EUROPEAN MONETARY AGREEMENT BILL

HL Deb 10 February 1959 vol 214 cc10-57

2.56 p.m.

Order of the Day for the Second Reading read.

VISCOUNT HAILSHAM

My Lords, I think I should be rather less than human if I did not feel a sense of satisfaction in moving on behalf of the Treasury the Second Reading of this important Bill. "Satisfaction" perhaps is too light a word; I think I might be forgiven in this particular field if I feel a modest sense of triumph. I find it difficult to remember that it is less than twelve months from those three difficult economic debates when we discussed the measures the Government were taking to control inflation and the various drains on our gold and dollar reserves. I am now proposing the Second Reading of a Bill which marks one important stage on the road to convertibility. It is, of course, a controversial Bill, and I cannot altogether avoid controversy. But there is one point which I should have thought is beyond controversy, whatever the merits of the policy which the Bill represents. It is probable that we could not have taken this step twelve months ago; and there was no point of time, I believe, when it could have been safely taken during the period of office of noble Lords opposite.

I remember incurring a great deal of criticism during those debates a year ago on claiming that the steps which we were taking were both apt and adequate. Noble Lords in front of me claimed that they were inappropriate; noble Lords behind me claimed that they were inadequate; cannon to the left of me, cannon to the right of me, volleyed and thundered. This Bill is, in my belief, the answer to all that criticism. We have restored confidence in the pound sterling without the controls demanded by the Labour Party and without the savage inroads on our defence and social services which were the inevitable implications of the demands in this House by the noble Lord, Lord Grantchester, on behalf of the Liberal Party. A policy of "Firm, but fair" has paid its dividend; and if, as I believe to be the case, the credit of the Government and not merely of the pound stands higher than a year ago, it is because we did what was necessary, without fear of unpopularity, and because we refused to be panicked into doing what was wrong, even at the expense of resignations from our own ranks.

It is not inconsistent with this attitude that I should say that technically this is a relatively small Bill. We have been accused by the Opposition, who are naturally very jealous of our achievement, of casting aside the substantial safeguards which underwrite the stability of the pound. This we believe to be simply untrue. Over the past five years, for reasons which later in my argument I shall endeavour to develop, experience has taught us that if we had to support a fixed official rate of the pound we had, in practice, to support in addition the unofficial rate, too, and our advisers told us that in practice it was easier to support one rate in London than two rates, one of which was spreadeagled between Zurich and New York. So it is not true that we have thrown anything very valuable away, but economics in this field being, as in part I suppose it is, a branch of applied psychology, it remains true that we could not have done it a year ago.

The possession of the weapons which have been abandoned by this Bill would not in fact have enabled us usefully to defend ourselves against a run on the pound. But, human suggestibility being what it is, in the timid atmosphere of a year ago to introduce a Bill like this might very well have provoked one. In any event, the Labour Party when they were in office proved unable to achieve it at all. I say "unable" and not "unwilling", in spite of their criticism of us since. I am willing to credit with sincerity the solemn assurance given to the American Government by Mr. Dalton when he was Chancellor of the Exchequer and said: The restrictions now contemplated"— that was in 1947— should not be interpreted as in any degree indicating a modification of His Majesty's Government's oft-expressed view as to the desirability of maintaining full and free convertibility of sterling. As a long-run objective such convertibility is an indispensable aim in British financial policy. The steps presently being taken are to be regarded as purely emergency in character. We can, therefore, assume that at that time the policy of the Labour Party was one of self-confessed emergency and self-confessed failure and not of any belief in an opposite system.

The Bill raises two closely connected but logically separate issues: first, the ending of the European Payments Union and the substitution for it of the European Monetary Agreement as agreed in 1955, and, secondly, the establishment of a convertible pound, a phrase which, with the permission of the House, I shall use in what I have to say not in the sense of full convertibility but of convertibility for non-residents on current, as distinct from on capital, account. On the face of it, the Bill is concerned only with the former of these two objectives. But the second is more fundamental, for it would not have been necessary to achieve the former unless the Governments of the principal currencies involved in the E.P.U. had desired to achieve a measure of convertibility, and, conversely, for various technical reasons which I should be prepared to explain if challenged, but which have not in fact been seriously contested either in another place or outside Parliament, if one once assumes that the time has become ripe to proceed to convertibility, a necessary corollary to the establishment of convertibility is the conversion of E.P.U. to E.M.A. For these reasons the essential question involved in this Bill is as to the desirability or otherwise of the policy of the European Governments, including our own, to proceed along the path of convertibility. It is to this question, therefore, that I shall principally address myself.

The aim of convertibility, absolute and unfettered, has been repeatedly stated by the representatives of both Parties ever since the war. I have already quoted the words of Mr. Dalton when he was Chancellor of the Exchequer by way of assurance to the American authorities in a context in which it was not merely authoritative as a statement of the policy of the Labour Party, but a solemn moral obligation incurred towards our closest ally. Moreover, I think it fair to record that at no time during the recent debate in another place has convertibility as an aim of policy been explicitly challenged on behalf of the Opposition. But my case will be that the argumentation addressed by Opposition critics against this Bill is in fact inconsistent with their lip-service to this long-term aim. The attitude of the Labour Party on this matter appears to be that adopted by St. Augustine of Hippo in his unregenerate days.

Domine fac castum sed non modo. ("Lord make me chaste, but please not now.") Mr. Gaitskell appears to admit that convertibility is good (if I may quote Mr. Dalton) as "a long-run objective": but "Do not make the pound convertible now", is his plea. "We cannot afford it", he claims—or at least a Labour Government would not be able to afford it, if there was likely to be one. If one looks at the terms of the official Labour Amendment in another place, one sees that in substance the view of the Party opposite is much more radical. Despite their solemn assurance to our allies and to the electorate, the Amendment was drafted in unqualified terms condemning convertibility as intrinsically deflationary and restrictive. For this was the proposition: This House declines to give a Second Reading to a Bill designed to implement policies which, through the ending of the European Payments Union and the acceptance by the Bank of England of an obligation to supply gold or dollars on demand to all foreign holders of sterling at a fixed rate of exchange, makes more difficult the achievement and maintenance in Great Britain and Western Europe of industrial expansion and full employment. After all, St. Augustine, in his unregenerate days, was not really keen on chastity at all. I hope this afternoon to draw from noble Lords opposite an unequivocal repudiation of the terms of this Labour affirmation of unbelief and a return to the nobler doctrine of Mr. Dalton, as expressed to our American allies in terms of a solemn assurance.

In the meantime, it would not be altogether inappropriate if I rehearse in brief the reasons why, as a long-term aim of policy, convertibility is not merely a matter of obligation but of interest to this country. It is a truism that this country lives by its trade. This trade extends to all parts of the world, and if there are any parts of the world to which, for one reason or another, economic or political, that trade does not extend, it is still the interest and policy of this country to extend it there in the end. In terms of trade, the interest of this country is that the total volume of world trade should be as large as possible and that within that volume of trade as large a share as possible should be by, with, from or in (that takes the ablative) this country.

Since the area is widely outside the restricted and, to some extent, diminishing circle of our political sovereignty, the only condition which can fulfil our interests is great areas of multilateral trading with as little restriction or interference as possible. Since the war these conditions have not been fulfilled in Europe. Nor have they been fulfilled between Europe and Asia or between America and the rest of the world. The history of the postwar world has been largely one of gradual liberalisation, punctuated, I am sorry to say, by occasional but happily temporary relapses due to financial crises.

In another place my right honourable friend the Chancellor of the Exchequer rehearsed in detail the main steps which had been taken before by successive Administrations up to the present time. In your Lordships' House I may be forgiven for taking a broader sweep, which I hope is not less accurate. Our first postwar relations with Europe were based on bilateralism. Different currencies were categorised as possessing a different degree, in the jargon of the day, of "hardness" or "softness". Thus, French francs were not convertible to Belgian francs or Italian lire and so on. Gradually, however, the European currencies were gathered together in the European Payments Union. European currencies, the distinction between hard and soft at last happily forgotten, became largely inter-convertible, and as part of the arrangement a system of automatic revolving credits was designed to deal with temporary balance of payments difficulties.

My Lords, I am here to bury E.P.U. and not to praise it, but I cannot forbear to say that while it lasted it served a very useful purpose. Even, however, had it not been thought desirable to take a further forward step, I doubt whether E.P.U. could have lasted indefinitely. The temporary arrangements were already wearing thin. The whole system ultimately depended upon the willingness, which could not. at least in my view, have proved permanent, of the permanent creditors, with West Germany at their head, to inject fresh drafts of credit into the revolving drum to keep it on the move. But, even so, the real limitation, from our point of view, in the European Payments Union was the discrimination which the whole system presupposed against the dollar—Canadian no less than American. Our trade is world-wide, not limited to Europe. Our Commonwealth includes Canada but not, I must venture to say, West Germany. The distinction between "hard" and "soft" was abolished in Europe but it persisted in the so-called "two-world" theory which excludes the dollar.

This discrimination was justifiable and tolerable so long as the dollar was a scarce currency in European and sterling area hands. But this is no longer true. Despite several lapses, which we all regret, such as the wool tariff and the Greers Ferry Dam, American policy has ensured that there has been in recent years a continuing efflux of dollars into the rest of the world. In the face of this we cannot justify continuing discrimination, nor can we maintain a whole-hearted condemnation of American trading policy. Must I add that, if we wish to preserve the Commonwealth, we cannot rest content with a situation in which we discriminate in favour of the Deutschmark and against the Canadian dollar?

My Lords, I know it is said that by embracing convertibility, we are throwing away controls. But, as I have already indicated, experience has told us that this view is wrong. The controls which we are throwing away have proved by experience to be no real protection to the pound, and I think the House may be interested in the reason underlying our experience. It is inevitable that, whatever the controls which may exist, a market for sterling in time of peace must grow up outside Great Britain. It is no good complaining of such a market, or calling it a "black" market or "grey" market. It is legal in the countries where it is conducted. That means that it will take place. There therefore come into existence inevitably at least two rates, the free or transferable rate and the official rate, which is not free or transferable.

