscount knows that I often quote from it—it will be seen what I mean. A working class family, apart from the reduction of tax upon beer if they are beer drinkers, will get almost nothing from this Budget. Here are the facts. Where the gross income is £1,000, the gain to a single man under this Budget will be £19 in a year, and the gain to a married man with two children will be £8 in a year. When we come to the man with £15,000 a year, we find that the gain to him in this Budget, if he is single is £494 a year and if he is married £481 a year. Of course, the working man is sufficiently up to date with certain facts, and he knows quite well that it is only two and a half years ago that the Government brought in an important measure for surtax payers; they distributed £34 million a year just to that one class, and this Budget is again giving a great increase to the people in that sphere of taxation. As my noble friend said, if you are having a flat rate reduction in income tax it is bound to have effects of that kind.

Then it is quite reasonable to ask that some similar benefits should be accorded at the other end of the scale: either better educational grants or better allowances—perhaps family allowances, and certainly not excluding benefits to the old-age pensioners. The Chancellor of the Exchequer said the other day that he certainly did not rule this out of his mind; but the singular thing is that we all got the impression from reading the reports of his Budget speech that he had failed to mention them at all. So perhaps it looks as if this campaign in the country and Parliment for the old-age pensioners has not been without effect, at least in bringing it back to his mind; and that there is something to be said for some immediate relief for the old-age pensioners. I know that that will have to come about by special legislation, by reason of the changes in our practice in the last few years; and I hope that when that legislation comes it will be before the Election, for the sake of the Conservative Government, because it would do them a lot of good. And I hope that the stimulus we have tried to give them in this matter may accrue especially to the benefit of the old-age pensioners themselves.

I come now to the danger arising out of the actual distribution of the surplus which the Chancellor of the Exchequer has and must, on the basis of his Budget, hope to get. Apart from the distribution of reliefs, there have been two main criticisms. The first is with regard to the possibilities that might arise in the balance of trade this year. My noble friend Lord Pethick-Lawrence spoke of the great benefit of the windfall due to the drop in import prices. I am not an expert economist, but I have been connected a good deal with trade for the last fifty years, and my recollection is that whenever there is a fortuitous drop in world prices of the commodities we import we get a great deal of benefit for about eighteen months or two years. A great deal of the drop in prices of raw materials comes while we are actually completing orders already in hand, and that helps a great deal to increase the amount we can afford to put aside from these contracts and put in the business. But it nearly always catches up with us in the other direction, and when prices begin to go the other way we find that we have to deliver contracts to the same countries at amended prices, which have to be raised according to the change in the market. often before we can see the increase in price coming on.

There is always a rise and fall between our producing and exporting industries and the importing of raw materials, and very largely one compensates the other. We are bound to get these periods of fluctuation, and optimistically to give too much away in one Budget seems to take no notice of the experience of our producers and exporters throughout the whole history of this country as it has built itself up as a commercial nation. Therefore I think that the Economist is right when it draws attention to the fact that this distribution of the surplus is rather gambling with the position in the Autumn of 1959. What about the balance of trade figures then? Are we likely to be able to maintain the same balance of trade and have the same surplus that has been the fortunate possession of the Chancellor of the Exchequer in the last twelve months?

This seems to me to be fundamentally important. When we consider the distribution for expansionist purposes, such as investment allowances and the stimulation of the right kind of consumption so as to create demand, I think it could have been done on a lesser sum than £300 million, leaving in hand a sum to offset any possible recession in our balance of trade in the autumn. I throw this point out for your Lordships' consideration because I consider it important.

My noble friend dealt with the general position above and below the line in the Budget, and concluded that the deficit overall is likely to be £721 million. But I think that Mr. Norman Crump was right in pointing out in the Sunday Times last Sunday that we should remember that, whatever the Budget may be, Supplementary Estimates become the bane of Treasury Ministers' existence and of the Government's existence. We shall get Supplementary Estimates as surely as we are debating here to-day. Mr. Norman Crump puts the likely overall deficit at £821 million. It is true that about £500 million would be set off by money that must be borrowed for development purposes, and for the nationalised industries and other purposes; and the noble Viscount, Lord Hailsham, is entitled to say that we have to look at other things in order to try to meet that situation. I see my noble friend Lord Mackintosh of Halifax in his place. He must be thinking along similar lines. But when he looks at the figure of £821 million I wonder how much he feels he ought to raise in extra national savings in order to be sure that there will not be a recession in our balance of trade and another crisis and run on the pound. No Party wants that to happen. Therefore I think that we should pay special attention to this matter, to see, so far as we can, that we keep up our export trade and deal with investment allowances and the expansionist policy in general, so as to avoid a recession in our balance of payments this autumn. This is going to be crucial.

If there is not to be any set-off against this large distribution to the wealthier class, no one should complain if somebody goes on a Labour platform and says that the Government have not quite understood the finest sentiments in what we call "the Song of the Peaceful Revolution", the Magnificat: He hath put down the mighty from their seat: and hath exalted the humble and meek. He hath filled the hungry with good things: and the rich he hath sent empty away. The Party opposite must not mind if Labour speakers say that there is always a tendency to think of the rich first and put the less rich in a secondary position. If we take the sum total of reliefs in the last eight Budgets, referred to by the noble Viscount, Lord Hailsham, I think he will find that, while there has been some relief all round, the general tendency has been to give special relief to those who have been admittedly heavily taxed in war time but who can still well afford to live upon what they have left. The people who during war time were left with no more than 6d. in the pound for free, untaxed spending money are to-day enjoying, as a result of Conservative remission of taxation to the rich, something like 3s. 4d. in the pound; that is, six or seven times as much as they got in 1945.

I think we can approve the policy of the Chancellor of the Exchequer in so far as it wisely brings in some measures such as the investment allowances to stimulate industry, although we think it might have been done a few months before; nevertheless, it has been done, and to that part of it we wish success. We are glad that there has been some variation in the standard rates of purchase tax, but we think that this could have been far more widely extended. I would say to the noble Viscount, Lord Hailsham, that I hope that when he is telling his Cabinet colleagues of the sort of debate we have had he will not think that there is an easy feeling in the workers' minds in general about this failure to deal with the low-tax elements in the purchase tax field, because there is a strong suspicion among the workers that the Government are gradually shifting the burden of taxation from the wealthy people by reductions in direct taxation and spreading it among people in indirect taxation.

There is no comparison, of course, between the general share of tax revenue produced for the Exchequer from direct and indirect taxation to-day with that which was in existence up to, say, the First World War and the years that followed. There was always a strong argument against the undue exploitation of indirect tax for the maintenance of the State's requirements. There is a great fear of the way in which the Conservative Government have handled the matter: first, by their getting rid of help such as subsidies on bread and commodities like that, and then by their treatment of the social services. In their failure to go right down in regard to purchase tax, there is a general fear in the working class that what they are working for is a more permanent sales tax. From the point of view of the officials who have to run the scheme, that is the best and easiest way, and that is the kind of system which will satisfy the demands of many traders, because they would not have the violent changes in the values of their stocks, up and down, resulting from changes in the rates of purchase tax on the present basis. I hope, speaking personally, that we shall never have to resort to a general sales tax, and that it will be the policy of whatever Government is in office to get rid of purchase tax, as a whole, as soon as possible. Having regard to the amount of relief that has now already been given in direct taxation to the more wealthy sections of the community, I should think it is high time that a bold effort was made to get rid of purchase tax altogether.

I do not want to take up more time in this debate. All I can say is that I am sure that there is no Member of this House who does not hope that the present doubts and fears which some people have about the lasting stability of the economic position will not be brought to a realisation, but that we shall go on to a far more confident situation. We have come back to a position which years ago, apparently, Mr. Harold Macmillan used himself to see. I have the quotation here, it is rather amusing, and I hope that it may do some good. It is something that has been sent to me, but it does not give the name of the journal from which it comes. It says: The slack- incompetence of an unplanned economy must give place to the disciplined efficiency of rational organisation and control.' This is a quotation from a dissertation on Britain's task. which was described as 'A compilation from notes made during the Christmas recess', and it appeared under a chapter cross-heading of 'Expansion'. Was the author (a) Mr. Harold Wilson. (b) Mr. Harry Pollitt, or (c) Mr. Harold Macmillan? I can set the noble Viscount's mind at rest by telling him that it was Mr. Harold Macmillan, in the days when he used to hold rather different views about industrial and economic matters than he perhaps has to hold as the head of the present Cabinet. Nevertheless, we believe that if the Government will consent to adopt a rôle of continuous moiety of control, of the kind we have constantly been recommending, we shall not only have our fears removed about the stability of the present more favourable position, but we shall see expanding employment; we shall see no reason to cavil, as from what he said this afternoon the noble Viscount's friends seem to have cavilled, about running industry flat out. There is no reason why industry should not be able to provide continuous full employment under a properly planned economy.

5.27 p.m.

VISCOUNT MACKINTOSH OF HALIFAX

My Lords, your Lordships will be glad to know that my contribution to this debate will not take long. In fact, when it comes to national finance and economy, I am afraid that I have a one-track mind—and none of your Lordships will find it difficult to guess what that track is. I want to speak for a short time about the contribution which the National Savings Movement has been able to make during the last year and what we hope to be able to do in the coming year.

First of all, I should like to take this opportunity of expressing the thanks of the Savings Movement for the generous terms in which the Chancellor of the Exchequer referred to the Movement in his Budget speech in another place. He referred to our £325 million net savings for last year as "A golden year", and I have taken steps to bring his appreciative reference to our 300,000 voluntary workers everywhere. As a matter of fact, during the sixteen years that it has been my pleasure and privilege to he Chairman of the Savings Movement I have worked under nine Chancellors of the Exchequer, which goes to prove that the job of Chairman of the National Savings Movement is must less precarious than that of Chancellor of the Exchequer. Every one of these Chancellors, without exception—and they include members of all Parties—has been sympathetic and helpful to the Movement. But, everything considered, the last year was our most satisfactory year.

The Chancellor of the Exchequer said, again in his Budget speech [OFFICIAL REPORT, Commons, Vol. 603 (No. 87), col. 36]: It is very heartening to see such a fine response to a combination of enthusiastic salesmanship and what are rightly regarded as attractive terms for these savings securities. I often say that the National Savings Movement is the sales department for the Treasury: the Treasury make the goods, and we do our best to sell them. And as a business man I know that it makes all the difference to the salesmen if they have the right goods. It is always a friendly tug-of-war between the manufacturing side and the sales side, each wishing to get the best terms for their particular interest.

National Savings securities have always had a great deal to recommend them for the small saver. In the past years we have been able to say: "Well, your money is safe; you can get it back whenever you want; and the country needs it." But this year we have been able to say all those things and to add, "You cannot get a better investment anywhere." We have never been able to point to that combination before. I know that some people are inclined to think that the terms have been a little too good; but that is not so. As a Yorkshireman, I would say they have been "just about reet". I am reminded of the story (which I am sure is a chestnut to most of your Lordships, but it fits in here) about a rather cheeseparing farmer who sent free beer down to the harvest workers. One said to the other, "This beer is just right." The other said, "How do you make that out?" The first replied, "Well, if it had been any better we shouldn't have had it, and if it had been any worse we couldn't have supped it." I feel that our savings last year were just right: if they had been any less attractive, by only a fraction of 1 per cent., we should not have sold them, and instead of helping the country to the tune of £325 million we might only have broken even, so narrow is the margin between success and failure. The proof of the pudding is in the eating, and £325 million was a substantial contribution to the country's needs. I like to think that our success had something to do with the very substantial concessions which the Chancellor of the Exchequer was able to make in his Budget.

Looking to the coming year, in winding up the debate only two days ago in another place the Chancellor of the Exchequer said [OFFICIAL REPORT (Commons), Vol. 603 (No. 91), col. 763]: While it may be rash to expect National Savings to do as as they did last year, there is no reason to suppose that they will not produce another very good figure. I hope that we shall go most of the way, provided that the terms of our securities remain reasonably competitive. The News Chronicle said two days ago, after discussing the problems facing the Government in raising enough money to meet all their capital requirements: Certainly there will be no time for the National Savings Movement to rest upon their oars. The country will need all and more than the £300 million of small savings which the devoted band of helpers garnered last year. I assure your Lordships that we have no intention of resting upon our oars.

The Chancellor of the Exchequer attaches great importance to an increased level of capital investment in the public sector—electricity, railways, roads et cetera. This increased capital development will need to be backed by more savings if there is to be no risk of renewed inflation. I hope that the Savings Movement will be able to produce at least one-third of the overall deficit of £720 million, and after hearing the noble Viscount, Lord Alexander of Hillsborough, I feel that perhaps we had better add on another £100 million, just to make sure.

