Lords Sitting of 26 April 1960

Preamble
Reassembling after the Easter Recess, the House met at half past two of the clock, The LORD MERTHYR on the Woolsack.
Prayers—Read by the Lord Bishop of Leicester

DISPOSAL OF KRUPP ASSETS
2.35 p.m.
VISCOUNT ELIBANK: My Lords, I beg leave to ask Her Majesty's Government the Question which stands in my name on the Order Paper.
[The Question was as follows:
To ask Her Majesty's Government whether they have received the report of the Mixed Committee which dealt with the 1959 application of Herr Alfried Krupp von Bohlen und Halbach for an extension of time in which to sell an estimated 74 per cent. of his steel, iron and coal producing assets within five years under the 1953 Mehlem Deconcentration Agreement, and, if so, whether they will give a statement showing in detail the terms of the report.]
THE JOINT PARLIAMENTARY UNDER-SECRETARY OF STATE FOR FOREIGN AFFAIRS (THE MARQUESS OF LANSDOWNE): My Lords, Her Majesty's Government have not yet received the Mixed Committee's report. The second part of the noble Viscount's Question therefore does not yet arise.
VISCOUNT ELIBANK: My Lords, arising out of that Answer, for which I beg to thank the noble Marquess, may I ask whether the attention of Her Majesty's Government has been drawn to the message from the British United Press on Friday last, that
"Alfried Krupp, the West German industrialist, to-day formally combined his steel and coal mining enterprises into one company. He is the sole shareholder"?
May I ask the noble Marquess whether this merger comes within the scope of the 1953 Mehlem Deconcentration Agreement, which is operated under Allied High Commission Law No. 27, which presumably is still in force?
THE MARQUESS OF LANSDOWNE: My Lords, I have no information of this B.U.P. report of April 22, but if the noble Viscount would be good enough to put down another Question, I should be only too pleased to try to answer it.
VISCOUNT ELIBANK: Thank you. I will do so.

WHEAT PRICES, SUBSIDIES AND PROFIT ON BREAD
2.37 p.m.
LORD STONHAM: My Lords, I beg leave to ask the first Question which stands in my name on the Order Paper.
[The Question was as follows:
To ask Her Majesty's Government if they are aware that, in 1951, the bread subsidy was approximately £55 million, the average market price for home-grown wheat was 28s. 4d. per cwt., and the retail price of the 1¾ lb. loaf was 6d. that, currently,

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the wheat subsidy is over £20 million, the average market price for homegrown wheat is down to 20s. 6d. per cwt., the retail price of the 1¾ lb. loaf is up to 1s. 0d.; and, since the £35 million difference in the subsidy accounts for only 2d. per loaf, who receives the extra profit of 4d. per loaf and the extra profit arising from the fall in the market price of wheat.]
THE JOINT PARLIAMENTARY SECRETARY, MINISTRY OF AGRICULTURE, FISHERIES AND FOOD (EARL WALDEGRAVE): My Lords, I fear that a comparison of the bread and flour subsidies applied in 1951, under the austere conditions of control, with the subsidies arising from cereal deficiency payments and the bread prices determined by the conditions of freedom and variety pertaining to-day, does not lend itself to even the approximate calculations which the noble Lord has attempted.
VISCOUNT ALEXANDER OF HILLSBOROUGH: A jolly good story!
EARL WALDEGRAVE: If, however, with that most important reservation, I am to attempt to follow his calculations, I might perhaps do so broadly on these lines. I understand the noble Lord to be saying that the price of the 1¾ lb. loaf has gone up since 1951 by 6d., and that he is saying that only about 2d. of this is accounted for by the difference between the 1951 subsidy on bread of £55 million and the current subsidy of £20 million on home-grown wheat; and that, therefore, about 4d. of the price increase remains unaccounted for. But, in fact, of course, the increase in the price of the loaf since 1951 is not 6d., but between 5d. and 5½d., because perhaps two-thirds of our bread which comes from the plant bakeries is sold at not more than 11d., not 1s. Moreover, of the increase of 5d. to 5½d., nearly 3d. is accounted for by the removal of the subsidy. The noble Lord's calculation allowed only 2d. for this because, so far as I can see, it did not allow for the fact that less than 30 per cent. of our home-grown wheat is used for bread. The remaining 2d. to 2½d. of the increase must be set against increases in the cost of baking in the nine years since 1951. But your Lordships will appreciate that in attempting to answer the noble Lord's Question I
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have had to follow him in employing statistical methods, comparisons and approximations which I am advised are highly dubious.
LORD STONHAM: My Lords, may I be allowed to congratulate the noble Earl on a brave attempt, but one which entirely fails to answer my Question? He has mentioned the increased costs of producing and delivering bread, but has failed to mention that there has been a 30 per cent. drop in the price of wheat, which entirely discounts those increases. That means that the present cost of bread and flour is exactly the same as it was in 1951. The only other thing he said was that it is a 3½d. increase which is unaccounted for, and not a 4d. increase—but that depends on where you live. However, is the noble Earl aware that this is a serious matter affecting our greatest industry; that the nation's bread bill has increased by £100 million; that the farmer is much worse off; that the housewife is paying double—
THE LORD PRESIDENT OF THE COUNCIL AND SECRETARY OF STATE FOR COMMONWEALTH RELATIONS (THE EARL OF HOME): My Lords, this is hardly a question.
VISCOUNT ALEXANDER OF HILLSBOROUGH: But it is.
THE EARL OF HOME: It is a very long one, anyhow.
VISCOUNT ALEXANDER OF HILLSBOROUGH: I think that an answer ought to be given to "is he aware …?"
THE EARL OF HOME: But if "Is he aware" comes in the middle of a number of paragraphs, one loses sight of the question.
LORD AMWELL: My Lords, can the noble Earl say what has happened to the lovely, crusty loaf of my youth?
LORD STONHAM: If I may be allowed to continue—it was a long Answer, for which I was extremely grateful—may I ask the noble Earl if he is aware that there is extreme doubt and anxiety about this position as to whether the subsidies are doing what we want them to do—to benefit the farmer and the consumer? And would he recommend to his right honourable