In dealing with this situation, which was not of our making, experience showed us first that if we allowed the transferable rate to sink, foreign traders could use the difference between it and the fixed rate to undercut our own exporters to, say, America by a process known as commodity-shunting, which could be used either for that purpose or for juggling with the two rates of exchange themselves. Experience showed us this could only be disastrous. It therefore taught us that we had to support the transferable rate as well as the official rate if we wished to avoid the evils of commodity-shunting.

But, my Lords, we then tried to work on a smaller margin. We tried to use the transferable rate as a sort of cushion. But again experience taught us that this was useless. We learned that a fall in the transferable rate, even on the smaller margin, inevitably produced a run on the official rate, and it was therefore necessary fully to support both rates within the narrowest of margins. The inevitable conclusion is, of course, that it is easier to combine both rates and to support one only in London than to keep them separate and to support two, one in London and one which operates both in New York and Zurich, if nowhere else. From the point of view of control, also, there is no doubt which is the better. This is the whole meaning of the change.

When I am asked why, if this is all that it means, we did not do it before, I reply in simple terms. I reply that our doing so is largely the fruit of the experience which I have been describing. I reply, secondly, that our timing had to coincide with the convenience of our other European partners. I reply, thirdly, that we had to choose a moment when our reserves were strong and our balance of payments favourable in order that we could carry out the change in an atmosphere of quietness and confidence. I reply, fourthly, that we had also to choose a time when the dollar was not unduly scarce; and fifthly, I reply that we were not ready to move on the exchange side until we had made greater progress in removing discrimination against dollar imports, as we did last summer by liberalising chemicals and most types of machinery. All those conditions have been fulfilled to-day and had not been fulfilled before we came to our decision.

My Lords, this has been a long explanation but I hope the House will not grudge me the time. Nevertheless, I feel that I must now draw a few plain blunt political morals. The Opposition have opposed this Bill, although, with a wisdom which we would accept and a convention in this House which we agree with, they probably will not press the matter to a Division here. But it is important to see why they have opposed it, and it is important to demonstrate in the eyes of the public the fallacy underlying their argument. The Party opposite appear to be under the illusion that it is possible to pursue a policy which undermines confidence in the pound without incurring the consequences of that loss of confidence, provided, of course, that nobody actually says in public that the policy is ruinous, and provided, of course, that financial control remains in the hands of the United Kingdom Government. It is important that people should realise in time that that doctrine is nonsense and should also realise why it is nonsense.

Controls are no defence to a currency like ours, if confidence be once undermined. If confidence is there, controls are unnecessary; if confidence is absent, they are, in the long run, useless. In 1949, there were all the controls in the world, but they did not avail to prevent devaluation of the pound. In 1951, there were all the controls in the world, but that did not stop a run on the pound, nor what would have been devaluation if the Labour Party had not been turned out of office. In 1957, despite the alleged weapon we are supposed to have thrown away, the ability to control did not restore confidence in the pound: other measures were required and were taken. The Party opposite appear to think that runs on the pound are caused by an identifiable group of wicked men who cause the run on the pound by speculation and can be, as they put it, controlled by controls or threats of imprisonment or penalties. This is pure mythology; it is absolute delusion which, so long as it persists, deprives Labour finance policy of all claim to realism or responsibility.

VISCOUNT ALEXANDER OF HILLSBOROUGH

What about Suez?

VISCOUNT HAILSHAM

My Lords, who are the holders of the pound whose money flies away at a loss of confidence? They are our suppliers to whom we owe money. They are our partners in the Commonwealth, for whom we act as bankers and whom, despite the noble Viscount who leads the Opposition, we cannot coerce. They are our exporters and importers who have to finance the trade by which alone we live, and who, if we control them, will be driven out of business by foreign competition. What is the place of their speculation? When the pound is controlled it is not within our jurisdiction, it is in Zurich or in New York. What is the subject matter of their speculation? In the last resort, it is the demand for the pound sterling to pay for British exports.

In the last resort you can control British currency by "controls" only if you are prepared to dissolve the free Commonwealth, wind up the sterling area and restrict export trade. This is the fallacy of so-called democratic Socialism. Britain is too narrow an area for economic planning, and yet, since the planning is to be based on the State, it is limited to the arbitrary territorial divisions constituting the territories of the State. This is why democratic Socialism has failed in every individual country in Europe. This is why it must also fail in Britain, whose interests are based on trade with the Commonwealth, Europe, Asia, Africa and America. There is no possibility of a Commonwealth of independent nations or of Europe accepting a single economic plan. Undermine the confidence of the Commonwealth or the sterling area now, and all the balances will go flying out of the window; and not all the controls in the world will bring them back.

VISCOUNT ALEXANDER OF HILLSBOROUGH

Mischievous!

VISCOUNT HAILSHAM

I know that it is sincerely thought by many simple-minded people, who apparently include some noble Lords opposite, that there are some people in the City of London who could stop all this. I beg them to learn the simple facts of life—the facts of international trade.

VISCOUNT ALEXANDER OF HILLSBOROUGH

You had better start.

VISCOUNT HAILSHAM

All international trade is carried on for credit and on credit. Let me give this House an example which was given in another place. Let us assume a buyer of American goods for which he has to pay in dollars. He has contracted in July and he has to pay before November. It is now, shall we say, August. Shall we mention a year? It is now August. 1949. What is that trader to do? Is he to pay now or in November, by which time the price of the goods will have risen by 40 per cent. and he will be ruined?

VISCOUNT ALEXANDER OF HILLSBOROUGH

Or in 1957?

VISCOUNT HAILSHAM

Or let us imagine a foreign customer of British goods in the same position. What is he to do? Is he to pay now or is he to be undercut in November by a competitor who pays 40 per cent. less? Perhaps the noble Viscount can answer that question?

VISCOUNT ALEXANDER OF HILLSBOROUGH

Elementary.

VISCOUNT HAILSHAM

I will tell the House that if you try to control these transactions you will only abolish the trade on which they are based.

The fact is, my Lords, that the future of this country is bound up with the confidence which it inspires. I personally know of no other mode of inspiring confidence than that of deserving it.

VISCOUNT ALEXANDER OF HILLSBOROUH

Or going to Suez.

VISCOUNT HAILSHAM

This is true of men, and I believe that it is also true of currencies. The pathetic fallacy that controls can defend a currency in time of peace appears to me to amount to the delusion that it is possible to secure the results of confidence without earning it or being worthy of it. Such a delusion is at best nonsense; in economics I believe it to be disastrous folly.

I have not rehearsed in detail all the figures of the reserves or our balance of payments which have satisfied Her Majesty's Government that the moment has now come for a forward move. Nor have I expounded at length the detailed provisions of the European Monetary Agreement which provide discretionary credits in place of the automatic credits of the European Payments Union. I do not share the view that the European Monetary Agreement is restrictionist: it is simply the necessary corollary of our expansionist policy which seeks to place European prosperity, like our own, on the sound foundation of multilateral trade on a world basis. The temporary inequalities which may be encountered from time to time will be ironed out under the agreement. More permanent inequalities must be redressed by international agreements more widely based on a world footing. Such institutions already exist in the International Monetary Fund and the International Bank, and the policies to implement them have already been explained. But to pursue the details of our policy here would be outside the range of this debate. I therefore beg to move that this Bill be now read a second time.

Moved, That the Bill be now read 2^a.—(Viscount Hailsham.)

3.26 p.m.

LORD PETHICK-LAWRENCE

My Lords, anyone taking part in this debate must, I am sure, feel a deep sense of responsibility because any words said in mistake may easily be injurious to the prestige and prosperity of this country. Anyone who speaks for one of the great Parties of the State must feel an added responsibility lest by any chance word he misrepresents the situation or makes statements which are not recognised as they should be by the Party for which he proposes to speak. I fully share that responsibility. I may say that when this matter first arose I was in close consultation with the leader of the Labour Party and with his lieutenant, Mr. Harold Wilson, who is recognised as the financial expert in another place representing the Labour Party, and who no doubt at an appropriate time will take his place in high office in any Labour Government that may be formed.

Now I want to come down from the cloud-cuckoo rhetoric of the noble Viscount who opened this debate to some simple and plain facts. I am not going to follow his example in showering abuse upon political opponents. I do not think one gets anywhere by that sort of thing, not even in another place, and certainly not in this House. I have no intention of attempting to juggle with him, with his metaphysical arguments and his abuse. I am going to deal with the plain facts. And the plain fact, whether the noble Viscount likes it or not, is that this decision is a step of greater convertibility.

The question is not whether convertibility is a desirable thing—the noble Viscount was perfectly correct on that point, and all would agree: the question is whether the time and the place are appropriate for a further step in convertibility. When we have dealt with all the points which the noble Viscount raised, whether this was a step, or whether it was only doing something that had been obvious from the first but had never dawned on him before that it was the right thing to do, or whatever it may be, we come down to this fact—and it is a fact that everybody recognises: this is a first step in convertibility. And the point I wish to make is that this step is one which places a further strain on our liquidity.

I can go back in my mind to the events of 1925. That was the year in which Mr. Winston Churchill (as he then was) attempted to restore the gold standard in its old parity in this country. I am going to make only a brief reference to this matter. I was one of the very few people in the other House at that time—almost a lone voice—in pointing out the risks that were being taken by that restoration of the gold standard at the old parity. My arguments were, of course, swept aside, just as the noble and learned Viscount will sweep aside, with a mass of rhetoric, any argument I put forward to-day, and the gold standard was restored. The consequence of that was vast misery in this country which lasted for years; and finally, at great cost and with great loss of prestige and confidence, the whole thing had to be undone and the gold standard was abandoned.