In conclusion, may I suggest one practical way in which some noble Lords present may be able to help us? A most valuable and difficult part of our work is to increase savings out of income week by week. Most industrial concerns in the country have savings groups. Between 3 million and 4 million workers are in savings groups in industry, and among them they collect over £100 million a year. They play a key part in our work. Just at the present, probably because of the recession in certain industries, we are finding it particularly difficult to increase savings in industry. Noble Lords who are employers or directors of companies could help us, and the country, very considerably by co-operating with the Movement in setting up facilities for their work people, where they do not already exist and by increasing facilities where they do. We are planning a savings drive this winter in industry, with particular emphasis on young people in industry, apprentices and the like, where the habit of money management could be of the greatest value to them now and to the country in the days ahead.

I have mentioned employers in this House, but a successful savings group in business is achieved only when we have the support of those organised employers and of organised labour. So my remarks in this respect apply to noble Lords in all parts of the House. One of the best things about my job is that through the years both sides of industry and politics have been our friends. This makes my job, I often think, one of the best in the country. I would say to all noble Lords: if you can help us in this drive for more savings in industry, it is one of the best ways possible of ensuring that part of the concessions given in the Budget finds its way back into savings. I feel that the country at this time is particularly fortunate that there should be money enough for a good bit of spending and a good bit of saving at the same time. Long may that situation continue!

5.35 p.m.

LORD SHACKLETON

My Lords, I should like to follow the lead which the noble Viscount, Lord Bruce of Melbourne, gave in his speech, that we should not descend too much into arguments between the Parties regarding the Budget. It was not my intention originally to say much about the Budget, but the speech of the noble Viscount, Lord Hailsham, will prompt me, I am afraid, to refer to some of, I think, the wrong remarks—to use a mild word—that he made in the course of his speech.

Generally, I should like to take my theme from the speech of the noble Viscount, Lord Bruce of Melbourne, because he made clear that there is no occasion for complacency, and it is rather depressing, in our present situation, where the fundamentals of our economic situation have not changed significantly this year compared with previous years, to detect such an atmosphere in the speech of the chief Government spokesman in the House to-day. Whatever cause has led to the improved position of this country in regard to its balance of payments and its reserves, it is significant that the Government themselves may claim credit for not losing the gains that came to us, but they certainly cannot claim credit for bringing them to us. The noble Viscount, Lord Bruce of Melbourne, referred to a gain in the balance of trade of £336 million. The actual figure of our visible trade was a favourable trade balance of £189 million. But, as noble Lords know, if the imports had been revalued at the prices that were prevailing the previous year it would have been an adverse visible balance of about £120 million. We find that while imports are about level, our exports are down by 3 per cent. This, of course, is part of the dilemma of the vicious circle which faces all Governments. And, let us face it, no Government in this country has really succeeded in solving it.

The Chancellor of the Exchequer, in looking to the future, is looking to a state of affairs when he hopes that there will be a recovery in commodity prices, making it possible for the commodity-producing countries to buy more by their exports and, at the same time, making it inevitable that we shall then have to pay more for those commodities. A little later in the few remarks I hope to make I should like to address myself to the particular problem of how we ought to deal with the matter. I think it is difficult to find any single solution. One thing is apparent: there are no grounds whatsoever for anything other than the most temporary satisfaction. Certainly we can be satisfied that we are not in the middle of a balance-of-payments crisis; but then, traditionally, this is the off-year. There is always a good year followed every two years by an off-year when we may be faced again by a difficult situation. It is likely that by the time the autumn conies round (and the Chancellor of the Exchequer himself foreshadowed it) we may be in a situation which, though I hope it will not be as serious as that a little more than a year ago, we shall see a decline in our reserves and in our position in regard to our balance of payments. We may find ourselves in a serious position economically.

The cost of living has levelled out, and in that sense inflation has been brought under control. I had better make again the point that it would be surprising if it had not: there was such a remarkable drop in commodity prices, in the prices of the raw materials that we import. But certainly the price situation has been relatively stable. At the same time we have seen an increase in expenditure; and the retail trade, as was the case in America during the recession there, has continued to progress. Even if we could not use the term "boom" conditions, there has been a net increase in turnover throughout practically the whole of the distributive trades, particularly in the retail business. There is a falling off in certain pockets in areas where there is more unemployment, but overall it has not been a bad trading year.

So far as the prospects of the coming year are concerned I should say that they are pretty similar to those of last year. I hope that the Government will not follow the advice of the noble Viscount. Lord Alexander of Hillsborough, and take off purchase tax too quickly. Speaking as a trader, I can say that it has cost my firm £20,000 this year and £50,000 last year; we should rather see reductions spread over a number of years. The only other point I want to make at this stage is that, although there has been this net increase in consumption, although the price level has remained steady, we see a situation in which production has not gone up at all. Without wishing to pursue the Government in too political a direction, I think there is no doubt that some of this level has been attained through a decline in consumption in certain sections of the community; and quite clearly it is among those who are suffering unemployment and among those who are also suffering from short-time working—because overall the country has not done so badly. There are these local pockets where the consumption has unquestionably gone down.

I should like to turn now to the question of production, which is, after all, the most important issue in the economic situation. The noble and learned Viscount the Lord President of the Council made, if I heard him aright, a most extraordinary statement—it was rather difficult to follow him, because he was sliding around rather fast. I apologise for making these remarks in his absence; I did warn him, but I understand that he has an important engagement on Government business. He made a remark, the gist of which was, if I understood him rightly, that we should hope to get more expansion of production, provided that it did not lead to inflation. I simply do not know what he means, because if there is one thing that does not lead to inflation it is increased production. It may lead to a balance-of-payments crisis, because of the importation of more raw materials; but it does not lead to increased inflation.

The danger of the present situation is the relative stagnation—and I apologise for using the word—of this country in terms of production. It may be distressing for the Government to have repeated to them some of the facts and figures which were emphasised in another place, but this country has been standing still for the last three years. We may say that this is a pleasant change in comparison to the trade cycles in the past, where production went right down; that at least we can be happy that it has remained level. But in comparison to other countries production has failed to advance and still shows no real signs of advancing. The figures of increased productivity in other European countries, and particularly the Soviet Union, are of a kind that ought to give us very serious cause for anxiety.

I would direct my main remarks to what I believe is the most important economic course for investigation and for action—that is, the question of investment; and here we do find a situation which is rather depressing. We find that during the last year (the Economic Survey makes it extremely clear) investment in the publicly owned sectors of industry has tended to fall off. Investment in the private sector has only slightly increased but has declined in the manufacturing industries, and we have a forecast that in the course of the next year investment in manufacturing industry is likely to decline further.

The Government are certainly now, rather belatedly—for I think even some of them realise that it would have been better done six months ago—turning the tap on very vigorously in the public sector. We may argue about whether some of the investment they are encouraging in the public sector is right, but there is going to be a 10 per cent. increase in the public sector, and that is wholly to be desired and should unquestionably be useful from the standpoint of this country's economy. But it is unfortunate that they have waited so long, and I question now whether, in the absence of a strong response from the private sector, they ought not to increase further the investment rate in the public sector of the economy. Now, it surely must be agreed, is the time when we ought to be building more houses, more roads, more schools. When we look at the figures we do not find the increases striking.

I appreciate that it is very difficult to turn the tap on quickly, and here again my criticism of the Government is that they turned it off much too vigorously before. They were obsessed with the fear of inflation and over-investment, and now it is difficult to turn it on as it should be done. We find. too, that some of the investment is not going into quite such important fields, from the economy's point of view, as we should like. Obviously it is satisfactory that new shops, new supermarkets and new offices are going up. More competition, certainly in the retail trades, does the country no harm at all. But what we want is more production, and it is there that, so far, we do not see the signs of the improvement that we should like.

It is against this background that we have to look at the Government's Budget. Even if the noble and learned Viscount, Lord Hailsham, were here, I should not propose to add up the various suggestions for reductions in taxation which have come from his side of the political fence. It is a matter which he enjoys indulging in, but it has little significance. What we have to decide is whether the Government's proposals are calculated to produce the increased production that is necessary in as dangerous a situation economically as the country has been in. It has eased at the moment, but until we get this increased production, until we can compete and match up the efforts of other countries, our situation will continue to be as dangerous as ever it has been. I question whether the concessions which have been made in the field of income tax are calculated to achieve this particular aim. I am not sure what particular economic purpose they are intended to serve—whether these concessions are intended to be of a kind that will be spent in order to encourage more consumption and therefore increase demand. If that is so, I would say that there are more certain and effective ways of distributing this money either by reductions in national insurance contributions or by giving it to the old age pensioners—though I do not propose to follow that line. Or is it intended that the money should be saved?

The Government have given very little indication of what they expect the individual citizen to do in this matter. In a sense, this particular proposal, acceptable, as it is, to those of us who benefit considerably from it, is not one, other than in a general psychological climate of optimism, that directly contributes in the way that a more firm direction of investment and planning of investment does to the strengthening of the economy.

I must now turn, in particular, to the remarks of the noble Viscount, Lord Hailsham, with regard to an honourable friend of mine, Mr. Jay. I found his remarks and his attempt to get out of the position into which he got himself (I should use stronger words if he were here) altogether unworthy. He quotes from what Mr. Jay said, and he quoted previously what the Paymaster General had said. I should like to repeat this because, now that it has come before this House and we have broken our rules, we may as well see that justice is done. The Paymaster General said [OFFICIAL REPORT, Commons, Vol. 603 (No. 89); cot. 397]: I also asked"— Mr. Jay— whether the party opposite intended to oppose relief in Income Tax. At this point the noble Viscount, Lord Hailsham, quoted Mr. Jay. He said: And I am telling the right honourable Gentleman that at present we do not think that part of it was necessary. It is quite clear that the intention of the noble Viscount was to give the impression that the Labour Party were opposed to income tax relief. If we look at the context of the speech we find that it was not related to income tax relief but was concerned with company profits. It did not at all relate to the relief of personal income. I do not propose to follow the whole of this argument through, and whether it would be better to give such income tax relief in the form of earned income relief or relief in respect of children. But it certainly was, I think, an unworthy observation by the noble Viscount. I am sorry he is not here so that he could perhaps withdraw his remarks.

I should like to end on this point. We find ourselves just as much in the vicious circle of inflation, deflation, balance-of-payments crises, balance-of-payments surpluses. I must confess that I do not know how we get out of it, Nor, I believe, do the Government. It has been the contention of those of us who believe more in planning than does the noble Lord, Lord Grantchester, that at least we ought to try to get some priorities into our national economic affairs. I believe that up to a point the Government are trying to do that, but they have dismantled some of the instruments by which that planning can be done. The gaining of freedom for which they have claimed credit is certainly not reflected at the moment in a healthy and buoyant economy, and I would urge that the Government should consider, as certainly a future Labour Government will have to consider, whether or not a time may not come when we shall have to restore some of those controls, particularly over Capital investment, and particularly to ensure that we get the production that is necessary if this country is to pay its way in the world; if it is to keep up with the Russians, the Americans, the Germans and the Norwegians, and with all the rest whose economy is going ahead, and is to play its part not only in bringing a good living standard to our own people but in preserving the peace of the world.

5.54 p.m.

LORD BALFOUR OF INCHRYE

My Lords, there is only one aspect of the economic position which I would ask your Lordships to consider for a moment. Before doing that I must say that I feel very sorry for any Chancellor of the Exchequer who before a Budget is beset by representations from those who feel that they should obtain relief and who is abused afterwards by those who have not obtained relief. I feel sorry for the present poor Chancellor of the Exchequer. I have read the debates in another place; I have listened to the debate here to-day, and I have listed for the benefit of your Lordships some of the reliefs which the Chancellor of the Exchequer was told he should have given.

It is said that he ought further to have reduced purchase tax; he ought to have abolished entertainments tax on cinemas; he ought to have reduced the diesel oil tax oa passenger vehicles, reduced the petrol duty, reduced the stamp duty, abolished prescription charges in regard to the National Health Service, abolished the charges for teeth and spectacles in the same Service, increased the earned income allowance, increased family allowances, given higher pension benefits, granted higher unemployment benefits, increased State scholarships and restored the housing subsidy. That is a formidable list for any Chancellor of the Exchequer to have to consider. I have tried to think what, in the mind of the ordinary citizen, would be the definition of an ideal Budget. I submit to your Lordships that it would be a Budget which consisted of a series of reliefs for all, on a tax system that pressed on none. That seems to me to be the ideal which might satisfy the ordinary citizen. But I believe that in this Budget the Chancellor of the Exchequer has acted pretty fairly, and that it will obtain general assent from the great mass of the population of this country.

The one aspect that I should like to submit to your Lordships for consideration is that no Government and no Party policy can, of itself, order good trade for the country or give full employment. It can only create the climate and conditions in which industry can achieve this objective. I want to refer to one passage in the speech in another place of the President of the Board of Trade, when he was speaking of Britain's world trade position. He said: I ought perhaps to tell the Leader of the Liberal Party that we on this side of the Committee are not free traders, if that means the unilateral removal of tariffs and quotas. Britain's economic policy is at present based upon a firm belief in nondiscrimination in world trade, coupled with the determination that, irrespective of anything that others may do, we as Britons will set an example to that end. F am not parading before your Lordships this afternoon the old issues of free trade or protectionism. It is not a time for those dogmas; we can leave those aside. But I believe that we have to look empirically at two questions.