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friend that there should be an inquiry to decide exactly how these subsidies are being applied, and to what extent they benefit the farmer and the housewife?
EARL WALDEGRAVE: My Lords, if I may pick out three questions to answer, I would say that I do not know what has happened to the lovely, crusty loaf, though it is sometimes still available. I am aware that, in the mind of the noble Lord who has raised this question, there is this doubt, but I do not think it is in other people's minds. With regard to his question as to whether there should be an inquiry, I do not think that any inquiry would serve any useful purpose at this time. If I may supplement what I said before, I really think that the noble Lord must try to compare like with like. It is no use trying to compare golf clubs with cricket bats. They are both used to propel balls, but under such entirely different conditions and for such entirely different effects that really a comparison serves no useful purpose.
LORD STONHAM: My Lords, throughout my Question I have compared precisely like with like, and except in a small detail the noble Earl was quite unable to challenge the figures. However, the point remains that 3½d. of the price of a loaf is unaccounted for. Would it be partly accounted for by the recent 50 per cent. increase in dividends paid by some of the firms? If the noble Earl does not know the answer, is it not in the public interest to have a public inquiry to find out? Because the doubts are not confined to myself; they are becoming ever larger and ever more serious.
EARL WALDEGRAVE: I can only say that I do not follow the noble Lord's conclusions from the dubious figures that he has put forward. The increase since 1951 in the price of the 1¾ lb. standard loaf is of the order of 5d. to 5½d. On such information as I have the removal of the subsidy on bread and flour and the increase in costs since 1951 would also amount to between 5d. and 5½d. This disposes of the implication in the noble Lord's question that there has been a fantastic increase in bakers' profits since 1951.
VISCOUNT ALEXANDER OF HILLSBOROUGH: My Lords, I think it should
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be made perfectly clear that the Government's general economic policy has constantly increased the cost of living and put up the costs of production everywhere and kept on leading us into financial crises.
THE EARL OF WOOLTON: My Lords, I must congratulate the noble Earl, Lord Waldegrave, on the Answer he gave, because I spent a long time trying to find out what really was the basis of this Question. I should like to ask the noble Earl (since I must ask him, though really what I am trying to do is to ask the noble Lord, Lord Stonham), this question. Is it not a fact that there are quite a number of new conditions that have arisen: increases in the costs of baking and considerable increases in the costs of distribution, which were previously controlled; and of course, in earlier days, if I may use the not too flattering observations of the noble Earl, there was a rigorous control over everybody's profits? It seems to me that the noble Lord, Lord Stonham, is not really comparing like with like, because so many conditions have altered in the meantime. I do not know whether the noble Earl can legitimately regard that as a question or as a speech.
EARL WALDEGRAVE: My Lords, I am very grateful for the noble Earl's intervention, to which I would answer, Yes.
LORD STONHAM: My Lords, I agree with the noble Earl, Lord Woolton, that there are changed circumstances, the main change being that there was control in 1951 and now there is a free-for-all, for which we are paying an extra £100 million a year. The noble Earl, Lord Waldegrave, thought fit to suggest that my figures were dubious. Could I refer him to the 1950–51 Trading Accounts, page 3, where it says:
"Bread, unit of subsidy, 6d. per 3½ lb. loaf"—
that is 3d. for a 1¾ lb. loaf. That was the subsidy in 1951. I am now saying that the rate of subsidy is 2d. per loaf. It is not my figures that are dubious. It is the noble Earl's.
LORD TAYLOR: My Lords, is it not a fact that the one changed circumstance is a 30 per cent. fall in the price of