I am going to say only two things arising from that situation. When that actually happened, in 1931, the leading members of the Party opposite—the Conservatives—claimed that it was all the fault of the wicked Labour Government; that it was due to the policy of that Government and what they had done. Of course it was nothing of the kind. It was the consequence of the wrongful timing of the restoration of convertibility. Another thing they claimed was that we had brought the country to the edge of bankruptcy and that the country was almost insolvent. Nothing of the kind. What had happened was that the country had lost its liquidity, an entirely different thing.

The one gravamen of my charge against Her Majesty's Government to-day is that what they are doing to-day is a gamble in liquidity. Those who know anything about financial questions know quite well the difference between insolvency and a failure in liquidity. They are both very important but they are quite different; and although a great mass of people ought to know those things it is my experience, in my political life, that even persons in the highest places in financial circles have been ignorant on that matter. I am going to give your Lordships one illustration. A man of great importance in his day— he was then Governor of the Bank of England—the noble Lord, Lord Cunliffe, was going into the matter of German reparations after the First World War. He took the trouble to ascertain what were the total assets of the German nation—their houses, their lands, their docks, their ships and so on. He came to the conclusion that they were worth about £20,000 million, and on that he based his position that they could therefore pay in reparations a sum comparable with that amount. Great man as he was, he failed to see that there was all the difference in the world between assets and liquidity.

What is the position? A private individual may be exceedingly wealthy and may have great lands and estates and yet he may be hard pressed for cash. He may not have arranged his affairs so that he has money to meet some immediate liability. Such an individual can get over his difficulty by going to his bank. When the bank is satisfied that a man is quite solvent, and, more than solvent, is very wealthy, the bank will make him an advance to meet his immediate difficulty. So for a private individual who has great wealth, liquidity may not be of very great importance. When we come to the bank, on the other hand, the importance of liquidity becomes greater, because in times past there have been banks which have failed, not because they were not sound but because they had not arranged their liquidity properly. That does not happen to-day, first of all because the banks take a lot of trouble in the matter of liquidity, and, in the second place, because a bank which can show that it is perfectly solvent can go to the Bank of England who will allow it to draw cash. In the last resort, even if the Bank will not do so, the Government of the day will step in to protect any bank which is really solvent from coming to grief over liquidity. It is because the banks know that that the State has a corresponding right to dictate to the ordinary banks a great deal about how they should conduct their affairs.

When we go a step higher and come to the nation, the United Kingdom, the Commonwealth and the sterling area, it is true that there can be some little support by some international fund, limited in amount; and the fact that a nation has applied for that is itself a reflection on its credit and a danger to the confidence which people have in that country. So when we come to the nation, and particularly the sterling area, liquidity assumes an even greater importance. The question is not whether convertibility is in the long run a sound thing but whether the liquidity of this country at the present time is strong enough to bear this new step that Her Majesty's Government have taken. That is the real issue.

What has happened in this case? The Bank of England have pressed on the Chancellor of the Exchequer the desirability of taking a further step in convertibility. When the Chancellor of the Exchequer first came into his high office I warned him of the danger of listening exclusively to the Bank of England and to the Bank-of-England-minded officials in the Treasury. I pointed out then, and I say to-day, that it is perfectly right that those highly placed financial individuals should be concerned in matters of finance and should see a problem of this kind from the financial aspect alone; but that it is most desirable that the head of our financial system, who is a politician and a man in contact with human life, should take a human view which may sometimes be in conflict with the financial experts; and that therefore, while he listens to them and should bear in mind their great knowledge and experience, he should nevertheless be prepared to resist them if the time comes.

In my view and the view of the leaders of my Party, the Chancellor of the Exchequer has unwisely allowed the views of the Bank of England to override the human considerations, and in consequence he has, I believe, placed the country in some jeopardy. I am going to make it perfectly clear that I am not decrying the prosperity of this country. It has been built up over the last ten years and, just by way of digression, I would remind the noble and learned Viscount that the position immediately after the war was over was naturally very different from what it is at the present time, and that shortly following the war things had to be done which may or may not be necessary or desirable to-day. But let us put Party aside and say that, over the last ten years, owing to the inventiveness of the people of this country, owing to the business resources and capacity of our citizens, owing to the good work which the great mass of the workmen have put in and owing, if you like, to the wise guidance of, let us say, all Governments since that time—and in spite of our differences with noble Lords opposite there have been considerable measures carried out with the consent and acquiescence of all Parties of both Houses of Parliament, all of which have helped forward our prosperity—we have reached a very considerable degree of prosperity at the present time. That is reflected in our trade and in our balance of payments result. It has been reflected in all those things.

But what we have not got—and this is the whole issue here—is a very considerable reserve. I know that noble Lords opposite have said, and it has been said in high places of the Conservative Party, "What a marvellous reserve we have built up! For the first time for a long while it has been over £1,000 million." But we have to remember certain things about that. We have to remember that in some cases we have gone by—I will not say default, but there has been non-payment of amounts due in successive years. We have stood still and not paid those items. In the second place, we have borrowed quite a considerable income from international institutions, which we shall have to repay.

Therefore, when you say we are in a very strong position and have a stronger reserve than ever before, you must take all those factors into account, and also this factor: that while the figure stands fairly high, it is a small figure compared with the mass of world trade at the present time. I believe it is correct to say that the figure of our reserve, when it is reduced by the amounts we have to repay, is considerably less than one month's trade account with the sterling area. That is not a very large balance. I wonder what a bank would think if its liquid assets were such a very small part of the trade which it financed in the course of so short a time. That is the real point. Are the liquid assets adequate? I say they are not. I say that they may be all right, probably will be all right, for another month.

It must be remembered that in the course of the last few years (I am not saying this as any attack on the Party opposite) the Government have been favoured by certain windfalls which I do not think they can really, in their heart of hearts, claim to be due to their particular merits. I believe that even the Prime Minister and the Chancellor of the Exchequer, and I am sure Mr. Butler, have all acknowledged that they have been very lucky. Good luck to them! I do not mind that a bit. But they must remember that twice in the course of the last six, seven or eight years (or whatever it is) they have had two great windfalls in the shape of a complete change in the terms of trade, amounting to vast sums such as several hundred millions a year. Mr. Tuke, the Chairman of Barclays Bank, in the course of his speech went out of his way to call attention to that fact and said that the great prosperity of this country and what had enabled it to recover so quickly from its difficulty was due not to the high bank rate, which members of the Government think was their most marvellous discovery, but to the change in the terms of trade.

While the sun is shining like that, the reserves may be ample to meet any loan which at this stage may easily occur. But suppose things go a little wrong; suppose, as is quite likely, the balance of the terms of trade changes against us; suppose we have some foreign imbroglio. I do not want to introduce Party into the matter and remind noble Lords about the Suez crisis; but, quite apart from the merits of that and from whether the action taken was right or wrong or advanced our prestige abroad, it cost a very great deal of money. Suppose some other thing of that kind happened; or, to take a less controversial question, something such as the Korean war. Suppose a foreign country gets into a financial difficulty and at the time it does so it owes us a lot of money. Suppose, as happened in one of the Southern States of South America, a country decides, for a time at any rate, to refuse to take any more or to pay for any of our exports to it. Things of that sort create a great run on our reserves, and we want a very large reserve in order to be able to meet them without a ripple on the surface of our prestige and the confidence in the country.

I say that the sum which is now there, £1,000 million on paper, but considerably less when the debts have been paid, is not enough for that purpose, and therefore convertibility constitutes a strain on our liquidity. That is our case against the Government's action. On that I base my views that their step is unwise and is fraught with grave risk. I am not a Jeremiah; I am not saying that all these things are going to happen, but I am saying that there is a risk of their happening. Pray God, these dangers to our liquidity will not take place! But they may happen, and if they do happen, what is going to be the consequence?

This in essence is not a Party question at all. Whether a Conservative Government or a Labour Government is in power at the time, if there is a run on our reserves and it appears that our reserves are going to be insufficient, what will happen? There will be a great demand; there will be great pressure to take not only extraordinary steps but panic steps in order to protect the pound. This decision of the Government is in a sense irreversible. We cannot go back and take this convertibility away, because to do so would in itself show a frightful lack of confidence; therefore this step is practically irreversible. Whichever Government is in power at the time when things go a little to the bad side will be confronted with this issue. The question is, when they are confronted with this issue, will they be driven by the pressure of events and by the demand for panic steps to take action which will be injurious to the prosperity and advance of this country?

We have already seen during the last year that the action of the Government in putting up the bank rate to 7 per cent. has brought stagnation to our industry. It has brought unemployment on a very large scale. Same people will say that the Government deliberately wanted to produce unemployment. I am not saying that. What I am saying is that it has brought stagnation and unemployment. Anybody who knew what was the result of a high bank rate knew that that kind of thing was likely to happen, and the Government either did not believe in it or, if they did believe in it, they were willing to take the risk. I do not want any step that has been taken with regard to convertibility to run us into another risk when a danger of that kind comes.

I know from my knowledge of history and of my political life that there are some people in politics who have not very clean fingers. In remembering 1925, I remember the crisis which arose owing to the bankruptcy of the Kredit Anstaldt. That position was brought about because the City had borrowed short and lent long. The crisis arose and a certain number of politicians thought it a clever trick to charge that on the Labour Government. If evils such as I have described happened to this country owing to this action which has been taken to-day, I am quite sure that there will be some people—I am not charging noble Lords opposite—who will attempt to fob that off on to some wrong action by the Labour Government of the day when it may take place.

My Lords, as I say, I am not a Jeremiah. I am not saying that all this is going to happen: pray God it may not! What I do say is that it is a gamble with liquidity. It may come off; or it may not. It may be all right to-day; it may last, or it may not last. If a gambler risks his own money and loses, he pays for his folly; but if the Government gamble with the liquidity of this country and it does not come off, then it is not they who will pay the price—it is the people of our country.

3.51 p.m.