The first is: how far, and for how long, can we maintain this purity of intention and purity of action in the face of the policies and actions of increasing discrimination that we see around us in the world to-day? Even the most ardent advocate of international multilateralism cannot say that the past year has been a happy one for the advance of liberalisation, if you look either at Europe or the United States, as I will show your Lordships in a moment. The second question that I would submit to your Lordships is: has the time come when we must think again about steadfastly refusing to make any move ourselves, in spite of discriminatory provocation? And, are we not, by so refusing, deliberately impeding the attainment of the fullest employment for our people over the next short-term period of a year or two years?

In his most interesting speech Lord Grantchester said that there were many factors ranging the economic world to-day which might work against our economy in an inevitable way. I believe that the existence of the growing discrimination against Britain is one of those factors. It is true that our dollar trade with America is up by 23 per cent., but in other directions discrimination is increasing in a dangerous manner. Take shipping. Maritime flag discrimination against this country is a matter of increasing seriousness. Forty per cent. of the shipping which now sails under flags of convenience is owned by the United States of America. In 1910, half the shipping in the world was registered in the United Kingdom. It has been going down ever since and today Liberia, which ten years ago had one ship, challenges Britain for first place with some 11 million gross tons. By the end of 1958 Liberia, Panama and Honduras had nearly 16 million tons of shipping registered with them. British shipping enjoys no kind of protection in world trade, not even within our own boundaries. Of the sixty-four countries with whom Britain trades, no fewer than forty have practised, in the past five years, some form or other of flag discrimination—bilateral treaties, reserving cargoes, preferential treatment in taxation, pilotage fees, berthing and so on. This is deliberate discrimination against this country. How long can we stand, as it were, on the dockside surrounded by unemployed seamen and see this happening and say that this is the right policy to stick to, irrespective of what other nations are doing?

We know the facts about the refusal of tenders in America on the grounds of defence and I need only mention them to your Lordships. We protest, but I guess that those needs will be reserved to the United States in the future under pressure from United States industry seeking to preserve those particular contracts for themselves. Then there are the woollen goods tariffs in the United States. In 1958 our exports were £2½ million down, and they are still dropping. We know of the quotas which have been introduced on base metals and oils.

Turn for a moment to Europe. Common Market discrimination against this country at the present time is very real. Last year 16 per cent. of our exports went to Common Market countries and this discrimination is going to hit us very hard. The European Free Trade Area project seems to be dead. It is unacceptable to us in the form in which Europe might consider it acceptable and it is unacceptable to them in a form in which we might offer it; so we now see arising a new economic menace to this country in the form of exclusion or partial exclusion of our goods, or through our goods being exported at grave disadvantage as compared with those of other countries.

Meanwhile the absorption of the labour in this country from what I would call partially expendable industries (in the eyes of the Government) like the cotton industry, into new industries, is checked. Opportunities for employment are lost because people cannot swing into these new industries which are being penalised through discrimination against this country, in disregard of the view of the right honourable gentleman the President of the Board of Trade that men should he able to go out of old industries into the new ones. That is being definitely halted at the present time and I believe it is one of the causes of the pockets of unemployment that we see.

Unemployment is, to all of us, a terrible problem, social and political. I see in your Lordships' House those who were in another place with me in the 1930s and if we had anything on our conscience for those years it is that we were so near the picture and never realised the tragedy that was going on around us. We must all accept a degree of responsibility and regret for those days, for there is about employment a dignity, a decency and an integrity which a man must maintain with his family and friends. It is something which I am sure all of us in all parts of the House will insist that we maintain.

Her Majesty's Government have accepted this policy of full employment, but I believe that in failing to give some consideration now to a degree of protection against this discrimination against our exports such as would enable us to check the growth of these pockets of unemployment they are not doing justice to their own policy. I believe we are liable to go too far and too fast unilaterally in liberalisation, although I am not against liberalisation of world trade. Surely the pace should be the pace of all rather than that Britain should be out in front, the pace-maker who exhausts his strength so that others may win when he is forced to drop out of the race. A move towards a reasonable degree of retaliation by us—I would call it perhaps not retaliation but adjustment of trading conditions—seems called for if over the next year or two we are to do justice to full employment. It is because of those words of the President of the Board of Trade, who seems to be going in the direction on which I addressed your Lordships for a few moments this afternoon, that I would ask you to support the view which I submit to the House to-day.

6.6 p.m.

LORD AMWELL

My Lords, I agree with the noble Viscount, Lord Bruce of Melbourne, that it is rather unfortunate that a debate on a Motion such as has been put upon the Paper should have consisted so much in a mere Party fight about the Budget. I believe that the question of the economic position of Britain, or, indeed, of the world, is one which is much more fundamental than the Budget. I remember the first Socialist Budget more than thirty years ago, when Mr. Philip Snowden took fourpence off tea. We spoke as if that had been the beginning of a social revolution. We have not had a social revolution since that time.

Important as Budget concessions and taxation are as a definite and immediate problem, those things do not really touch the question of the economic standing of the country. The question of Britain's economy goes much deeper than surface considerations which so often seem to be the basis of discussion of this question by others. The economy of Britain is what it is, and our prospects are what they are, not because of some fault or negligence in administration, not because one Budget stops expansion (whatever that might really mean), and not because one Budget is designed to stop expansion in order to save up for an electoral Budget next time. I really think that this House should be above that kind of nonsense. If we cannot be, we ought to be kicked out.

There is no argument there, because, after all, the question of whether or not a Government is acting rightly in its financial policy is one that can be debated on much more serious lines—and should be. Our economy and economic prospects are what they are because the assumptions on which all Parties rely really lack substance, and I want for a short time—I will not take longer than I can help—to challenge some of those assumptions, as one of the old school of Socialists who regrets the departure from Socialist principles. When, for instance, I hear a Socialist talk about "smashing other countries", as I heard just a few moments ago, it appalls me, and certainly confirms my feeling that we have gone a long way back from the old ideals which made the lovable Movement I joined very nearly sixty years ago.

I make no apology for endeavouring to get at the roots of the problem and I expect to find the roots where they should be: that is, in the land. Is it not remarkable that upon such a question as the position of British economy not a word has yet been said about the land of the country? The land of any healthy nation is the very basis of its economy. It should be the basis of its prosperity. In my own view (I want to be as modest as possible in the matter), among the many fallacies that are apparently accepted as axiomatic truth is the one that Britain cannot feed herself. All that we have been talking about is based upon that assumption. That is what we want foreign trade for; that is what we want all this export and smashing of other countries for, because we cannot feed ourselves. It is held to be quite unchallengeable. It has this amount of truth: if high-powered industrialism is our proper objective, our sole economic aim, then Britain certainly cannot feed herself. My case—and the case I should have liked to develop, but I must leave it for another time—is for a better balanced economy.

My noble friend Lord Chorley said in the debate yesterday that we had an excess population and excess industrialisation; we were over-populated and over-industrialised. If we are over-populated then we cannot be over-industrialised. The noble Viscount, Lord Elibank, in his Question that was answered this afternoon, quoted the Chancellor of the Exchequer to the following effect: … a steady increase year by year in our export trade is the first and essential prerequisite of a sound and expanding home economy and must he our paramount aim. That is the kind of thing that I challenge. I do not think it ought to be our paramount aim. I think our paramount aim ought to be feeding the people and providing the necessaries and amenities of home life. That should be our paramount aim; and if it means we must have a vast industrialisation in the near future, I suppose with atomic power at the back of it, and if that has to be had because we are neglecting agriculture and because we are not using the facilities we have for production of food, I think that that is unsound economy. That is the kind of thing I want to say because the argument is petitio principii; it is begging the question.

I think it is a bad thing to be finally, if not exclusively, dependent upon this absurd process, a process of producing for export in order to buy food, in order to feed our people to produce for exports, and so on. I am not going to suggest an idealistic return to a simple life, or Rousseau's noble savage, or anything of that kind. I am not talking about 100 per cent. measures, but about trends and tendencies; and I think we are going in the wrong direction because we cannot and will not be able in the future to smash other nations and their trade. We must have a very different outlook, a more world co-operative outlook, upon the question of trade, and I want to say a word or two about that in a moment.

We now swear by mass production. Labour, Tory and Liberal have made the monster their god. Everything must go: joy in work, individuality in work, quality in work, beauty, sanity and, in a very fundamental sense, in my view, religion; and all because of an excuse which I regard to be a lie, that we cannot feed ourselves. If it could be shown that there is some truth in the statement, the question of Britain's economy takes on a very different aspect indeed. Remember this (and I think some of my Socialist friends ought to remember it too): mass production is for the masses. It was invented for them. The well-to-do would have nothing to do with mass production. They have the money to buy the best in production and quality, and the working class have not and never have had, and, if the present system continues, never will have. Let us be economic though the heavens fall !

But how far is it true that small production is uneconomic? I admit the necessity for mass production to a very substantial degree, and, of course, of foreign trade for certain definite purposes; but we take it for granted that small production is uneconomic. I should like just to give two personal illustrations of the fallacy involved in that, and I will give the reasons for the fallacy afterwards. I can go to a bootmaker near my office and pay ten or twelve guineas for a pair of shoes. They will be hand-stitched on the spot and made to measure wilt first-class materials. I can go on into Regent Street and buy a factory-produced pair for three guineas or so. But the quality pair will last me four or five times as long and they will be capable of repair many more times; that is one of the reasons for their lasting so long. I found that out when I was a subaltern in the front line, wearing shoes that had to undergo all that the front line meant in that war.

It will surprise many of my friends to know that mass production was condemned by Marx and Engels. They said that one man should master many jobs. That does not sound like the "closed shop", does it? I knew an agricultural worker, a cowman. He lived in a tied cottage; he knew a lot of jobs. He had turned his cottage into a modern residence, so far as circumstances would allow, even to building in a small electrical equipment. His bookcases were full of classics and "Who-dun-its", for he was a well-read man of catholic tastes, and the design of everything was good and of lasting value.

Let me disclose a secret. It is an axiom of the advertising profession, to which I belonged as a copywriter many years ago, that a thing costs five times as much to sell as it does to make. That is the standard of the advertising profession. It is not true of everything, of course, but relates to the average then and the average now of the standard article. That is why small production is uneconomic. If we are going to produce on a small scale for remote markets, of course it is uneconomic. But let me give an instance: a bar of household soap in those days, ex-factory at a halfpenny, sold at twopence-halfpenny. My cowman did not produce for sale. If he had produced for sale and remote markets he would have been in the bankruptcy court.

Consider an illustration nearer home to me. I had an acre of land behind a bungalow in London. Employing a little skilled labour, and enjoying a little spare time, I produced on that land all the fruit and vegetables my household could consume. I was not a trained agriculturist. I did not know any more than a cotton operative would know about agriculture or horticulture. But that is what happened—and for far less cost, in fact a little more than half the cost, of the same fruit and vegetables if had wanted to buy them in the shops round about, in a village or in any particular county. That is what I call "production for use". It is a cliché, but it is the best definition of Socialism I know, too; and I think that if that principle were just pressed to its logical conclusion we should find a better solution to the economic position of this country than anything I have heard this afternoon in our debate.

We had in that case a little non-profit-making society that obtained for us expert advice, arranged for some mutual exchange of products and superintended rotative use of small machinery. I opened some of its shows. That kind of thing happens all over the country. If you want to know what the expensive alternative to production for use is, go to Covent Garden at five o'clock or earlier—three or four o'clock—in the morning and see what it means. I know farmers who run their farms largely by a species of gentlemen's agreements, taking what supplies they want from each other with hardly a "by your leave", and employing labour for such things as hedging and ditching right through their separate farms. They settle accounts in a friendly way, over drinks at their local club.

I am trying to show there that the idea that small production cannot be carried on in this modern age is wrong: it can. If you get away from the terrific waste of the modern system of production and distribution, you can at least leave a margin, a field, for the better quality work, the handicraft work, and for the small cultivation of the land, which would do away with a great deal of the problem we face in regard to the question of our economic position. Voluntary decentralisation is not uneconomic; it is highly successful, within certain limits. Of course, production for markets more or less remote is likely to be very uneconomic. Small production cannot beat mass production on its own ground.