LORD GRANTCHESTER

My Lords, we can admire—as we always do—the detached method of approach of the noble Lord, Lord Pethick-Lawrence; but I am sure he will agree that it is impossible, when discussing a subject like the one with which we are dealing this afternoon, to avoid the implications and influence of the overall policy which a Party such as the Labour Party is advocating. The background of Labour Party policy cannot quite be kept out of the picture.

We support this Bill, my Lords, because of the part it plays in the wider context of moves toward convertibility. I do not find very much fault with the subject matter of the speech by the noble and learned Viscount, except for his reference to my last speech, to which I should like to refer a little later. Of course there are dangers in moving about the world to do business. You may get run over; but if you wrap yourself up and shut yourself up in isolation because you fear to go about in the world, you will surely die of poverty. This comparison is not far-fetched. In isolation, wrapped in by quotas and restrictions, this country, quicker than almost any other, would die a slow death. Members of the Labour Party seek to justify their threats against a removal of restrictions on sterling by stating that this removal would be detrimental to the livelihood of the workers. We feel that the very opposite is the truth. What can damage the livelihood of the workers is what I think the Leader of the Opposition in another place referred to as "rumours and personal judgments about the long-term prospects in this country."

Now, that raises a question not just of reserves, to which the noble Lord. Lord Pethick-Lawrence, has referred, and not even primarily of reserves, but of confidence. In the long run, no reserves can withstand the strain if confidence is lacking. My Lords, the Labour Party have only themselves to blame if their policies do not inspire confidence in many quarters abroad which wish this country well. We must have confidence in ourselves, first of all, if we are to hold the confidence of others. If we have not confidence in ourselves no one will have confidence in us. I notice that my noble Leader has put down a Question for Thursday about the travel allowance. I think that the travel allowance in its present very restricted form is a bad advertisement for this country, particularly when we are moving toward greater convertibility. I hope he will get a satisfactory Answer to his Question on Thursday.

Again, in an atmosphere of confidence, the problem of credits, which has been raised as one of the objections to the abolition of E.P.U. and its replacement by the European Monetary Fund, falls into its proper perspective. The limited move taken by Her Majesty's Government in December is a demonstration of reviving confidence in ourselves, and other countries seem to have caught the spirit of this move.

I think the most remarkable feature is that, in spite of all our difficulties since the war, sterling has remained the only really international currency, and it is still the medium in which over 50 per cent. of the trade of the world is done. It has not been replaced by the dollar—and that is a remarkable fact in itself. I think Americans are impressed by this fact, but they still can say: "With a dollar we can go anywhere and it is acceptable. You cannot deal freely with your pound." While this inferiority still exists, and while the German mark is doing better than the pound sterling in facing up to convertibility, this country is not back in the place where it should be with its experience and know-how. So we say that it is not a question of the interests of bankers, or of speculators, but in the interests of the expansion of the industry of this country, which the Labour Party talks so much about; that it is in the interests of every man, woman, and child who has a stake in the future of this country, that we want to see that the pound sterling comes back into the first-class category of currencies.

What is necessary for this? What is it necessary still to do? I would suggest two things. First, an overhaul of our tax structure. It is necessary to give a forward look. That, I think, can be done only by permitting for taxation purposes adequate depreciation allowances on every form of structure or mechanism. The other matter that has to be dealt with in a revision of the tax structure, in my view, is to give the opportunity of greater personal reward for work. In spite of what the noble and learned Viscount has said, this cannot be done without a reduction in the level of expenditure of Her Majesty's Government. Her Majesty's Government are entitled to credit for some notable achievements, but the noble and learned Viscount will I think himself be ready to agree that there is still a lot to do.

LORD HAWKE

Before the noble Lord leaves that subject, which is an old and interesting study, would he tell us what major economies he would advocate? Up to date he has never told us what they are.

LORD GRANTCHESTER

I have answered that question several times before. The choice of items on which money is expended is entirely a matter for the Government of the day. What we are entitled to say is that the overall expenditure is too high for the proper opportunity to be given for greater personal reward for work. I therefore withdraw nothing of what I said on that subject in the debate to which the noble and learned Viscount referred.

The second matter with which I think it is necessary to deal is a psychological one. It is necessary to get rid of the propagation of envy, of envy of those who are doing better than others. This can be got rid of only when the people who are behind to-day feel that they can catch up by making greater effort to-morrow. In the United States great emphasis is placed on "work and money". Work and money do not fulfil every human aspiration. To-day everybody speaks much of one subject, "raising the standard of living." If we are going to talk of raising the standard of living, a policy of work and money seems the right way of achieving it. We want to create a climate in which every worker feels that he can save and get on without too many hampering restrictions on his enterprise or drain on his earnings. With such a spirit prevailing in this country—and the spirit of the country is all-important in this matter of convertibility—we can go out into the world with confidence and command the confidence of others. In such conditions, full convertibility is our right and will be our pride.

In a recent discussion in the United States with some eminent Americans, I said that the attainment of this end of full sterling convertibility was, I thought, of world importance. It is strange that it is considered permissible, even in the Labour Party, to advocate something that is beneficial to other people but that it is a sin in their eyes to advocate something which will do this country some good. The Americans were very blunt with me. They said, "You need not advocate full sterling convertibility for the reason that it will be for the good of the world. You can advocate it because it is in your country's interest." The sooner we can reach this end the better for us and for all. When this is possible we shall no longer need intermediate props, such as the European Monetary Fund, which we are setting up to-day.

4.3 p.m.

LORD LATHAM

My Lords, procedurally we are discussing a Bill to authorise the Government to carry out certain provisions of the European Monetary Agreement. With that, of course, we are discussing the move towards convertibility at the present time, having regard to the present situation of this country in connection with its international obligations. The movement towards convertibility has had one unsatisfactory and unfortunate consequence, in my submission: it has led to the scrapping of the European Payments Union. To-day we face a fait accompli in that respect. The European Payments Union died on December 27 and the European Monetary Agreement was born and came into operation on that date. The Bill before us asks us to give the Government authority to provide the means for carrying out the European Monetary Agreement, but, as I have said, the real subject is convertibility and whether the Government were wise in taking the step they have taken at the present time.

We take the view that the Government have been unwise and imprudent. We recognise, of course, that with the inauguration of de jure convertibility the functions of the European Payments Union come to an end. That is a pity, because the European Payments Union was one of the successful—one can almost say, one of the few successful—international financial and economic organisations, one which worked successfully from its very inception. It had the effect of being a clearing house for, as it were, the multilateral payers of Europe. Its essential merit and advantage was that it provided automatic credits to member countries in deficit with other members, and, conversely, member countries in credit with other countries or with a surplus in other countries were required to grant credits to the Union itself. As I understand the procedure, members, whether creditors or debtors, were required to bring the unbalance of payments between them into balance or equilibrium.

An outstanding benefit of this facility was that members could adjust accounts between themselves without having to build up a surplus against one another, any surplus held being automatically loaned to the Fund. This was a wide-ranging advantage in avoiding cut-throat competition with each country endeavouring to export its own unemployment. On the contrary, this facility promoted the liberalisation of trade. There was an absence of the fear, which otherwise would have been present, that a deficit would make for difficulties only to be met with gold. In a shrinking world, such as we live in, all nations need to promote and extend the liberalisation of trade and commerce, not to restrict it. Thus it is that, as a first consequence of convertibility, Europe loses a most valuable financial agency, which has worked successfully since its formation.

The European Monetary Agreement which replaces the European Payments Union is of quite a different character. Credits are available, but they are not automatically available. They can be granted only when the O.E.E.C. decide; and that Organisation is one of the international organisations in which there is a right of veto. So it means that credits can be granted only if there is a unanimous decision by the Council of the O.E.E.C. I think one is not taking too pessimistic a view if one doubts whether very many credits, in those circumstances. will be granted. Perhaps the noble Viscount, when he replies, will give some indication as to what it is apprehended may be the likely operation of the European Monetary Agreement, especially as to the facilities which will be granted to debtor countries.

This fundamental change, in our view, will raise all sorts of potential difficulties. The absence of automatic credits is the abandonment of a principle of requiring creditor countries to adjust their balance of payments without impeding recovery but, on the contrary, inducing the expansion of commerce and trade in Europe. So we on these Benches take the view that proceeding to convertibility is unwise for its own demerits, but additionally unwise for the fact that it has led to the scrapping of E.P.U.

I now come to the question of convertibility. I must confess that I was not much impressed by the exercises in dialectics in which the noble Viscount Lord Hailsham, indulged in submitting this Bill. I can recall the statement made by Mr. Hugh Dalton to which the noble Viscount referred. But, to be fair to Mr. Dalton, he made it perfectly clear that the inauguration of convertibility would be done only if the circumstances, both national and international, were propitious at the time. As my noble friend Lord Pethick-Lawrence has said, we are not opposed to convertibility itself; but it must be related, as he so graphically and impressively showed, to our internal and external economic position. Both must be propitious. We must be strong enough, both internally and externally, short term and long term, to ward off any attack that there might be on the pound. In the light of the facts which I shall indicate, it seems to me that no one can say that to-day is a propitious time for Inaugurating convertibility, thanks to, in great part, the inept policy, financial and economic, which has been followed by the Government since 1955. One of the most serious consequences of this decision is that it has left us almost defenceless in the face of any speculation against sterling which might occur.

What does this Government decision mean? On December 27 the Government gave non-residents the right to convert their pounds into dollars at the official rate. Since February, 1955, this has been possible for non-residents by the leave of the Bank of England, at an exchange rate which was slightly below the official rate—a difference of roughly 1 per cent. In short, there was optional permissive convertibility at 1 per cent. discount. Some may say that the change which has been brought about is not more than a change from de facto to de jure and de facto. But the change is much more than that. Prior to December there resided in the Bank of England a complete discretion; they could convert or they could refuse to do so. There was no obligation on the Bank of England; they had an absolute discretion. That has now all changed: it has changed into an absolute promise and obligation to convert at the official rate.