Let me give a potent illustration of what I am trying to say—I am sorry that the noble Viscount, Lord Alexander of Hillsborough, is not present, as I think he would appreciate the point. The co-operative societies represent a case in point. Here is a movement touching one family in every four: a quarter of the population. It owns and controls the means of production and distribution (that is a phrase I have heard before) and, on the face of it, ought to be a standing proof of socialism's superiority over capitalism, if such superiority there is. The only answer to that which I have ever heard made on behalf of the co-operative societies is that they are compelled to stock branded goods made by the big capitalist concerns. So are private trader firms: they have to do exactly the same thing. If co-operative societies are compelled to do that, it is because the members of the co-operative societies are not satisfied with the Co-operative Wholesale Society's products. That is all there is to that. But that is no answer whatever.

Take the Gaitskell Report. What does it suggest? It advises the co-operators to be more capitalistic, not less, to beat the private firms. That means, I suppose, smashing the private firms by adopting fiercer competitive methods. It virtually says, "Challenge them on their own ground." But it is not the function of the co-operative societies to beat the capitalists except by rallying people who believe in co-operation to their standards. Their business is to supply their members with what they need, and not to beat anyone. If there is sacrifice which is needed on the way—and I know some of the difficulties with which the co-operative societies are faced—then I say, "Make it". The pioneers of the Co-operative Society Movement and of the Labour Party made sacrifices in the earlier days. To-day everybody wants immediate cash dividends, and they think of the sacrifices as being done and as a piece of past history.

Even apart from that, my Lords, beating private enterprise is nonsense, for, if it comes to fierce competition, private enterprise is well able to take care of itself. In pre-inflationary days I made calculations on the price basis of the time showing that the Co-operative Movement could have supplied all its members with milk and bread free for the money it spent on dividends and political flummery. I know that that was a very impractical proposition; it was not intended to be very practical. I did not expect that such an idea would be taken up; but there was the fact. There is no idea of socialistic production for use at all; always the idea of dividends and profits and the success of the very capitalistic methods that we are supposed to condemn.

So we come back to this question of high industrialisation versus quality farming and co-operative manufacture—and I stress manufacture: not what Engels called, in scorn, "machino-facture", for the right purpose of a machine is not to break the back of the world market in mousetraps but to remove the necessity for backbreaking toil at home; just as the proper function of foreign trade is to effect the exchange of goods which each country can produce with the most advantage and facility as a true surplus, and not to produce a scramble and gamble. It should not be a question of fighting foreign countries for our very livelihood while we neglect our land.

There are groups of well-informed persons who flatly reject the doctrine that Britain cannot feed herself. Aldous Huxley estimates that our real economic requirement in mass production is one-third of our total production. That, according to him, is our real economic requirement. John Betjeman would put it at rather less; others at more. Laurence Easterbrook, a farming expert, points out that mass farming is bad farming, and that a good husbandman "mothers" his fields as children are mothered in a good home. He knows his crops, field by field, watching their growth, nurturing, cropping, and so on, at the right time. We prefer to pay five times to sell gadgets and gimmicks: that is one of the great virtues of our time.

But farming must be made to pay. Crops are raised for sale in markets more or less remote. There are chemicals available to poison food and rot soil. Sir Edward Mallenby, the President of the British Medical Research Council, says that there are 700 chemicals used in the production and manufacture of food, and he says that the majority of them have not been tested for their precise toxicological effects upon the human body. That is one of the prices we pay for the system which we all accept. We accept it, and call ourselves Socialists in accepting it. The Government have to subsidise farming to meet the multifarious charges of transport and middle costs, and to recompense for risks run in market fluctuations. My cowman avoided that, and I avoided it in my garden. The result was that I realised it was possible to make a much better use of the land of this country than we do; and I believe that first things ought to come first.

By "production for use", I do not mean the monstrous thing called "State capitalism". I believe it is reasonable and practical to have a field, at any rate as a foil to the complete mechanisation of life; a field where this smaller quality production exists, and where we do produce for ourselves and make the best of our own land and of our own country. That is the best thing we can do, so far as it is practicable to do it: although, of course, it depends upon the will of the community. But I do not ask for the moon. I am not putting up a case for what Marxists call a sudden jump from quantity to quality; that is to say, a revolutionary change due to the release of pent-up forces. All pioneers are Utopians., dialectical Marxists no less than others. We in the Labour movement are no exception to the rule—the dawn had to break; England had to arise from its slumbers—although we are rather less dialectical in our thinking. I am not impressed by the usual slick talk about "progress": I want to know what kind of progress. There was the progress of the Gadarene swine. We cannot put the clock back, we are told. I once said in this Chamber (sotto voce, but loud enough to shock some of my immediate neighbours), "Try another bloody war and see!" I do not apologise for the use of the word, because wars are bloody. Values are not altogether determined by almanacks, clocks, or railway timetables.

I agree that we cannot refuse to face the increasing automation of industry and materialisation of life. I merely do not wish to see these things conquer the soul of man completely by totality and surrender. I desire that there should be a field capable of expansion according to the people's will, in which freedom shall be at its maximum; and I do so because I realise that, with all our talk about democracy, it is impossible to have freedom, real democracy, in high con- centrations either of capital or of men. Rule by majority is all very well, but I no more believe in the divine right of majorities than I believe in the divine right of kings. Something more is needed. But if there is to be majority rule for convenience, and it is called democracy, let it be as decentralised as possible, so that it will involve the maximum number of people and thereby be more nearly democratic.

Now what about unemployment? I will not keep the House very much longer. The last thing I want to do is to speak about the question of finding work. I think we want to find happiness, to find the joy of life for all people, then think about work as a means of obtaining it. What about employment when nuclear power invades industry? We talk about super-production, and even professed Socialists join in the chorus of anticipation of the good time coming. But you cannot sell super-production when it becomes universal. Socialists ought to know that unrestricted production would bring the system of production for sale to an end. But, of course, there will not be unrestricted production, even with all the talk about atomic power making a heaven on earth for everyone. You are not going to sell your products if everybody else has the same atomic power available and can turn out surplus goods, as they will do. This is the sort of problem we should be debating.

The question of unemployment calls to my mind my visits to South Wales during the great depression: the dreary rows of colliery cottages on the hillside and the queues of idle miners outside the exchanges. Those hills used to grow sheep that wandered down into the valleys and into the shops and houses. The idea that the working lives of these men should be spent in God's sunlight and air never occurred to the planners. It seemed to be assumed that growing food was harder and less interesting than digging coal, as it is assumed that agriculture and forestry cannot be so easy and attractive as steel-smelting and ship-wrighting. It was my noble friend Lord Lawson, who is not present at the moment, who said, with lyrical sincerity, that miners are intensely proud of their industry. With all respect to him and the miners, what is there to be proud of?—proud of being troglodytes for the whole of their working lives? Surely mining is one of those cases where the Marx-Engels doctrine of alternative work instead of extreme specialisation applies, if men are to be men.

I have mentioned the estimate of one-third high-power mass production in overall industry. If we are to go on to gain the whole world and lose our own souls, that cannot be helped. Take the cotton industry, that has just been mentioned. There we have a definite policy of contraction coming about. But how much contraction?—fifty per cent.? I do not think so much as that. What is the matter with the idea of half-time working —half time in the cotton mills and the rest of the time producing food? Probably the cotton workers know as much about it as I did, and I have told your Lordships what I was able to do in a small garden on the outskirts of London. Why not make this universal? The Government subsidise agriculture—and I have given the reasons: not for providing food for the people but for providing the waste that goes on intermediary between the producer and the remote market, the consumer. Why not subsidise the consumer for a change? Why not make it a question of training in order to get immediate results? Of coure, we shall not get immediate results; but that is where the subsidy comes in. I think that this is a better solution than taking vast numbers of workers by the scruff of their necks and putting them somewhere else and thinking that you have solved the problem of unemployment.

I think that here we have a practical example of the case I am trying to make out. We are neglecting the land. The fact that the subject has not been mentioned in this debate until I mentioned it justifies my complaint on this matter. There is supposed not to be sufficient land in this country. It is alleged that Britain is over-crowded, as my noble friend Lord Chorley said. I do not believe it. It is all relative, of course, and depends on what we are talking about, but still there is an acre of arable land, cultivated and uncultivated, available here for every man, woman and child. There are four acres upon the average per family. Compare this with the half acre per the much larger family in China. If we were suddenly to turn vegetarian, which I am not advocating—I am a good trencherman myself—it would be possible for us to feed ourselves on less than half that. It is a pity if the meat we demand cannot be produced on the rest. At any rate, there is virtue in the principle of first things first, and even without foreign meat we should not starve in an emergency.

It seems to me monumental folly, and extraordinary for Socialists, to put their faith in the possibility of any nation in a modern age conquering and retaining—or as the noble Lord, Lord Shackleton, said "smashing"—the rest of the world to maintain a monopoly of world markets. I submit that, more than anything else, the trouble with British economy is that it is ill-balanced in the face of that fact.

6.37 p.m.

BARONESS ELLIOT OF HARWOOD

My Lords, I rise with some trepidation to follow the noble Lord, Lord Amwell, because he has introduced into this debate a number of new subjects which have not been touched on before. I should like to say how much I agree with him on the fact that he is the first speaker to introduce the subject of agriculture into this debate on economics. Were the hour not so late, I should feel tempted to argue with him about his views on agriculture. I have had some experience as the farmer of a considerable amount of land. However, I think that would be out of order, and must be left to be debated perhaps at some future date. I would also say how much I agree with him that agriculture is a matter of the greatest importance in British economy. I am sure that there is nothing more unfortunate than to talk of "smashing" trading nations with whom we trade. We ourselves are a great trading nation. I did not hear the noble Lord use the word, though I am sure that he must have done so, otherwise the noble Lord, Lord Amwell, would not have quoted him; but I would say that it was a most unfortunate and unnecessary word to use.

I should like to thank the noble Lord, Lord Pethick-Lawrence, for introducing this debate and to say with what admiration I listened to his speech. His facility, his long years of experience, and his way of putting things made it an extraordinarily brilliant speech. I have listened to the whole of the debate and intervene only because I think that in most families in the modern world the housewife is considered to be a kind of Chancellor of the Exchequer, and that to-day there are many millions of housewives who are very grateful to the Chancellor of the Exchequer and for his Budget. I was not present in another place when he made his speech but, as millions did, I listened to him on the television. There is no doubt at all that his account of our present economy, and of our production and financial stability, was an encouraging one to many people.

After listening to the debate to-day and reading the debate in another place, it seems to me that some of the Opposition Members are also quite pleased that our financial position is as it is to-day. It seems to me that the quarrel (if there is a quarrel) between the Parties is not on the fact that there is a large surplus, but on how that surplus should be distributed. I feel that the all-important thing is to get the surplus. You cannot divide the proverbial political cake unless the cake is there, and it is to the Chancellor of the Exchequer that we owe the fact that there is a considerable amount of surplus which can be divided. I, for one—and I am sure there are many others who think as I do—feel indebted to him for that, and I want to say so.

We had from the noble Viscount. Lord Hailsham, an entertaining description, in which I followed him, and as to which I entirely agree with him, on the subject of the relief of purchase tax and the items chosen for relief on this occasion. Purchase tax, of course, is a very irksome tax. But what tax is not? It is always most agreeable when taxes are removed. I think the noble Viscount was quite right when he talked of the extraordinary number of people who use what in other periods of our lives would have been thought luxury things, and who to-day look on them as matters which enter into everybody's household budget. Possession of a washing machine, for instance, seems to me to be universal, although I do not myself have one. I was much taken aback the other day when one of my nephews said to me: "You cannot live without a washing machine". I have lived for a long time—much longer than I should like to admit to your Lordships—and I have never had one. But the young affirm that it is impossible to live without a washing machine, and I have no doubt that they are right, as so often those of us who are older find ourselves in the wrong. Millions of people have television sets—I, too, have one of those—and it is indeed agreeable to find that some purchase tax has been removed from them.

But the most interesting thing about purchase tax is the question of the motor car. Although motor cars are expensive. one is astonished at the number of people who have motor cars—and quite rightly; I agree with the noble Viscount, Lord Hailsham, on this—and look upon them as one of the important items in their lives. I think it is a good thing that we should have a reduction in the purchase tax on motor cars, which will beneficially affect millions of people. The matter of cosmetics and lipstick, which the noble Viscount raised, is again a matter which affects practically all families, as I am sure your Lordships will agree. So I think the selection of items for relief in connection with purchase tax has been undertaken with imagination, and I think these cuts will be appreciated by millions of people.

The matter of cuts in income tax is one which we all appreciate, and the fact that it now covers practically everyone in the country, if we include the P.A.Y.E. taxes, means that everyone has a chance of relief. When, again on the television, I saw Mr. Harold Wilson talking in terms of not relieving the lower income groups, he did not say, what is indeed true, that since a married man with two children and an income up to £12 a week does not pay tax, he cannot be relieved; and that for a man earning even up to £1,000 a year (which I think was the figure quoted by the noble Viscount, Lord Alexander of Hillsborough) there is a considerable reduction in taxation. All these reductions and all these assistances to families and salary owners in the country would not be possible but for the fact that the Chancellor of the Exchequer has made possible a Budget surplus.