Convertibility does not necessarily mean that the pound is stronger; but it does mean that our liability to nonresident holders of sterling is much greater, for now they have an enforceable right. It has been said, in partial justification of this decision, that the City of London will benefit from a transfer to it of certain financial operations and activities. An outside estimate of the value of those, if in fact they are so transferred, is that they would amount to not more than £125,000 a year, which of course is a mere bagatelle. The noble Viscount said that holders of sterling abroad were our customers. That is not the case as regards most of this "hot" money. In the Economic Review published by the National Institute of Economic and Social Research it is stated that the increased reserves are due to the inflow of short-term funds. Mostly they are "return"; that is to say, the "hot" money has returned to the warmth of the higher rate of interest which it can earn in this country. When the rate of interest is not higher than can be obtained elsewhere, then "hot" money will be on the move again.

Let us for a moment look at our external position in relation to this obligation to convert. My noble friend Lord Pethick-Lawrence has dealt clearly and forcibly with this question of liquidity. At December last the reserves of gold and dollars amounted to £1,096 million; they are now £1,111 million. As I have said, the increase has been from the inflow of short-term funds. But that reserve includes, as my noble friend indicated, borrowings or postponement of repayments amounting to no less than £466 million.

Without these loans and without these aids, the reserves would be down to £630 million, of which I understand nearly £300 million must be repaid within the next three years. So this song and dance by the Government and their supporters at the increase in reserves is quite un-justified—indeed, the increase is largely notional. I would say, in this connection, that in September, 1951, under a Labour Government the reserves were £1,167 million, and there was no debt to be set off against that sum. Now these reserves include balance of payments which have substantially increased largely due to the favourable terms of trade—namely, lower import prices.

We submit that our reserves are inadequate for meeting the liabilities of this country—for instance, the sterling debts, which amount to no less than £3,902 million. At the present time, sterling finances world trade which is equal in total to some fifteen times our reserves. We say, therefore, that, having regard to these liabilities, it is not safe or secure to return to convertibility on this basis. A sterling crisis may arise, not from any defects in the economy of the country but, as was the case in 1955, and again in 1957, because of international speculation against the pound. The Times said on December 29: In many ways it would have been preferable for this and other European countries to test the real strength of their currencies and balances of payments by giving more freedom for dollar imports before making their currencies convertible by overseas holders into dollars. That is a pretty impressive condemnation.

Let me give further evidence of the imprudence of this decision, and here I quote again from the Economic Survey of the National Institute of Economic and Social Research. The Survey predicts that our balance of payments surplus will this year come back from the present high figure to a figure of between £200 million and £300 million—a very material reduction—which will seriously affect the volume of our reserves and our capacity to face external exchange pressures. Another serious consequence is that the move to convertibility will check and restrain industrial expansion and involve the danger of a deepening recession. Our industrial production has fallen during the first nine months of this year, and instead of having, as we should have, a pulsating, developing and expanding economy, this move to convertibility will result in restraint and contraction.

The Economic Survey to which I have referred says: It"— meaning convertibility— may cause the authorities to be hesitant about expansion. It certainly will, especially having in mind the lamentable results of the Government's past policy of the contraction of our economy, the proof of which can be seen in the mounting number of the unemployed and, what is not less important, the increase in under-employment; the unused industrial capacity, both of equipment and of labour; of school-leavers lining up in the unemployed queue, having their first taste, I suppose, of the "opportunity State" promised by the Prime Minister; of fewer new factories—the total is down by 28 per cent.; of steel production down by over 2 million tons as compared with 1957, and production down to 75 per cent. of the potential. Then in shipbuilding, new contracts in 1958 were for only 497,000 gross tons, as compared with 2½ million gross tons in 1956.

There is abundant admission of this tragedy of the gathering recession in trade. Almost every bank chairman has referred to it. The Chairman of Barclays said: The pendulum has swung towards deflation. The Chairman of Lloyds: The contraction of world trade has something of the appearance of a deflationary spiral. And the Chairman of the Midland: It would be very wrong to shut our eyes to the risk of positive recession. Faced with this recessionary state of trade, the Government proceed to convertibility which, in my submission, cannot fail to check and slow down expansion which is so essential for the economic health and well-being of this country, based, as it should be, on full employment and prosperity. I should like again to quote The Times of January 28 this year, when it said that it would have been wiser if this country's ability to continue full employment with a strong sterling could have been proved before making the pound convertible. As I have said, the most serious result of convertibility is that it deprives us of practically all our defences against a sterling crisis in future, leaving only one, or practically only one, weapon or remedy—namely, deflation, with all its grim consequences, its stagnation, unemployment and misery. The Economic Survey, in considering the impact of convertibility, said this: The misgivings expressed about convertibility arise because it reduces the defences against speculative movements and against any persistent disequilibrium in international trade. It goes on to say: Moreover, now that convertibility has been granted to foreigners there may be demands from the City and other sections of the public for the further relaxation of exchange control. Concessions of this kind would add to risks of expansion. There is a conflict between domestic expansion and greater freedom of foreign payments. The Government have come down on the side of greater freedom for the (if I may use the term) pedlars of vagabond money—not all of whom are foreigners—and against domestic trade and its expansion, against full employment and the economic health of the nation.

The Government's decision to make sterling convertible was, in our view, unwise, unnecessary and imprudent. It involves, as I have said, the scrapping of E.P.U. It dismantles our defences against speculation. It will lead to a contraction rather than an expansion of business, national and international. As my Leader said in another place, when this responsibility faces a Labour Government they will do their best to make convertibility work. At the same time, if I may say so, I think they will be resolute in the intention that, in case of necessity, we shall take whatever measures may be proper and effective to defend the pound and to protect the employment and the welfare of our people. We cannot agree to giving this Bill a Second Reading.

4.31 p.m.

THE EARL OF SWINTON

My Lords, I shall be very brief, and if I am less dogmatic than some who have spoken perhaps it is because I was a member of the Government of 1924 with Mr. Churchill, when we returned to the gold standard, and a member of the Government of 1911 with Mr. Snowden, when we escaped from it. I do not know that I was ever very enthusiastic about returning to the gold standard—a very respectable thing, of course, to have done. I certainly am not sure that it rests with those who were colleagues of Dr. Dalton to accuse us of undue precipitation in that steady advance up the slope.

The noble Lord, Lord Pethick-Lawrence, whom we always hear with such interest, gave, I thought, a rather odd account of 1931. I do not think he was with us when Lord Snowden was. What is rather remarkable and to be remembered about 1931 is that although the value of the pound had descended to, I think, the lowest level it ever reached (it got down to something like two dollars), in a very short space of time, without drawing a single dollar from the 400 million dollar credit which we had in the United States, the pound had come back to parity; and it had come back to parity really for one reason only: because there was confidence in the pound and confidence in Britain and the Government of Britain at the time.

VISCOUNT ALEXANDER OF HILLSBOROUGH

You abandoned the gold standard.

THE EARL OF SWINTON

The noble Viscount should go, like his noble friend Lord Latham, to Dr. Balogh, at Balliol, and get a little instruction in these matters, and then he will realise that the exchange may come up to parity although you do not hold on to the gold standard.

If I were going to criticise the action of the Government at all, I think I should perhaps express a little doubt as to whether the fixed rate, as against the floating rate, was really a wise thing as they advance towards convertibility. I do not want to be dogmatic about this matter, and much wiser people than myself take the view that we ought to stick to the fixed exchange, 2.78 to 2.82. We have argued this matter very often, in Cabinet and outside it, and some of us have expressed rather contrary views. I am bound to say that I have always thought that the fixed rate was a little bit of encouragement to the speculator.

After all, suppose there is a run on the exchange and there is a real risk of the pound having to be devalued—I do not think there is the faintest chance at the present time. If you maintain a fixed rate of exchange, the speculator never stands to lose more than about half a cent or a cent, whereas if the exchange has been at a fixed rate and then there is a devaluation, !he makes a profit of thirty to forty cents. When we were operating exchange control with a floating rate, the speculator who was selling short could be allowed to go for a time and then you could come in with the whole weight of the Exchange Equalisation Fund behind you; he did not know how much money there was behind you. Instead of your being caught short and he being underwritten by the fixed rate, you caught him short, and he got such a shock that he would not be likely to do it again. However, that is a matter of opinion.

What I have no doubt at all about is that the Government were perfectly right to act when they did in this matter of a further advance towards convertibility. I would assure my noble friend, Lord Pethick-Lawrence, as a very old friend of the present Chancellor of the Exchequer, that he does not listen only to the Governor of the Bank of England—though he is quite a good person to listen to. I have never known anybody who took a wider range of consultation and advice, and who listened to more people and also had a pretty good common-sense view of his own which he is not at all inclined to give up to other people.

I understand that the noble Viscount the Leader of the Opposition is going to reply. I understand his anxieties. But what would he have done when four or five other countries in Europe were taking their steps towards partial or complete convertibility? The noble Lord, Lord Grantchester, said that one of the remarkable things is that no currency has yet been able to supplant sterling as the currency in which 50 per cent. of the trade of the world is done. That is very remarkable, but would sterling have held that position if we had not taken this further advance? By taking this further advance it is not a case of giving some benefit to a few bankers or financiers: it is bringing enormous benefit to this country—not only to the finance of this country, the insurance of this country, but to the whole trade of this country—when the trade of the world can be done in sterling, and readily convertible sterling. I do not know what would have happened. Certainly there could not have been a greater shock to sterling, and to confidence in sterling, than if other currencies had been prepared to make the advance and we in this country had not been. What we have done has given us enormous advantages—financial and commercial advantages and also the advantage of prestige.