I know that comparisons are odious, and in this House we do not make many political comparisons, but I cannot help thinking that we are entitled to claim some credit for, for instance, the enormous increase in the Savings Movement. I listened, as I am sure all your Lordships did, to the interesting speech of the noble Viscount, Lord Mackintosh of Halifax. I believe that to-day the Savings Movement is higher than it has ever been under any Government.

The number of people who to-day live in new houses, of children who work in new schools, and the success of our exports, all arise from the monetary policy that we have been discussing to-day. When we hear, as we did only last week, that the sales of British cars in the United States are higher than they have ever been before, surely this is not stagnation—a word that has been used once or twice in this debate. If, some ten years ago, anybody had suggested that we should sell British cars in the United States of America, the home of the mass-produced motor car and the birthplace of Mr. Henry Ford, on the scale that we do today, I wonder what would have been said of him. The old phrase about "carrying coals to Newcastle" would have been on everybody's lips. Yet it is a fact that to-day we are selling more motor cars in the United States than ever before.

I should like to make mention of the country in which I live, and particularly know, which plays a part in the United Kingdom economy—namely, Scotland. There the unemployment figures have been giving us much concern, but in February and March of this year there was three times the normal fall of unemployment figures in Scotland as compared with other parts of the country; and to-day the proportion of unemployed is down from 5.4 per cent. to 4.8 per cent. This is of great importance to us, and it will give us a chance to increase our production and improve our position. The help which has been given by the Government for the new steel strip mill in Lanarkshire is appreciated, as this will give employment to many thousands of people. Then the new factory building which has been going on in Scotland in the last year has provided new jobs for workers, and I believe that it will increase again this year. The new Forth Bridge, which if your Lordships travel North you will see is already beginning on each side of the Firth of Forth, will be of great assistance.

There is a new line which we have been taking in Scotland—and all this goes to our stability and the economy of the country—in encouraging the start of new firms and factories. There is one that I know of in particular in a small town on the Borders, where we are building a factory (and in this case "we" are the County Council of Roxburghshire) to let to an American firm, who are coming there to produce high-precision tools; and this will be the centre of their European market. That, I think, is enterprising, and we are able to do this because of our present stability in the country. In a further area, in the North, in the Burgh of Peterhead, there is another American factory starting up, and again this will help to bring new work to the people. All this shows that, at least in the United States, there is great faith in the stability and soundness of British economy. I make no apology for mentioning Scotland in particular, as Scottish affairs are an integral part of the economy of the United Kingdom, which is what we are discussing to-day.

We have had some discussion, too, about the old age pension rates, and about the difficulties and the challenge which has been made to the Government on the subject of old age pensions. I should like to support what the Chancellor of the Exchequer said in his television broadcast, and as the noble Viscount, Lord Hailsham, has said to-day, that it has never been customary for the Budget to be the time when these particular questions of retirement pension are introduced. When I listened to the Opposition on the television I wondered whether a Labour Chancellor of the Exchequer would have used the occasion to deal with this particular subject. I rather doubt it.

The aim of the Budget, and the aim to help old age pensioners, as well as everybody else, was put by the Chancellor of the Exchequer in his speech when he said [OFFICIAL REPORT, Commons, Vol. 603 (No. 87) col. 45]: The Committee will agree that no economic expansion is secure unless it is founded on a strong and stable currency. That is an article of faith and a basis for policy which we in the United Kingdom must always keep steadfastly before us. When we think of helping all sections of the community, including old age pensioners, there is no way we can help them better than by maintaining and increaiing the value of the pound by which they and everyone else will benefit.

When I listened to the noble Lord, Lord Balfour of Inchrye, enumerate the number of taxes which various people have asked the Chancellor of the Exchequer to remove, I realised how difficult the task of any Chancellor must be. I suppose we all have our own hobby horse or "taxation horse", in which we are particularly interested, or a tax we want to get rid of. I myself have only one plea, which I hope on another occasion a Conservative Chancellor may be able to fulfil, and that is to abolish the remaining amount of cinema tax. That industry has had great competition from modern developments and is suffering to some extent from the competition. It is not only an entertainment but an art, and an art in which we in Britain, with British films, take a leading part. Finally, I feel grateful to the Chancellor of the Exchequer because I think—I believe one noble Lord said this—that the job of a Chancellor, and the job of a Government, is to provide an economic climate in which industry, agriculture, trade, and employment can increase and flourish for the benefit of all the nation. I believe that this Budget provides such a climate. I am grateful to the Chancellor, and I believe that the nation will be grateful too.

6.53 p.m.

LORD SHEPHERD

My Lords, I hope that the noble Lady will not think me discourteous if I do not follow her in her speech this evening. Time is getting on, and in view of the strength of the House this evening I think the sooner I sit down the better. Earlier this evening the noble Viscount, Lord Hailsham, had great fun at the expense of my noble friend Lord Pethick-Lawrence in regard to driving a car. My noble friend had described Government policy as being like driving a car on the hooter and the brakes. I am sure the House will be conscious of the fact that my noble friend did not refer to the driving wheel. The wheel, as we know, is the means of directing the vehicle in the direction in which the body wishes to go, and I believe that the reason why my noble friend left out all mention of the wheel was because it is Government policy, and the declared faith of the Conservative Party, to have no truck with controls and directions. I should like to tell a little story which I find similar to Tory economic policy. It is the story of a little child riding his two-wheeled bicycle round and round the garden. As he became more courageous he came round with his hands off the handlebars and said, "Look, Mummy, no hands." The next time he came round a very different look was on his face. He then said, "Look, Mummy, no teeth."

An example of Conservative policy which has brought us boom and slump over twenty or thirty years of recent history is one where we have a period of expansion and a period of regret—a period of expansion in 1954 and 1955, and then the regrets and difficulties of 1957. When one views the manoeuvres of Her Majesty's Government and the Conservative Party in recent weeks, one cannot help feeling that the Government are now steering their ship towards the General Election, laying a vast and frothy smoke-screen which, if looked at through the rose-tinted glasses of the last Budget, transforms the smoke-screen into a mirage of prosperity. It is true that when one looks at the balance sheet which was laid before Parliament last week, there are certain figures which prove very satisfactory. They have been mentioned on numerous occasions this afternoon, and one could hope from those figures that our economic difficulties are behind us and that we are on the verge of a period of expansion.

I should like to look briefly at those figures, and first of all at the trade balance. The noble Viscount, Lord Bruce of Melbourne, dealt fairly with this subject.The balance has been largely brought about not by reason of any remarkable increase in exports by this country, but by reason of the fall in the volume and value of imports, which has given us a considerable advantage, to the disadvantage of the primary producing countries. It is subject to debate whether. in the long-term, these advantages, gained to the disadvantage of the primary producing countries, will be for the benefit of this country, for we must remember that over 50 per cent. of our exports go to these primary producing countries.

Secondly, in regard to the growth of reserves, it would be interesting to know—I acknowledge that the reserves have grown—what percentage of the growth has been due to loans and grants made by our allies, special payments made to this country in the defence field and, in particular, the sale of national assets such as the Trinidad Oil and the shares of other United Kingdom companies. The fact that we acquire dollars for the sale of these assets may give us a more liquid position, but it does not make us any stronger, for we have sold an asset. I think that the House would welcome the flow of overseas capital, in particular that of the United States, into this country, but we should look carefully at all these transactions and every once and again take stock. According to the evening paper, we have acquired in three transactions—the Trinidad Oil, the British Aluminium and the proposed Timken deals—£220 million, which has come into our reserves. It has created more liquid assets; but is the country any better off for the sale of those assets?

The House, I am sure, will have read in this morning's paper about the proposal of the Timken Roller Bearing Company of America to acquire the remaining shareholding in the British Timken Company. The original suggestion, as I understand it from the report, was that there was to be an exchange of shares, but this was rejected by the Bank of England. Could the noble Earl in his reply this evening give us the reasons why this decision was made? It surely must give concern when there is a sale of a national asset. This company, I understand, is the biggest manufacturer of roller bearings in this country. Roller bearings play an important part in many kinds of machinery; they play an important part in exports. It is reported in to-day's Daily Telegraph that no changes will be made in the British management, but the 1951 agreement—I presume that is the agreement between the two companies, under which both companies are free to sell and manufacture under the same mark in competition anywhere—will cease to operate. I think it is a very serious position if American capital is acquiring full control of a British company and, by a policy decision made in the United States, preventing that company from competing in our export markets. I think that the Treasury and the Government must look at these transactions very carefully.

The other point I wish to make is in regard to export trade. The noble Earl will remember that in the last economic debate I raised the difficulty of credit in the export trade. I said that exporters were finding great difficulty, increasing difficulty, in providing credit in overseas markets, and I asked whether the Government could persuade the Export Credits Guarantee Department to take a more lenient view in its demands that exporters should insure all their cargoes. The noble Earl was very good; he wrote and explained that if an exporter need insure for only a particular market the rate charged would be well over 5 or 6 per cent.

The political and financial risks involved in export trade are growing. Credit is being given very extensively by countries like Germany and the United States. To-day it is not a question purely of price and delivery; it is a question of giving credit. Many a manufacturer, many an exporter, perfectly willing to go into the export market is frightened of the political risks apart from the financial risks, and I can tell the noble Earl that there are a good number of confirming houses or credit houses who have been financing overseas shipments, particularly from Yorkshire, and who are seriously considering withdrawing from the export market because they find that they can use their money to far greater advantage in importing into this country and financing home trade. I would ask the noble Earl once again to see whether it is possible for the Export Credits Guarantee Department to take a broader view. Not all markets are difficult, but unfortunately the number of markets which are causing exporters concern is increasing, but we still must trade there.

My last point is on the same subject and that is on the question of freight rates. We are facing, as we know, great competition from Europe, not only in textiles but in steel, and exporters are finding that the high freight rates demanded by conference line steamers sailing from the United Kingdom are putting them at serious disadvantage with their Continental competitors. The Daily Telegraph this morning reported a case: if you send steel bars—which was a good British export—direct from London to Havana at agreed shipping conference prices the rate is £7 18s. a ton; yet between Hamburg and Havana the rate is £4 I5s. a ton. If you are quoting an overseas customer for steel, I would suggest that if your f.o.b. value was the same in Germany as it is in the United Kingdom you would lose your contract because of those freight rates. From London to South American ports the rate is £9 a ton, but from the Dutch and German ports the rate is £3 5s. a ton. This is a very serious matter. We well know that competing countries are subsidising their shipping; we well know that the cost of operating ships is very high; but if the freight rates remain high and kill exports, eventually we shall kill the shipping industry. I have no basic suggestion to make to the Government other than to ask them whether they will look into this position, because we know that the position of the shipping companies is difficult but we cannot allow a state of affairs to rule that if goods go out of British ports they go out at a disadvantage compared with those from the Continent.

We have had a very interesting debate. I thought myself that the most impressive speech, if I may say so, was that of the noble Viscount, Lord Bruce of Melbourne, at least as far as I was concerned. He is a man who is interested in export and overseas trade, and I thought he brought in an air of realism. We have to fight to maintain our position in the export markets. We shall not maintain it purely by stimulating production and by stimulating home consumption. We know that hire purchase plays a very important part in maintaining home consumption. Credit is of vital importance to our export trade. I must say that I was extremely disappointed that in his Budget the Chancellor of the Exchequer gave no indication that assistance or concessions would be granted to the industries who are striving for export trade. If we do not have exports we shall not be able to import the materials which we need to keep production high and give our people a decent standard of living.

7.10 p.m.

LORD BARNBY

My Lords, I wish to pay a high tribute to the noble Lord, Lord Shepherd who has just sat down. Much of what he has said will have appealed greatly to all who have heard him. He dealt realistically with most of the subjects, but I would particularly thank him for the manner in which he dealt with the export trade and the necessity for combating the arrangements made by other Governments to help their traders. Much has been clone by Her Majesty's Government but, as he has made clear to us, there is scope for much more.

Returning, as I did last week, from seven weeks in North America, I carried back with me, as anyone else would have clone, the happy realisation of a change in the climate of thought and the climate economically compared to that existing a year ago, or even six months ago, when I was there. There has been a complete change of atmosphere; the so-called recession is forgotten, and all thoughts are again on an expanding economy. That carries with it a progressive fall in unemployment. But, of course, there, as everywhere else, it is clear that a recession in trade has the ability to produce the same volume with a much reduced personnel—the same increased work load and, of course, with the advantage that has occurred in most places, of increased equipment and modernisation. If history is any guide, that must react throughout the world, and there is good reason to think that the tendency is now to an expanding economy and better employment.