On the other hand, I agree that at the same time it makes us more vulnerable. But there are always risks to be taken. If you never take any risk you never get anywhere. If we had not taken that risk (if it was a risk), at a time when certainly we were far more able to stand it than we had been for years, then I think we should have had the certainty of a grave depreciation in the value of the pound. Of course there are risks—it makes us more vulnerable. Here may I say how much I appreciated the tone of the speech of the noble Lord, Lord Pethick-Lawrence. As he said, whilst it makes us more vulnerable, it must make us all more responsible. After all, this is a responsibility in which we all share, in which all our interest is combined. I am quite sure of one thing. The interesting essay which the noble Lord, Lord Latham, read to us struck me as extraordinarily irrelevant, if he will forgive my saying so, because in the long run no form of control is going to save us. In the long run, what is going to save and preserve this country is not control or more control, but the sense of confidence in it in which we must all join.

4.42 p.m.

VISCOUNT ALEXANDER OF HILLSBOROUGH

My Lords, earlier this afternoon I had no intention of speaking in this debate, but I feel that the manner in which the debate was opened by the Lord President of the Council does not fix an embargo upon me in that respect. I was content to trust completely the sagaciousness as well as the profound knowledge of finance of my noble friend Lord Pethick-Lawrence, and when I saw how few speakers were likely to take part originally I did not intend to speak; but the political oration that we received from the Lord President of the Council makes it inevitable that I make some reply to him. I do not know whether on matters like this he feels that he is speaking as the Chairman of the Conservative Party, organising for an Election, or whether he is that very senior Minister the Lord President of the Council in this House. Certainly his references to-day, and the manner in which he spoke about confidence and the like, seemed to me to indicate that he is much more fitted for the post of the Conservative Party Leader at an Election than he is to undertake the kind of task he had to undertake to-day.

I think that this Bill has been explained to the House much more clearly by my noble friend Lord Pethick-Lawrence than by any advocate from the Government Bench. It is not necessary either for the Lord President of the Council or for any Conservative Peer to address us from that side of the House as if he were beginning to teach us elementary facts about financial life. So often it is assumed that we do not know. If the noble Viscount the Lord President of the Council will read his speech to-morrow, when he is at home or somewhere—he read most of it to-day, so I expect it was supplied possibly with a Party headquarters' brief—then I think he will see that we have cause to complain about the manner in which he addressed us.

The real fact of the situation is that there is a realm of financial control which is not Government controlled but which can be very much affected by that lesson in speculating against the pound and margins which the noble Earl, Lord Swinton, gave us just now—a control that ultimately affects the standard of life of every worker in the country. It is no use the noble Lord, Lord Grantchester, or anybody in the House suggesting that it is always a question of a lack of confidence created by the working class in this country, or by the Labour Party representing the working class. We have had too many inquiries and too many facts brought to our notice to be fobbed off with that, either in this House or in regard to the course of the next Election campaign.

How far have we to go back to consider all the rumpus about the leakage which took place concerning a movement in the level of the bank rate? suppose noble Lords have read the whole of the minutes of evidence. I am sure most of them must have done. What do the working class think of that? The Lord President complained about the words in the Amendment moved recently in another place and made his attack upon them. Do you think the working class have not understood? Even after two great wars the City financier can still advise somebody in Hong Kong that, while it is anti-British to do it, it sounds sense to sell short, which could lead to a disastrous position for the main population of this country if it is allowed to proceed. I hope that noble Lords will understand that we have strong and deep feelings about it.

The next thing that I think I ought to remind your Lordships about is that it is not to be assumed by Conservative Peers that people on this side of the House have no knowledge of business, We have been much too accustomed to it. I always respect the arguments of the noble Earl, Lord Swinton. I have had much more trade controversy with him than with any of my old friends in the Conservative Party in another place We have fought many a long, wordy and fierce battle. He will not forget the four and a half months we spent in Standing Committee in 1929 on the Companies Bill.

THE EARL OF SWINTON

And a very good Bill it was!

VISCOUNT ALEXANDER OF HILLS-BOROUGH

He brought in some useful Amendments, but not nearly enough, as has been shown since by the numbers of company cases in the courts of law. We were lectured this afternoon by the Lord President of the Council. He might just as well save his time and trouble, because it is perfectly useless.

VISCOUNT HAILSHAM

I am afraid it is—quite useless.

VISCOUNT ALEXANDER OF HILL-SBOROUGH

Now I will come down to the real "brass tacks" on the convertibility situation. I envy my noble friend Lord Pethick-Lawrence, not merely his long years of knowledge of the principles of high finance, but the calm way he has of approaching the matter, which is something to which the noble Lord, Lord Grantchester, paid tribute. But it must not be assumed that because some of us are more explosive in our delivery we do not know just as much about it. The noble Earl, Lord Swinton, commented upon convertibility being more or less forced upon the Government by the fact that three or four other countries proceeded first with convertibility.

I draw his attention to the exchange which took place in another place between Mr. Gaitskell and the Chancellor of the Exchequer, reported at Column 1096 of Volume 598 (No. 45) of the OFFICIAL REPORT. Certainly it seems to me—and I accept my Leader's word that it was a matter of information given to him by a high authority in Paris—that it had already been talked about in conversations in Paris between the leader of those representing the Bank of England, and the Bank of France, that these things were to be done. That is a fact; and, reading that passage and the reply of the right honourable gentleman the Chancellor of the Exchequer, I am quite sure in my own mind that it was not absolutely essential to do it—certainly not without further negotiation with those people who were thinking of going in for convertibility. There was no real justification for the timing of this move in the fact mentioned by the noble Earl that certain other countries wanted to go in for convertibility; and, looking at the revelations which have been made in another place about the real state of our reserves, I should say that Her Majesty's Government have departed from the standards that should have been observed.

I was a member of the Cabinet in 1931 and I remember the scene in Downing Street when the Governor of the Bank of England was conveniently abroad and only his deputy was available. Colonel Harvey was called into consultation but was never allowed to speak to the Cabinet as a whole. There were telephone conversations across the Atlantic as to what could be done. As to what was really in the minds of people in the country, I would refer your Lordships to the columns of the London Times of the last week in August, 1931, when the noble Viscount, Lord Samuel (he can look it up for himself) spoke to his own Party in the club after the event. He said that there had been a deputation from Mr. Ramsay MacDonald and Mr. Snowden which had been received by, I believe, himself and Mr. Neville Chamberlain, because Mr. Baldwin was abroad, and that the proposals for dealing with the run on the pound were examined. What was the comment the noble Viscount made to his Party? He said that there had been many and courageous steps taken to deal with the situation but that it was imperative that there must be a further diminution in payments to the unemployed. Was there any greater support at all for the remark I made earlier that the manipulation of these high finances is what governs the life, the employment and the standard of life of the workers of this country?

THE EARL OF SWINTON

My Lords, as he is no longer here and was a colleague of both of us, I must say that I think that that is a terrible reflection on Lord Snowden.

VISCOUNT ALEXANDER of HILLSBOROUGH

My Lords, from what I knew of Lord Snowden—and I knew him very well indeed—I believe he would have been the first to say that, with all the things that were said and done, the reflection ought not to be upon Lord Snowden but, as I have just reported, on those who would not accept Lord Snowden's proposals to deal with the situation, as he proposed at that time, but who insisted on further diminutions of the kind I have mentioned. That is the real fact; and I am certain that the disgust of Lord Snowden (as he became) with the treatment that was meted out to him and the change of policy which led to the retirement from the Cabinet of both himself and the noble Viscount, Lord Samuel, speaks for itself, too.

Now what is the fact about the present situation? It has to be borne in mind that if the advice of bank leaders, and no doubt Treasury leaders, is to be taken into account, probably the Government work to certain reasonably, but not wholly, fixed standards. Noble Lords who have read the debate in another place on this Bill will have observed that Mr. Gaitskell said that my Party are not against convertibility, but that it is a question of having convertibility at the proper time, when it does not interfere with our expansion and our employment. He pointed out that when this question of convertibility was raised in 1950–51 he made it quite clear that, whilst we were not against convertibility, our view was that it was absolutely essential that it should not be approached until there was a reasonable amount of gold and dollar reserves with the liquidity of which my noble friend Lord Pethick-Lawrence has been speaking to-day. Mr. Gaitskell repeated in another place the other day what he had said in 1950–51. He said that this country had a total reserve of about 3,000 million dollars and he had been advised by the Treasury officials and the Bank that that was not sufficient for convertibility. Has their advice been different this time—and, if so, why? That is the first point.

Secondly, he said that it would not be reasonable, having regard to the things in which the noble and learned Viscount the Lord President has been trying to give us elementary instruction to-day, about the vastness of our world trade and the even wider activities covered by the sterling area, and not wise, in relation to the amount of trade and the exchange business to be done in the sterling area, to proceed to convertibility unless we had at least 5,000 million dollars—and it might be 6,000 million or 7,000 million dollars —if we are to be able to face up to any sudden emergency that may arise, such as my noble friend Lord Pethick-Lawrence mentioned this afternoon.

My noble friend Lord Latham has been taken to task for reading his speech to-night. I do not think it was all read, but I am certainly glad that he took care to prepare it and to examine what are the actual facts about the reserves to-day. They are rather frightening. If one brings the matter right up to the announcement of the last few weeks, the total stands at £1,111 million, from which we have to deduct what we have borrowed and other things of which we have specially to take account. We have to remember that that total has been boosted by getting £177 million for an asset of which this country should never have disposed—the Trinidad Oil interest —and that it includes £75 million in advance under what is now called, I believe, "Adenauer aid". Totalling it altogether, £466 million has to be deducted from the £1,111 million before we get the figure of net reserves as a basis for justification for convertibility.

Does the noble and learned Viscount the Lord President defend it? If so, will be give financial reasons for defending it, in view of the constant advice given to my Government, of which I know, when we were in office, by the Treasury and the Bank? To me there is something pretty wrong about this. Why are Her Majesty's Government adopting different standards? Why all this play about "confidence"? One would think, from the noble and learned Viscount, that the question of confidence was largely one of the Conservatives being in and the Socialists being out.

SEVERAL NOBLE LORDS

Yes.

VISCOUNT ALEXANDER OF HILLSBOROUGH

My Lords, I am glad the noble and learned Viscount takes that point—and if there is any run on the pound it is because of the wicked Socialists. Who caused the run on the pound in 1955?

LORD BOOTHBY

Perhaps I may interrupt the noble Viscount. He is talking as if this Bill establishes convertibility. It does not. It only enables foreign residents to convert at an official rate instead of through Zurich—a difference of 1 per cent. That is not convertibility.

VISCOUNT ALEXANDER OF HILLS-BOROUGH

My Lords, I am glad to hear from a rather independent-minded Conservative Peer that what has been boosted up on behalf of the Government does not seem to exist.

VISCOUNT HAILSHAM

My Lords, I think the noble Viscount should know that. I said that in the first five minutes of my speech, in plain and unmistakable language.

VISCOUNT ALEXANDER OF HILLSBOROUGH

My Lords, we know perfectly well what the Government want to get out of this. But I am also concerned with the noble Viscount's speech this afternoon. It is an attempt to Create the idea, not only here but abroad, that it is only in the Party of noble Lords opposite, and that Government, that there can be confidence in the defence of the pound. That is what the noble Viscount and his followers are after; one can see that easily. And that is not what we are going to stand for, and not what the people are going to be made to understand during the Election either. That is what was said. It would have been better if he had come down and explained the Bill in the ordinary way; then I should not have needed to speak. But I think it is an insult to the Opposition to introduce a Bill of this kind in he manner in which he introduced it this afternoon.

The fact is that lack of confidence and a run on the pound do not come only when a particular Government are in office. Perhaps the noble Viscount, with all his great and superior knowledge, will explain what caused the run in 1955; perhaps he will explain the cause of the run in 1957, and how much the policy of the Government in both cases helped to aid that run on the pound. We shall be delighted to hear him explain himself. At any rate, there is one thing I feel, after listening to him this afternoon: I should never be worried about having to meet him in a political debate in any political atmosphere.

Now let me say this. There are those in my Party, and those throughout the country in my Party, who have no need to be ashamed of their love for their country. They have defended it in war, and they are defending it in trade and finance; and it will always be our purpose to do that. But we must form our own judgment as to what it is best to do in the circumstances. I agree entirely with my noble friend who has spoken that the Government have taken this very large step forward (if that description meets the noble Lord, Lord Boothby) towards convertibility—anyway, let us call it that. We do not want to upset things by sudden changes in a policy like that, but let it be perfectly clearly understood that when the Labour Government come in, as they shortly will do, they will, if necessary, take whatever steps are required to defend the pound and, in doing so, to defend the general standard of life and hopes of advance of the working-class people.

5.4 p.m.

VISCOUNT HAILSHAM

My Lords, the noble Viscount who leads for the Opposition has evolved a novel doctrine of intervening in debate. Hitherto our speeches have been designed as a contribution to the debate. The noble Viscount enunciated the thought that what he said was intended as a punishment to me for having offended him in my opening speech. I can assure him, on behalf of my noble friends and myself, that, as a punishment, it failed, because we are always glad to hear from the noble Viscount. Although his arguments are sometimes unconvincing we are always impressed with his unremitting zeal and sometimes with the wide range of his irrelevance.

The noble Viscount who leads for the Opposition worked himself up into a great fury and treated us to the bank rate inquiry, without telling us the result, the 1929 Companies Act and the 1931 financial crisis. There is, however, only one remark which I think I should like to make about the relevance of his speech, and that is that we on this side of the House also appreciate the vital importance of the stability of the pound upon the standard of life in this country. That is why we happen to stress the importance of securing confidence; that is why in my opening speech I tried to persuade the noble Viscount and his friends that it was a pure fallacy to suppose that you could secure confidence in our currency unless you deserved it. I did not say—it was the noble Viscount the Leader of the Opposition who said—that the inference to be drawn from that was that when the Labour Party were in they did not have confidence and when the Conservative Party were in they did.

It is of course true, if we are going to speak about the 1931 crisis, that what could be said about it—and many of my generation are really not quite so concerned with the inner history of it as the noble Viscount appears to be—is that the Labour Government of the time failed to secure anybody's confidence either abroad or at home; and this of course rankles with the noble Viscount; but it really is not my fault, so there is no reason why he should get so cross with me about it.

Let us return to the Bill from which the noble Viscount momentarily tempted me away. I am sorry that I appeared to the noble Viscount to be a little didactic, and, I thought, offended him by leading him to suggest that I was tending to cast reflections upon his ability as a businessman. I was not intending anything personal about the noble Viscount. But the failure of the Labour Party to face the moral and economic realities of this present situation has been only illustrated, and not disproved, by the violence and irrelevance of the noble Viscount's own tirade.

May I turn to the noble Lord, Lord Pethick-Lawrence, for whom, as always, I express great veneration? May I point out what, at any rate in my submission to the House, is really his complete failure to face the ultimate facts of this case? I began by quoting the words of Mr. Dalton in 1947, and those words included an unequivocal statement to our closest allies as to the desirability of maintaining full and free convertibility of sterling as a long-run objective. In fact, he went on to say that as a long-run objective it was an indispensable aim of British financial policy. What the noble Lord, Lord Pethick-Lawrence, in the course of his extremely temperate speech, if he will allow me to say so—and I quite understand why the noble Viscount the Leader of the Opposition envied his calmness and temperate mode of expression; if I were in the noble Viscount's position I think I should share his envy—did not face is this: those words were spoken twelve years ago. Free convertibility of the pound is a long-run objective. It was announced by the Labour Party twelve years ago. I know that the present Marquess of Salisbury's grandfather once described "the long run" as his eternal enemy; and it appears to me to be the eternal enemy of the noble Lord, Lord Pethick-Lawrence. When does "the long run" come to an end?

LORD PETHICK-LAWRENCE

My Lords, I will answer that: when the circumstances justify its coming to an end. The reserves are not adequate to enable the situation of twelve years ago to come to an end. When they are adequate the situation will be different.

VISCOUNT HAILSHAM

My Lords, I shall return to the question of the reserves in a moment. But the fact of the matter is that we know perfectly well from experience after twelve years that the Labour Party never will find it propitious; and, indeed, the truth of the matter is that almost every other argument presented by the noble Lord himself and by his various friends on the Front Bench would not have the smallest validity or relevance if what he was talking about was not the propitiousness of the moment but convertibility.

This could not have been better illustrated than by the noble Lord's own reminiscence, which immediately followed the passage to which I am referring, of 1925—the return to the gold standard. My noble friend the Earl of Swinton dealt with one aspect of that matter, and I am not going to be drawn into it. However, what I am going to say is this: that apparently, if the noble Lord's argument this afternoon has any weight at all, although the Labour Party has gone on record as describing convertibility as a long-term objective and as an indispensable aim of British policy, there never was one moment between the 1914–18 war and the present day, 1959, when it ought to have been put into effect.

This was the only inference that I could draw from the noble Lord's argument; and I am bound to tell the noble Lord—and I do so without any desire to disparage him, because he knows that I recognise, and always have recognised, his knowledge and authority in matters of this kind—that it is no longer morally respectable to go on talking about convertibility as an indispensable aim and objective of British policy and then to say "Not now", "Not now", "Not now". When one looks at the whole period and finds that it is said that, over a period of forty years, it ought never to have been brought into effect, one really must face the fact that the truth is that the Labour Party are afraid of convertibility, and will remain afraid, so far as one can see, in the future. It would be far more honourable of them if they frankly disavowed their solemn obligation of 1947 and said that they now realise that it is quite incompatible with the requirements of Labour policy.

My Lords, I would, in passing, say that, whereas I am not concerned to defend or explain the return to the gold standard in 1925, if the noble Lord, Lord Pethick-Lawrence, had been arguing that case at all I should have thought that he would have found it worth while to differentiate between the return to the gold standard at the then parity (which I think most experts at the present time would now concede to have been a mistake) and a return to the gold standard as a part of convertibility which, at any rate so far as I am aware, most responsible experts at the present time would have thought desirable, although I can see in the House some people who take a different view.

The noble Lord treated us to an admirable disquisition (I say "admirable disquisition" because, unlike the noble Viscount who leads the Opposition, I do not mind learning from the other side) on the difference between solvency and liquidity. The noble Lord's case really amounted to this: that the change to further convertibility involved risks to our liquidity. But the noble Lord failed to deal with either of the two main points upon which I rested my case. In the first place, I pointed out to him that, among other propitious conditions at the present time, there was the fact that, for a considerable number of years—in our own case for four consecutive years, but over the world for a considerable number of years—dollars have ceased to be a scarce currency. The strength or the weakness of our return to this degree of convertibility does not, of course, have the remotest relation fo liquidity in general: it has relation only to the availability of dollars, and it is precisely to this point that the noble Lord, Lord Pethick-Lawrence, did not. I think, adequately apply himself. At least, he did not seek to apply himself to the whole kernel of the argument which I was seeking to place before the House.

If the noble Lord will do me the courtesy of remembering it, he will recall that my second point was that, far from having thrown away a valuable "weapon" on this front in the way of controls, experience has shown us that the "weapons" which we have thrown away have, in experience, proved themselves useless to defend the pound. Now that may be right or it may be wrong, but I must say that it is absolutely astonishing that, with all this heat engendered by the Leader of the Opposition, and with all this display by the noble Lord, Lord Pethick-Lawrence, and the noble Lord, Lord Latham, they never once thought it appropriate to advert to this point. The noble Lord, Lord Latham, said that we were leaving ourselves defenceless: but if he had not composed his speech before listening to my argument I venture to say to him, with great respect, that he would at least have found it desirable to answer the point that the defences and the weapons have in fact proved themselves useless over a number of years.