To turn to the Budget here, surely the presentation of the Chancellor of the Exchequer will have heartened this country, and we seem to have grounds for hoping that the improvement will be a progressive one. It seems interesting that the statistics, particularly in North America, are proving that the recession of the past two years has come mainly from a de-stocking movement. As to the statistics in North America, in Canada they are very clear, and I would quote from the report from the Prudential Insurance Company of Canada that While the gross national product fell by 4 per cent. from the peak of the 1957 level to the bottom in 1958, the consumption of all goods and services fell by only 2 per cent. That shows two things—how much sentiment enters into it, and how great is the need for good statistics.

I want particularly to refer to a point raised in this House in a debate two years ago, on the policy of the then Chancellor of the Exchequer of using monies raised by taxation from public companies and private individuals for the financing of nationalised industries below the line. The presentation of it by the Chancellor was not quite clear, and I hope that in reply the noble Earl (to whom I have given notice of this point) will give some clarification. The policy that was criticised was that of using a surplus for financing the expansion or losses of the nationalised industries. The policy then recommended appears to have been adopted, and now they are to be financed by the monies raised by the Exchequer. The noble Viscount, Lord Hailsham, reminded us that the sum needed to be raised was somewhere round about £720 million. I hope that the noble Earl, Lord Dundee, will be able to indicate that some, if not all, of the nationalised industries will be required to go direct to the market, like any other undertaking, and to show the public a record of their performance; and on the strength of that, but with State guarantee, will indicate the reasons why they want these large loans and what has been their record of profit or loss.

The noble Lord, Lord Balfour of Inchrye, dealt at length with discrimination; and with all he said I found myself in agreement. But it merits being referred to again. The angle of it that I particularly want to raise is prompted by thoughts of G.A.T.T., which has been so often denounced as being too rigid. I should like to quote the retiring Chairman of the Tariff Board of Canada, Mr. Hector Mackinnon who, after twenty years' experience, admits human fallibility and the fact that the bindings were too rigid. Indeed, I would add that a new outlook is needed altogether in relation to Com monwealth Preference. Returning to the subject of discrimination, one hears a lot about that with regard to the United States. Of course there are grounds for criticism. They do many barter deals which are discriminating, in finding means of disposing of agricultural surpluses, by payments in the currency of the buying countries. All those things are against the intentions of G.A.T.T. We have the restriction of zinc and lead, and recently of Canadian oil imports into Canada.

The export of automobiles from this country was referred to by the noble Baroness, Lady Elliot of Harwood, who reminded us of the high exports from this country to the United States of America. I am venturing to ask, in view of all this talk of discrimination all round the world, and our criticism of the United States: is it not about time that we removed the discrimination which prevents imports of American automobiles into this country? Surely our high exports are due to the fact that our wages are so much lower than theirs. I would add that we should import from United States only automobiles of rigidly limited size, because obviously some of their automobiles are not suitable for our roads.

In tariff-making, matters continually arise which show the need to recognise that the approach on tariffs on consumer goods where the labour content in relation to weight is high should be entirely different from the approach in regard to capital goods where the reverse is the case. That point has to be faced at some time. The existing arrangements are being upset by circumstances which have been often quoted and are known to all, but it seems that the capital goods industries have the greatest influence in the making of tariffs. It must be remembered that unemployment is high in the textile and other consumer goods industries, also.

I am glad that the noble Lord, Lord Amwell, referred to the cotton industry—and I would add that I have no personal interest in that industry—although I do not agree with his solution of putting cotton workers into agriculture, because I do not think that that would be very practicable. There is no doubt that the cotton industry is an example of where rationalisation is needed. May I quote from this morning's The Times? Mr. James Ewing, chairman of one of the large corporations in the textile industry said: There may have to be fundamental changes in the present horizontal structure, the way for which can be cleared in the first instance by cutting out excess capacity in each of the horizontal sections and operating the fewer units on a full capacity scale. It is in that connection that I would refer with gratitude to the increase in investment allowances made by the right honourable gentleman the Chancellor of the Exchequer; but I am going to suggest that the Government's thoughts of giving general assistance to steel should be extended to textile industries also. There needs to be still larger subvention for buildings, because it is no good putting new equipment into old buildings. To get the highest advantage from new equipment it must be in the new, single-storey buildings.

I am glad that I find myself in the position of being followed by the noble Lord, Lord Wilmot of Selmeston, because he is well informed on all these matters; and he will, I hope, permit me to add that, in addition to efforts by the employers in bringing about modernisation in practice and performance in all ways, there must be recognition by the trade union organisations of the fact that restrictive practices should no longer be permitted to retard the abandonment of old-fashioned, single-shift operation. The installation of new equipment in new buildings must be accompanied by multi-shift operation, so that the greatest advantage of cheap costs may be acquired. There have been suggestions that these many proposals in the Budget may be either inflationary or the reverse. The trade Press seem to be confused about them, but those who follow Reader's Digest will perhaps not be in disagreement with its recent presentation: that inflation is like conception; there cannot be just a little of it.

Before I sit down, I should like to refer to another matter, raised by the noble Lord, Lord Shepherd. He seemed to have disquiet over, if not actual dislike of, United States interests acquiring businesses in this country. I am among those heretics who are satisfied that the more American money that comes into this country the better. We need the dollars; and we get the advantage of their progressive industrial practices. I would add this: the noble Lord mentioned that many of the companies buying into British markets have large Canadian subsidiaries. That must surely help to link together the United States of America, Canada and Britain, and it is for that reason particularly that I support it. Having come back from Canada, where the improvement has been less rapid than in the United States, I would say in conclusion that there is evidence of improvement, although unemployment is still regrettably high. There is an opportunity to prove whether an inflow of immigrants causes unemployment or whether, as has been proved over past time in the United States, the more bodies there are in a country the more work they will give rise to. I am among those who subscribe to that latter philosophy. Anyhow, I feel happy to conclude on the note that Canada, that part of the Commonwealth which has such brilliant ownership and endowment of raw materials, is also gaining and can contribute very largely, as she will, to our own expansion.

LORD SHEPHERD

My Lords, may I just put one matter straight? I was not in any way criticising the flow of American capital into this country. All I said was that we should look at it, and also that we should not "kid" ourselves that we were necessarily gaining by selling assets to America for liquid cash.

LORD BARNBY

My Lords, I thank the noble Lord for that explanation.

7.28 p.m.

LORD WILMOT OF SELMESTON

Following the noble Lord, Lord Barnby, I too, feel that we should all do all we can to assist in the modernisation and equipment of our great industries. But I would say, in passing, that it does not greatly help in the matter of which he spoke—and we both serve the same great industry—that there should be a very large number of people out of work. Half a million unemployed does not make that problem any easier. Also, as the noble Lord knows all too well, a major enemy in this field has been the tight monopoly of plant manufacture which has held back the development of the British cotton industry and, to a certain extent, the one in which we work.

It is getting late and we have had a long debate, and I am glad that we are bringing it to a close in the spirit in which it was opened by my noble friend Lord Pethick-Lawrence, with, if he will permit me to say so, such distinction, such wisdom and such charm.

The noble Viscount, Lord Hailsham, defended the Government's economic record and the Budget of last week on the grounds that it followed Keynesian principles. I am bound to say that I do not think it does; and it is because it does not follow those principles that we largely think that it is a poor record, of which I do not think many people can be proud. There is nothing in the Keynesian doctrine which requires the Government to wait while the economy decays to the point of half a million out of work before steps are taken to correct it. If what is being done now is right, it was certainly right six months ago; and surely the policy of the Government, if they accept the tenets of that very great man, is to feed the national economy with a steady diet of nourishment when it seems to be showing signs of languishing; not to wait until it is in a very bad way and then to administer pep pills, probably to be followed later on by tranquillisers, as we had on the last occasion this thing was done. That really is the gravamen of our complaint, and it has been stated so well already that I am not going to detain your Lordships by stating it all again.

But it is a fact that the Government have not only created very great hardship among a very large number of people by leaving the action so long, but have, let us face it, put in some jeopardy the success of the policy upon which they are now embarking, as they did last time. No one hopes more than we do that they will get through with it, and that we shall succeed in building up again our productivity and our prosperity. But they have taken some chances by leaving it so late and, I think, by administering the remedies in the wrong way. I should like to say just a word or two about this latter part of the reason why we cannot support the Government's view.

First, income tax. It is quite untrue to say that we on this side of the House are opposed to tax reductions, and I really must ask the noble Viscount, Lord Hailsham, not to quote the speeches of Members of the other place in this House without notice and then to base his attack upon the Opposition here on those quotations, because it is not fair. The speakers are not here to reply and we do not know what was said. It is particularly wrong, as in this case, when it was not only a misquotation but a complete travesty of what the honourable Member for Battersea really did say. I have obtained the House of Commons Hansard and looked up what he said, and I beg your Lordships to forgive me if I make this point, because it seems to me important.

The noble Viscount, Lord Hailsham, said that Mr. Jay, when asked by a Conservative Member whether he disapproved of income tax relief, replied that he did not think it was necessary, thus conveying to this House the impression that this honourable Member, a leading Member of the Labour Party Front Bench, and a brilliant and leading economist, had spoken for the Party when he said he was opposed to reliefs of income tax. Now what did he say? I am going to quote, very briefly, because that is all that is required. Mr. Jay was talking about the fact that the Government had collected another £200 million from the working people by way of an increase in the National Insurance contributions. He went on to ask, "Where is this money going to?" He said [OFFICIAL REPORT, Commons, Vol. 603 (No. 89), col. 397]: First, much the larger part—more than £100 million—goes to business profits and not directly to personal earned incomes at all. Large firms like I.C.I. and the Imperial Tobacco Company each get more than £1 million at once in Income Tax relief. The Paymaster-General kept asking us yesterday where, if we were to urge other reliefs, we would have raised less revenue in this Budget. I will tell him. We do not think it necessary to have granted this huge relief in business profits.

VISCOUNT HAILSHAM

No; it is "further relief to business profits".

LORD WILMOT OF SELMESTON

That is right. Then the Paymaster-General said: I also asked whether the Party opposite intended to oppose relief in Income Tax. That was the intervention to which the noble Viscount referred, to which Mr. Jay replied: And I am telling the right hon. Gentleman that at present we do not think that that part of it was necessary. That part" is the concession on company profits, nothing else.

VISCOUNT HAILSHAM

My Lords, no. I think the noble Lord is entirely wrong, and if he will read the next two sentences he will see that that is established.

LORD WILMOT OF SELMESTON

No; I do not agree.

VISCOUNT HAILSHAM

Well, read the next two sentences.

LORD WILMOT OF SELMESTON

The next sentence states that something under £100 million goes to personal income tax.

VISCOUNT HAILSHAM

Personal income tax.

LORD WILMOT OF SELMESTON

But the remark which was quoted in this House applied to the relief of profits tax, that part of it.

VISCOUNT HAILSHAM

No.

LORD WILMOT OF SELMESTON

Oh yes, if you read the whole speech.

VISCOUNT HAILSHAM

My Lords, it is perfectly plain. I am sorry to make a point of this, but the noble Lord said I deliberately brought this to the notice of the House with that intention. I did. I did so because I am quite satisfied that is what it means. I myself think it is a pity to quote actual words in this House, because, on the point of Order raised against me, I think it is a mistake, and contrary to the custom of this House, to quote ipsissima verba, as the noble Lord is doing. If the noble Lord will look at the context he will see, quite plainly, first of all that the question related to income tax and, secondly, that the answer related to income tax, because the next two sentences—the first of which he has quoted, and then under pressure from me—referred to income tax and nothing else, and expand the first sentence.

LORD WILMOT OF SELMESTON

My Lords, I do not agree. I agree with only one thing: that it is undesirable to quote speeches of the other place in this House. But it is much more undesirable to misquote them, and when they are misquoted somebody should rise and say, "The honourable gentleman in the other House did not say that". This I do.

VISCOUNT HAILSHAM

My Lords, may I say that the noble Lord has absolutely no right at all to say I misquoted anything. Rightly or wrongly—the noble Lord opposite contended it was contrary to the custom of the House—I read out both the question and the answer. The noble Lord is entitled to put his own interpretation on the answer, which I think is wholly wrong, and I reiterate what I said. But what he is not entitled to do is, when I did read out the words, rightly or wrongly, to say that I misquoted them. I did nothing of the kind.

LORD WILMOT OF SELMESTON

My Lords, I will read the words again: We do not think it necessary to have granted this huge further relief to business profits after last year's reduction in Profits Tax.

VISCOUNT HAILSHAM

My Lords. those are not the words I read; that is not the passage. The noble Lord is entitled to read those words, but those words are neither the words I read nor the passage I quoted. He is not entitled to accuse me of misquoting when I quoted correctly. If he desires to put his own interpretation on the words, and it is different from mine, then the House must judge between us it is a matter of opinion. He is not entitled to accuse me of misquoting, when I did nothing of the kind, and then to read out another passage which I did not quote in support of his present allegation.

LORD WILMOT OF SELMESTON

My Lords, as the noble Viscount says, the House must decide; but the House can decide only in the light of the written word when we read it to-morrow and compare it with the House of Commons Hansard. If I have made a mistake I shall apologise both to the noble Viscount and to the House. But at the moment I am convinced that—as I say, inadvertently; I am sure of that—the noble Viscount misrepresented the opinions of the honourable Member for Battersea; and on the basis of that he attacked this Party because he thought we all agreed with the view which he ascribed, I think quite wrongly, to the honourable Member for Battersea.

My Lords, the fact is that we are not against remissions in taxation when those remissions are justified by the circumstances. What we disapprove of is the manner in which the reliefs have been granted. We think that there are better ways of relieving taxation than the ways the Chancellor has chosen; and we are entitled to have that view, and to express it and explain it. Now what do we think should be done? We think that, if the amount of income tax to be paid is to be reduced, it should be applied in such a way that, first of all, it gives the maximum impetus to the recovery of the economy of the country; and, secondly, that it relieves hardship where hardship is most cruelly felt. As a Conservative Member of the other House said [OFFICIAL REPORT, Commons, Vol. 603 (No. 88), col. 282], a distribution of these benefits to the lower ranges of taxpayers would exercise an incentive effect far greater than similar amounts of money devoted to concessions higher up in the income tax level. That was Mr. Price, the Member for West Lewisham; and I think he is quite right. I say that for this reason; that we must face the fact that, although there is to us, in the circles in which we move, a general atmosphere of prosperity there is in fact a very large number of desperately poor people, people below the income tax levels who naturally get no relief from a reduction in the rate of income tax, and who have suffered grievously from the economic policy which the Government have pursued during the last few years.

LORD BALFOUR OF INCHRYE

My Lords, I do not usually interrupt, but if the noble Lord will kindly allow me, I should like to get one thing clear. Does he really mean that the Labour Party are against a reduction in the standard rate, but would prefer any tax reliefs to be given to the non-income tax payers and to other forms of income tax relief on the lower scale? Can one take it, therefore that they are against the flat standard relief? I think we ought to get that clear.

LORD WILMOT OF SELMESTON

I was just coming to that. I think it would have been better, if this amount was to be distributed, to have done it just as the noble Lord says: first, in the alteration of the allowances: child ren's allowances, family allowances, and allowances for people with dependants—because that is where the pressure of rising prices and rents has been felt most hardly among those who are liable to income tax.

LORD BALFOUR OF INCHRYE

Leaving the standard rate as it is?

LORD WILMOT OF SELMESTON

If necessary. If there is not enough to do both, I would rather leave the standard rate. I would first of all make my income tax concessions as far as necessary on the allowances.

Then, secondly, we have to consider an even poorer class of people who do not get the allowances at all because they are too poor to pay any income tax. There are some millions of such people. We are apt to forget them: to look at statistics and to forget about people. Prosperity shows itself—poverty hides away. I have been a Member of Parliament for three working-class London boroughs, and to this day there is deep distress and poverty among the people in those places and in the industrial towns. It is there, in my view, that there has been a mistake made in the Budget, in the way in which the purchase tax has been adjusted.

It is all very well for the noble Viscount to say that he does not know what luxuries are. It was a very amusing and enjoyable passage, and I hope we shall hear the like of it again: but I will give him some advice on how to deal with this difficulty. I would say: first make up your mind what are the real necessities, and deal with those: rent, clothes, household necessities—real necessities—notwashing machines, but real necessities.

VISCOUNT HAILSHAM

Saucepans.

LORD WILMOT OF SELMESTON

Saucepans, frying pans, soap, toothbrushes; all those things, and some of the things on the higher levels, I agree. They are the things that very poor people have to buy. These very poor people—let us face it—on nearly every article they buy in the hardware shop have to pay ld., 2d., or 4d. purchase tax. It is an unseen drain on their slender resources. Our case is that the Government would have been very much better advised, because in this there is both justice and wisdom, to use what reliefs were possible to relieve the poorest people first, both among the income tax payers by better allowances, and among the non-income tax payers by abolishing the tax on necessities.

Then there are the old-age pensioners. It is not exploiting a case to state it. The old-age pensioners are miserably poor. They find it very hard to buy the barest necessities of life. Many of them are a burden to earning people and their families with whom they live and by whom they have to be partially supported. I think something might have been done for them—because, after all, it is the Government's policy which has put them in such distress. The rise in rents and the rise in food prices has hit the old people, the children, and the large families with low wage-earners, most hardly.

I would draw your Lordships' attention to the Report of the National Food Survey Committee. There are some very disturbing facts in this document. I will not detain your Lordships with quotations, though I have them here at hand if they are wanted. However, this survey, which is a survey of what is happening to the diet of the nation, shows grave things: that, over the last few years, partly due to the rise in rents and partly due to the rise in food prices, the diet of big families is deteriorating in quality. They are getting less fruit; they are getting less milk—and it is this Government which cut the welfare milk and which put up the price of milk: they are getting fewer vegetables; and they are getting more stodge in the form of cheap starches. The bigger the family the lower the diet standard, and the older the children, up to school-leaving age, the less really good food they are getting. What is more, there is a progressive decline. Now that is the result of this economic policy; and I say that wisdom and justice require that any tax reliefs should first go towards the relief of this poverty, before it goes to provide luxuries which we certainly should like to see everybody enjoy.

My Lords, that is the basis of the case Which we make, and that is why we cannot support the Government's policy. I believe that there is not much justice in it: whether it will 'be popular or not other people will decide.

7.50 p.m.

THE MINISTER WITHOUT PORT FOLIO (THE EARL OF DUNDEE)

My Lords, when your Lordships discussed the unemployment situation exactly five weeks ago, I suggested that you might want to have another economic debate after the Economic Survey for 1959 had been published and the Budget for 1959 had been introduced. Every year for the four or five years I have been in your Lordships' House I have had the pleasure of hearing the noble Lord, Lord Pethick-Lawrence, moving a Motion calling attention to the economic situation. On nearly every occasion I have followed him as a private Member at some time or another in the debate, and now that I am doing so from this Box I should like to congratulate him on his extraordinary memory and on his grasp of a subject which appears to be eternally fresh in his mind.

I think that the annual publication of the Economic Survey is one of the most valuable administrative innovations since the war. The Economic Survey for 1959 enables your Lordships to see a more detailed picture than would have been possible five weeks ago, both of the general state of world trade and of the conditions which must govern British economic policy during 1959. In world trade, international co-operation is certainly not so perfect as it might be, as many noble Lords have pointed out in the debate. In one way or another it is not at all perfect, but I think we should agree that since the war great advances have been made in co-operation between the free countries of the West, partly through organisations such as the International Monetary Fund and O.E.E.C., either subsidiary to or formed by the United Nations, and also, I think, through a greater understanding of economicson the part of the Governments of Western countries or at least on the part of the permanent officials whose advice the political leaders are accustomed to take.

Let us look at the recessions in world trade which have taken place since the war. If we look back at the American recessions of 1949 and 1954 in perspective, I think we shall find that they appear to be fairly trivial events. Even the recent recession, which began two years ago and which is still affecting us very considerably, is not to be compared for one moment with the great slumps in world trade which used to take place periodically before the war. When we talk about British economic policy in relation to world trade, I think that sometimes we are apt to forget that since the war all Western industrial countries have had substantially the same problems to face, the same basic problem of trying to combine industrial expansion, the continual increase of production and the raising of the standard of living, with something like stable prices and the avoidance of inflation.

I was a little surprised when the noble Lord, Lord Shackleton, who apologised for not being able to stay to the end of the debate, said that production cannot lead to inflation. Of course, economic production of goods for which there is a good demand cannot lead to inflation. The more goods you produce, the less inflation there will be. But wasteful production for which there is not a wide demand might have a great effect on the inflationary pressure on the available amount of goods and services. I think that to say, as a generality, that production cannot lead to inflation may induce the view that all we have to do is to start producing goods, whether there is a real demand for them or not, or whether it is possible to make an economic profit out of them or not, which would be about the most inflationary thing that we could do.

The noble Lord also spoke about the vicious circle of inflation and deflation. I do not think that that was a correct description of the post-war economic situation, because we have never had any deflation at all; what we have had is continual inflation. The vicious circle has been that of the wage-price spiral the whole time: prices going up, then wages going up, and the increase of wages leading to another increas of prices. That is the vicious circle which the Western industrial countries have had to contend with, though, of course, the consequences of inflation might be less serious in very large countries like the United States or Canada, which could almost be self-sufficient, if necessary, than in a country like ours where inflation might rapidly lead to a failure to acquire foreign currency, resulting in widespread unemployment and poverty because we could not pay for our food and raw materials. Nevertheless, there are serious disadvantages in inflation across the Atlantic, and the Americans have been almost as concerned about it as we have been since the war.

In 1957, the Americans decided that they had reached a point when they must try to stop inflation, even if the price which they had to pay for doing so might be some retrogression in the gigantic economic progress which they had been making. Accordingly, they took deflationary measures—or rather, anti-inflationary measures. Your Lordships will remember that after the consequent recession in America began, the Administration was under continual pressure from all kinds of opinion in the United States, pointing to the unemployment and to the falling off of production which had resulted, and was being urged to take reflationary measures, to reduce taxes, to remove credit restrictions and to incur large-scale public expenditure—all to pump more energy into the American economy. But the Administration, acting on the advice of their expert economic advisers, declined to take such action, believing that it would lead only to a renewal of inflation and that the American economy would be strong enough to recover without such aid.

Now it seems certain that the recession in America is coming to an end. How quickly recovery there will proceed we cannot say. I am sure that your Lordships were delighted to hear what the noble Lord, Lord Barnby, who has just come back from America had to say about everybody being confident that a new "boom" was approaching. But meanwhile it is certainly the fact that one result of this fairly long recession has been greatly to reduce American buying of raw materials, and that has resulted during the last year or two in a fall in commodity prices and in the products of primary producing countries.

As the noble Viscount, Lord Bruce of Melbourne, pointed out, that affects the British economy in two ways. First of all, it has the effect of greatly improving what are called our terms of trade, and we have to pay a good deal less for our raw materials—not that we want that to happen, or, at least, we do not want it to go too far, but it produces that incidental advantage, from our point of view—and it enables us temporarily to strengthen our foreign exchange position; and I think we have used that advantage to the best of our ability during the last year. But the other effect it has is that when these primary producing countries, many of which are in the British Commonwealth, are unable to get the prices they had previously been receiving for their raw materials, and are unable to sell so much of them, they cannot buy so much of our exports. That is a disadvantage to British trade. The noble Viscount, Lord Alexander of Hillsborough, rightly pointed out that the falling off in purchase of British exports does not come until quite a considerable time after the fall in the price of primary products in the producing countries.

The Government foresaw that. We always anticipated that the period during which our exports to the rest of the sterling area would be lowest would be at the beginning of this year; and during the first quarter of this year I think our exports to sterling countries have been lower than they have been for a long time, arid lower than they were at this time last year. On the other hand, that is. at least partially, offset by higher British exports to the United States. My noble friend Lord Balfour of Inchrye gave a figure of 23 per cent. as the increase, and that is an encouraging feature of the situation at a time when America has been going through this recession. But what we want to bring about is a rise in world-commodity prices—not an excessive rise, but a moderate one—which will both increase the prosperity of these primary producing countries and enable us to send more exports to them.

LORD PETHIECK-LAWRENCE

My Lords, I should like to understand clearly what the noble Earl is saying. Do we really want to see a rise in world-commodity prices? Does he not mean a rise in the price of world raw materials?

THE EARL OF DUNDEE

Raw materials are commodities. I am sorry if I used the wrong expression, but I think "commodity prices" is generally used to mean mainly raw material prices, as distinct from manufactured goods. We want to see a moderate rise in the price of raw materials for two reasons: commercially, because that will help our exports; and politically, because so many of these primary producing countries belong to the British Commonwealth, and it is to our political advantage that they should be strong and prosperous. We hope that as American economy, and consequently American buying, revives, and as our own productive power and purchasing power increases, more raw materials will be sold in better market conditions. At the same time, we are doing what we can to help the economy of the primary producing countries in such ways as through the International Monetary Fund. Your Lordships will remember a Bill a month or two ago which increased our contributions to the International Monetary Fund by £58 million in gold, largely with the object of enabling that Fund to help backward countries. The noble Viscount, Lord Bruce of Melbourne, has no doubt noted with satisfaction The results of the Montreal Conference, where we agreed not only to encourage private investment: in the Commonwealth, which has gone up considerably, but also to give Government loans to help the economy of other Commonwealth countries and since then, as your Lordships will find from the Economic Survey, £50 million in Government loans has been issued.

It seems likely—at least, we hope it will happen—that there is going to be, if not a rapid recovery, a recovery in world trade. Everything points to the fact that if that recovery comes, whether it is slow or fast, it is going to be, so far as we can see, on a less inflationary basis than world trade has been from 1945 to 1957. Everything points to the fact that if we are going to hold our position we have to pay the greatest attention to efficiency, because trade is going to be much keener and there will be more competition; we must engage in our export trade not only with greater efficiency but also with better salesmanship. If we do not do that, we shall fail not only in our duty to the world in general, but also in our duty to ourselves. For that reason, I think it is even more important that we should continue to avoid further inflation in our own domestic economy in Great Britain.