I agree that there may in the future, as both noble Lords have said, be some run on the pound, since the pound depends on confidence. That of course may be so. I agree whole-heartedly with the speech which came from the Liberal Benches in that respect. But the point I was making on it was this: that be it so or be it not so, may it come soon or may it come at any particular time, the defences upon which the great pundits of the Labour Party place their reliance are nothing but dummy tanks filled with air, about to deflate themselves at the first sound of battle.

LORD PETHICK-LAWRENCE

My Lords, if the noble Viscount is prepared to give way for a moment, may I say that the reason why I did not answer his speech was because it was not a speech of argument but was a speech of abuse. I do not answer speeches of abuse, and I left him alone for that reason. The answer to his question is this: if he goes a little further in what he says, he will argue that the Government have done nothing at all in this new stop. I am perfectly aware that it is a much smaller measure of convertibility than was made previously. What I say is that it is claimed for it that it is a further step in the path of convertibility which leads to complete convertibility. It is because it is that that I say that it is an extra strain upon liquidity, and I stick to that, whatever the noble Viscount may say.

VISCOUNT HATLSHAM

As regards the noble Lord's first point, I do not consider that it is abusive to say that the weapons we are throwing away are useless: and if the noble Lord (who evidently did not listen to my argument carefully enough) will do me the courtesy to read it to-morrow morning, he will see, I think, that had he desired to make an impression on the House, he would have been well advised to pay attention to the serious propositions which were put against him—

LORD PETHICK-LAWRENCE

If the noble Viscount—

VISCOUNT HAILSHAM

Please allow me to finish, and then I will give way—notwithstanding the fact that they were distasteful to him.

LORD PETHICK-LAWRENCE

The noble Viscount really must allow me to make my speeches in my own way. If the noble Viscount expects me to treat his speeches seriously, he must make a speech which is based on argument, and not on abuse.

VISCOUNT HAILSHAM

If the noble Lord does me the courtesy of reading in Hansard to-morrow morning what I said, he will realise that he would have been well advised to answer that argument; and although I agree that many of my points must have been distasteful to the noble Lord's convictions, there was nothing in the words expressed which was either designed to do the noble Lord a discourtesy or which could be properly described as abuse.

Now, my Lords, I turn from that speech to the speech by the noble Lord, Lord Latham. The noble Lord. Lord Latham, devoted a very great deal of his time to the supposed disadvantage of what he called "scrapping E.P.U." The noble Lord is really under a delusion about the E.P.U. He appeared to think that E.P.U., which was negotiated in 1950, was some institution, as of the Medes and Persians, designed as a permanent clearing house between European nations. My Lords, that is not so. This is another piece of pure mythology. E.P.U. was an agreement designed for an emergency, expressed to be temporary, and a step towards convertibility. Its duration was from two years to two years, prolonged only by agreement; and if the noble Lord had only done me the courtesy of listening to me he would have heard me say that, in point of fact, that agreement was wearing thin and that it was getting out of date. It had degenerated into a situation in which the permanent creditor nations kept it alive by injecting new funds to sustain the credit of the permanent debtor nations.

How long does the noble Lord, Lord Latham, think that that would go on? What kind of respectability would there be in a Government of this country allowing that to go on indefinitely when they were not one of the creditor nations? How can the noble Lord give an account of the European Payments Union without saying in terms that we were under an obligation under E.P.U. to treat this as a step towards convertibility, and to create it into the European Monetary Agreement? These were the terms of the Agreement of 1955, nearly four years ago. The noble Lord is living in a world of his own when he delivers this kind of address to your Lordships.

But since he has asked me a question about its future operation, so far as it would be proper to do so let me tell the noble Lord that the likely operation of the Fund depends on the needs of countries in temporary unbalance of payments. The resources of the Fund are 600 million dollars. The noble Lord appeared to think that that was a negligible amount. That is not so. So far only two countries have asked for aid, Turkey and Greece, and both have been granted it. So much for the European Payments Union.

The noble Lord, Lord Latham, like the noble Lord, Lord Pethick-Lawrence, failed to deal with the ultimate proposition upon which this case is based. It is that the pound will be defended, not by these dummy tank defences of control, but by measures designed to support confidence in the pound. There really is no short cut to financial respectability in such a matter. Various rather wild statements have been made about our reserves. We have heard all that kind of thing before. The process is something as follows: you take the real figure of reserves and deduct from it various sums on one side of the account, which you say ought not to count at all because they are not really there, then fail to take into account a number of subsidiary items on the other side of the account which ought to countervail them. Then you say that the sum is much lower than it is.

Our total reserves were in the neighbourhood of £1,100 million at December,1958. At that time they had risen by £435 million from the low point of £661 million reached in September, 1957. It is true, of course, that in this period, the reserves have benefited from two special factors, the borrowing in October, 1957. of £89 million from the Export-Import Bank and the deferment in December, 1957, of service amounting to £63 million on the United States and Canadian loans, although I must remind your Lordships that in December, 1958, the loan service was paid in full. Even if the sum of these items, £152 million, be deducted, we are still left with an increase on the figure in September, 1957, of £283 million. This more than compensates for the heavy fall in the third quarter of 1957 of £189 million.

It is also true, of course, that the reserves have been strengthened by two sums of borrowed money which are repayable within the next seven years, the International Monetary Fund drawing of £201 million made in December, 1956, and the sum I have already mentioned of £89 million from the Export-Import Bank. The reserves net of these would now amount to £806 million. In addition to the reserves discussed in this way, there is also a second line of reserves in the form of drawing rights on the standby credit of another £264 million arranged with the International Monetary Fund, giving for our first and second line together a total of £1,360 million, and not £1,100 million. And this is not the entire sum of our reserves, because those figures do not include the amounts of dollar securities in the hands of those despised creatures, the financiers of the City of London, who are so wicked as to invest in securities which stand us in good stead every time there is a war or an international financial crisis.

The other factor which noble Lords opposite fail to take into account—again I must ask them to forgive me if I appear to be a little didactic, but I really must put the record straight—is the sterling holdings of other countries, which have been reduced greatly during the period to which I have been referring. At the end of September, 1958, sterling holdings stood at £3,266 million, of which £2,580 million belonged to other members of the sterling area. Of course, these countries are entirely free to draw down their balances, but in general they use them only to meet deficits in their balances of payments. Between June, 1957, and September, 1958, the total of these sterling balances was reduced by £345 million, but as I have pointed out, during that time reserves were actually rising. It is a most extraordinary method of accountancy to say that you must disregard certain items of the known reserve and then not even mention the fact that on the other side certain liabilities have been reduced. In September, 1958, the total sterling holdings in non-sterling countries amounted to £686 million. That has been run down during the last twelve years from £1,243 million, so that during this period not only have the reserves been rising, but also we have been running down our liabilities.

Noble Lords opposite asked me what kind of advice my right honourable friend had. It would be a most irregular pro- ceeding if I were to yield to this temptation by telling your Lordships. So far as the financial and economic arguments are concerned, I have been at great pains to secure the best advice from all sources open and available to me. When I tell the House, as I have done, and as my right honourable friend told another place, that certain weapons upon which some noble Lords for some reason or another continue to place great reliance are only capable of doing permanent damage, I must say that this is a matter upon which our advice differs from that of noble Lords opposite.

VISCOUNT ALEXANDER OF HILLSBOROUGH

My Lords, I do not think that the noble Viscount is answering my direct question, whether the time was right for convertibility and whether they had the same class of advice from the Treasury and the Bank as we had and on which my noble friend based his statement in 1950 and 1951.

VISCOUNT HAILSHAM

My Lords, the noble Viscount should know better than to ask what advice I have had from civil servants. He knows perfectly well that it is an improper question and that no Minister worthy of his salt or with any sense of honour would reply to it.

VISCOUNT ALEXANDER OF HILLSBOROUGH

Why do you not answer it?

VISCOUNT HAILSHAM

My Lords, what we do we do on our responsibility, but noble Lords must take it that in giving certain arguments in your Lordships' House I have drawn on resources both deeper and more varied than my own.

VISCOUNT ALEXANDER or HILLSBOROUGH

My Lords, should we be right in assuming that on this occasion the Government have adopted far lower standards than we were officially advised to adopt in 1951?

VISCOUNT HAILSHAM

My Lords, the noble Viscount would be quite wrong in making any unwarrantable assumption. When I do not give the answer he wants, it does not mean that the noble Viscount can invent some inference which does not follow from what I have said and then say that he is entitled to take the inference. That is neither logical nor in accordance with the terms of our Constitution. The noble Lord, Lord Pethick-Lawrence, began his speech by saying that this was not a Party matter. I wish it were not.

LORD PETHICK-LAWRENCE

My Lords, I did not say that.

VISCOUNT HAILSHAM

My Lords. I thought I heard him to say it. I wish it were not. The fact is that it has become a Party matter. The Party opposite voted against this Bill on Second Reading in another place. I think that I am right in assuming—

LORD PETHICK-LAWRENCE

My Lords, I never said that it was not a Party matter. It is a Party matter because we differ from the Government on it. What I said was not a Party matter—and I was very careful to say it—was the fact that the prosperity of this country had increased that it was largely owing to the energy, inventiveness and courage of members of the public and that both Governments to a large extent had contributed to it. I said that that was not a Party matter.

VISCOUNT HAILSHAM

I accept, of course, what the noble Lord says as to what he said; I always do. I am only saying for myself that I wish it were not a Party matter. It was made a Party matter when the Party opposite voted against it in the other place; and although I imagine, for reasons which are under stood by all of us, that this is not a matter which is ordinarily the subject of a Division in this House, they have clearly made it a Party matter in this House. What I do not quite understand is that, having made it into a Party matter and one of acute political controversy, they should then complain when I set forth in blunt political terms what to my mind is the complete set of delusions under which they are dwelling. It reminds one of a little dog that starts biting one's ankles and when one turns and expostulates it lies on its back and wags its tail, saying that after all it is only a spaniel. The fact is that if they choose to make this a Party controversy they must expect this animal, at any rate, to defend itself.

On Question, Bill read 2^a and committed to a Committee of the Whole House.