I have said that our problem is the same as that of other countries, only with the exception that it may be more important to us because the penalty for failure is greater for us than it would be for them. But how are we to achieve our object of expanding production without the continual danger of finding that no one wants to buy what we are producing and that we shall not be able to get foreign currency to buy what we need, which will lead rapidly to unemployment and widespread poverty? The Party opposite, I think, hold the view that we cannot have increased production combined with the avoidance of inflation unless we have a greater measure of control. The noble Lord, Lord Shepherd, said that the Conservative policy was to have no truck with any kind of control or direction. But that is really not so. The Conservative Party are not necessarily opposed to controls. We had to fight for a long time in the cause of fiscal controls and the right to protect our industries by quotas or by tariffs. And while we all agree that it is a good thing to increase the volume of world trade, as my noble friend Lord Balfour of Inchrye said in his speech, there are many circumstances in which it is right and necessary to protect British industries against unfair competition. With regard to industry, one control which we introduced long ago, but which we still maintain and apply, is the granting of industrial certificates which can be withheld in order to persuade industries to go into the development areas.

I was very glad that the noble Baroness, Lady Elliot of Harwood, spoke about the industrial position in Scotland, where there are such good hopes for progress. We are trying to do the same in other development areas and in areas which come under the recent Distribution of Industries Act. But that policy is not specifically directed to the present recession; it is a long-term policy designed to correct the employment situation in areas where there is too large a concentration of one or two industries and where it is desirable to create greater diversity. We should certainly recognise that in some circumstances, as, for instance, in a war or just after a war, it is necessary to have a certain number of controls. But we believe that in normal times controls over licensing and the allocation of materials are not at all likely to lead to the efficiency which is so essential if we are to survive and prosper and increase our share of world trade in present circumstances.

We also believe that controls of this kind would certainly not prevent the price-wage spiral. They certainly did not prevent it at the time they were applied. In fact, prices rose much more during the period of control than during the following period in which most of these controls had been dispensed with. There is, of course, one control which could prevent the wage-price spiral if it were possible to impose it in a free society, and that would be the control of wages. If you were able to control wages, you would clearly be able to control an inflationary rise in wages. But on other grounds I doubt whether the control of wages, either in a free society or in any society, would add to efficiency.

In our view the Government ought not to control either the allocation of materials or the level of wages. What the Government ought to do is to control monetary policy, and they ought to try to control that in such a way that it will not be worth the while of employers to grant an increase of wages which is inflationary in its effect. There is no reason why a trade union should not press for a rise in wages if there seems to be a good chance of getting one; and if the employer thinks that he can get back his money simply by putting up prices without increasing his efficiency, there is no reason why he should not grant the rise in wages. It is for the Government to apply a monetary policy which will make that not impossible but unlikely to be, profitable and, therefore, unlikely to be done. That has been our endeavour.

In the last few years we have had many failures, and no doubt we have made mistakes, although the criticism of our failures has seldom been well judged. We thought for a short time in 1954 that we had achieved price stability, but that hope was soon dashed. The wage-price spiral started rising again very rapidly in 1955, and at the end of that year we took what many people condemned as too severe measures to try to stop it. But those measures proved to be not nearly effective enough. It went on through 1956, when we took further measures to stop it, which were again ineffective, and the spiral continued at an equally great rate in 1957. By that time there were the international effects of the beginnings of the American recession, with world trade diminishing, and it became absolutely essential, if we were to avoid not just an ordinary crisis but a crisis which would lead rapidly to widespread unemployment in this country, that we should take more severe measures than any which we had hitherto taken. We did take such measures, which have in fact so far led to a more or less stable price level in this country. We have been strongly criticised for taking these measures, because it is said that we did so deliberately in order to produce industrial stagnation and unemployment.

We are told, now that we are in a position to adopt more expansionist measures, that we ought to have done so eighteen months ago. There has been a great deal of discussion in this debate about the car of the noble Lord, Lord Pet hick -Lawrence. Suppose that he was driving a car down a very steep hill with a bend in front of it, and he saw a bus conning round the bend towards him on the wrong side of the road: what he would probably do in those circumstances would be to put on the brake. What would he think if the noble Lord, Lord Wilmot of Selmeston, was sitting beside him and said, "What are you doing, putting on the brake? You are deliberately causing stagnation; you are deliberately trying to prevent me from getting to where I want to go. Take your foot off the brake and put it on the accelerator." The noble Lord, Lord Pethick-Lawrence, would say, "No, I must put my foot on the brake." He would.low the car down almost to a stop until he was past the bus, and probably keep the brake on to the bottom of the hill. 'Then he would take his foot off the brake and put it on the accelerator. That would not please the noble Lord, Lord Wilmot of Selmeston. "Aha ! ", the noble Lord would say, "you are converted to my view. You have come round to the Labour Party's policy of acceleration. If it is right to do it now, why was it not right to do it before?" That is exactly what the noble Lord, Lord Wilmot of Selmeston has just said: "Why was it not right to do it six months ago? If you had only taken my advice and put your foot on the accelerator when coming down the hill, you would by now have been half way up the next hill in front of us and much nearer where we want to get to."

LORD WILMOT OF SELMESTON

Since I have been made a passenger I would say, "There is a bus ahead. I think you ought to put the brake on now, otherwise it will be a little late."

THE EARL OF DUNDEE

That is exactly what the Government did in 1957. But the noble Lord does not agree that you would put on the brake, not in order to delay your progress but in order to avoid capsizing into the ditch or being hit by the bus. That is why we put the brake on in 1957 and why we are now in a position to take it off again. We are criticised for not having done so six months before, or even longer. What we are trying to do is to take as much reflationary action as we safely can without starting inflationary pressure all over again.

My noble friend Lord Hailsham has already dealt sufficiently with the Budget so far as it concerns the personal incidence of taxation. It is intended and, I think, well designed, to give as much impetus to our economy as can be safely done without a renewal of inflationary pressure. There are the investment allowances. Since there has been so much criticism of chopping and changing our policy, I should remind your Lordships that the Chancellor of the Exchequer said specifically in regard to these investment allowances that they may be only temporary. There may be conditions later on in which it may be right to take them off again, as was done in 1956. He warned everybody who was thinking whether they would make an investment now or later that if they did not make it now and take advantage of those allowances, they might find they had missed the bus.

Last year we decided to increase the public sector of expenditure by £160 million. We have removed the credit squeeze; we have abolished the restrictions on hire purchase; and we have reduced rates of interest—the bank rate from 7 per cent. to 4 per cent. But let me remind your Lordships that a 4 per cent. bank rate is still very high, and I would say to the noble Viscount, Lord Bruce of Melbourne, who was wondering whether we were not optimistic and inclined to go too far ahead, that 4 per cent. is not at all an inflationary bank rate to maintain, and that we are maintaining it at that rate out of prudence in order that excessive borrowing may not once more lead to inflationary pressure.

What we are trying to do is to administer our monetary and economic affairs as well as we can, in accordance with up-to-date twentieth century principles. We have long ago discarded the old gold standard, which worked very well in a great many ways and saved a great deal of trouble, certainly to politicians; if the gold standard were in force now it would relieve us of a great deal of bother, a great deal of work, and a great deal of argument with each other. But I am glad that we have got rid of it, because we ought to be able to do better with a managed currency; and, of course, as it is the political duty of Parliament and the Government to manage the currency, naturally it cannot be kept out of Party politics. At the same time I think we should do very much better, although we cannot avoid belonging to different Parties, if we could manage to look at these problems not so much through doctrinaire spectacles.

LORD GRANTCHESTER

May I ask the noble Earl a question? Is he quite sure that we are not on the virtual gold standard now, as we are related to the dollar and the dollar is related to gold and can be freely exchanged into gold?

THE EARL OF DUNDEE

If we had been on the gold standard the price level would not have risen 71 per cent. from 1945 to 1957; that is quite certain. But, as I was saying, I think we shall do far better if we do not look at these matters in a doctrinaire way. Although I have not had the opportunity of asking him, I think that the Prime Minister would probably not disown the quotation which was made this afternoon by the noble Viscount, Lord Alexander of Hillsborough, from one of the books which the Prime Minister wrote in the 1930s, because he has never been an individualist, and neither has the Conservative Party. We have always been sensible and practical, I think, in these matters, and are all willing to learn from our mistakes and to do better in future, in the light of our past experience. The more I look at these problems, the more convinced I am that if we relate them to out-of-date controversies between Socialism and individualism we shall hinder and not help ourselves to solve them.

8.25 p.m.

LORD PETHICK-LAWRENCE

My Lords, at this very late hour I have no intention of taking up any substantial part of your Lordships' time, but there are two or three little matters which I should like to deal with very briefly. First of all, I cannot help being a little sorry that my parable about the motor car has formed the subject of such a large amount of discussion, completely distorting the purpose I had.

THE EARL OF DUNDEE

It has fallen on good soil, not on stony ground.

LORD PETHICK - LAWRENCE

Secondly, I want to say, I hope, a rather healing word on the question about the point of order with regard to another place. I know that the noble and learned Viscount is a person of common sense and not failing in noblesse oblige. I would point out to him that it is just to avoid the sort of wrangle we had recently on this matter that this Rule of Order was made, because it makes it impossible for us here to go into the details of what a man said or did not say in another place.

VISCOUNT HAILSHAM

On the whole, I think I agree with the noble Lord. I have taken the trouble to find out what the true Rule is. It is that one must not quote the exact words, but one is allowed to refer to the purport of the speech.

LORD PETHICK-LAWRENCE

The point I was going to make was that, in the absence of the Leader of the House, I understand that the noble Viscount is himself practically the Leader of this House, and in the House I am sure he will realise that noblesse oblige would suggest to him that he should in future give the breach of the Rule a wide berth.

There are two or three other matters arising out of the speech of the noble Earl who has just sat down. First of all, he quoted to us from the United States. From an economic point of view, I should regard the experience of the United States rather by way of a warning than as an example. I think we know far more about economic things in this country than they do there. When the noble Earl asks us to take the American system as an example I disagree fundamentally, because I almost look upon them as a warning and not an example.

THE EARL OF DUNDEE

I do not think I held it up as an example. I merely referred to it in explaining what had happened.

LORD PETHICK-LAWRENCE

That may be; I do not want to go into it in detail.

The next thing I want to refer to, which I was rather surprised the noble Earl did not refer to, is the question put by the noble Lord, Lord Barnby. As the noble Earl did not do so, I should like to give an answer myself. Of course these under-the-line figures originally did not exist at all. In the old days, the Budget was simply a statement of receipts and payments, excluding altogether all forms of loans; but gradually it came to be realised that these various loans for capital purposes ought not to be entirely lost sight of when they were, in effect, paid for by the Treasury, in the first instance at any rate. That really is the position to-day.

We cannot altogether neglect these large payments by the Government merely because they are called loans instead of current payments. I have always thought that in recent times the line between the loans paid for by the Treasury and outside advances of capital for all sorts of purposes was getting thinner and thinner. The evidence of that now is that we have items constantly crossing the line from one side to the other. There was a time when the nationalised industries had to raise their money on the market, with a Government guarantee. Then some of them were brought into the actual picture of the Budget. On the other hand, in the olden days the Local Loans were a fund that was raised by the Treasury and used by the local authorities. They have been pushed out of the list and have gone over on to the market. This is a very large question, and there is no doubt that it is desirable that in ordinary times the revenue should produce some surplus out of current expenditure and income to go to assist the loan policy of the Government. I agree broadly with what the Government are doing in that matter.

There was one thing the noble Earl said that I thoroughly agreed with. He said it was not true that the Labour Party believed in all controls and that the Conservative Party did not believe in any controls at all. The Conservative Party believe in a lot of controls—financial control; at one time control of the banks; the control of the Capital Issues Committee and so on. He did not elaborate them, but admitted their existence; and that is exactly what I have felt for a long time. The line of distinction between the two Parties in this House is not "all control" or "no control", any more than "all nationalisation" or "no nationalisation". The Party on the other side believe in a certain amount of nationalisation; we believe in probably rather more nationalisation. We believe in a certain amount of control; the Government believe in a certain amount of control. Therefore, when one comes to face the facts, not as a tub-thumping politician on a street corner, but as sensible people inside this House, what we really differ about is the line to be drawn between one kind of control and another. We can say that here in this House. Outside, people can make extreme statements about their opponents if they like. I prefer to stick to the facts; that both sides here believe in a certain amount of control and differ only as to the precise controls which should be operated. With those few remarks I beg leave to withdraw my Motion.

Motion for Papers. by leave, withdrawn.