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wheat? And is it not the contrast between this fall in the price of wheat and the rise in the price of bread which is the real source of the problem?
EARL WALDEGRAVE: My Lords, with your Lordships' permission I should like to correct one thing that the noble Lord, Lord Stonham, said. I did not say that his figures were dubious. I carefully said that he was "employing statistical methods, comparisons and approximations" which are dubious.
VISCOUNT ALEXANDER OF HILLSBOROUGH: Which do not suit the Government.
LORD HAWKE: My Lords, is not a comparison of the prices of Manitoba No. 1 and Australian hard wheat far more relevant to the price of bread than the price of British wheat, which the noble Lord opposite quoted?
LORD STONHAM: My Lords, the same decline has occurred in overseas hard wheats, and the position is exactly the same. The 1951 bread and flour subsidy covered flour and wheat whatever the source of origin.

PIG MEAT PRICES, SUBSIDIES AND PROFITS
2.45 p.m.
LORD STONHAM: My Lords, I beg leave to ask the second Question which stands in my name on the Order Paper.
[The Question was as follows:
To ask Her Majesty's Government if they are aware that in 1951 the farmer received £23 for a high-grade bacon pig, that there was a £44m. subsidy on retail pig meat prices and the housewife paid 3s. 1d. per lb. for best bacon and 2s. 6d. per lb. for best pork; that currently the farmer receives £17 for a similar bacon pig, that there is a £21m. subsidy on pig meat and the housewife pays 4s. 8d. per lb. for best bacon and 5s. 0d. per lb. for pork of similar quality; and, since the difference in the two amounts of subsidy accounts for only 4d. per lb. who receives the remainder of the 100 per cent. increase in the margin between the price received by the farmer and the price paid by the consumer.]
EARL WALDEGRAVE: My Lords, I am afraid I cannot accept the implica-
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tions of the figures quoted by the noble Lord or the statistical basis of his comparisons. The £44 million subsidy in 1951, for example, relates only to home-produced and imported bacon and takes no account of the £12 million subsidy on pork. In reply to the noble Lord's earlier Question I expressed my doubts about following his calculations. In that instance there was at least some basis of comparison in the 1¾ lb. loaf. In the case of pig meat no comparable basis exists.
I need not remind your Lordships that in 1951 the production and distribution of pig meat were controlled, maximum retail prices were laid down and the housewife was strictly rationed. To-day supplies are unrestricted. The housewife has a far greater freedom of choice and the quality is higher. There is no doubt that she is much better served.
LORD STONHAM: My Lords, we still have the same position, where the farmer is one-third worse off, the housewife is paying double, and the taxpayer is still mulcted of a considerable sum. In order not to confuse figures too much, could the noble Earl answer one question which is of current importance? Can he say why bacon, which incurs the costs of processing and curing, should be cheaper than similar cuts of pork? Does he not realise, as one who has the greatest possible interest in the welfare of agriculture, that these two questions demonstrate beyond peradventure that the Government's support price policy for agriculture is an utter and abject failure?
EARL WALDEGRAVE: My Lords, I would not for a single moment accept the latter conclusion. I do not think that anything that has been said bears that out. I am afraid that, without notice, I cannot answer the noble Lord's question, as I have not the figures of the relative costs of bacon and pork at my finger tips; but I will write to the noble Lord.
VISCOUNT ALEXANDER OF HILLSBOROUGH: My Lords, this applies to home production. In 1951, the very best bacon pig was fetching about £23. Today the farmer gets £17. Is that true? And is the comparison in pork prices the same?
EARL WALDEGRAVE: First of all the grading standards of the very best bacon pigs are entirely different in 1951

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and now. I cannot accept the figures entirely. The £44 million subsidy for 1951–52 relates, as I said, to home-produced and imported bacon only: it takes no account of the pork subsidy. There is nothing in the figures that have been produced which takes account of the fact that feedingstuffs were then subsidised. Ever since the 1947 Act the relevant figures have been taken into consideration every February to arrive at the guaranteed prices. The noble Lord cannot take figures nine years apart from the figures given for an entirely different reason and compare them. This is not comparing like with like.
LORD STONHAM: Surely, my Lords, if there had been anything wrong with the comparative figures of £23 in 1951 and £17 now the noble Earl would have challenged it. He must know from his own knowledge that it is correct. Is that not a remarkable drop, allied to a doubling in the retail prices? If the noble Earl says he does not know whether bacon is cheaper than pork I am astonished. Let me assure him that there is a difference in price. I should like to ask him why it is that bacon is cheaper than pork, when bacon incurs the cost of curing.
EARL WALDEGRAVE: My Lords, out of his large number of supplementaries, I am well aware that the prices of £23 and £17 (although the figures are not strictly comparable, because of the different grading) give, probably as near as we can get, the respective prices of pigs. I did not say that, I did not understand the difference between the price of pork and the price of bacon. I said that I had not any figures in front of me to answer the noble Lord as to the comparative costs of production of one and the other, which is what he originally asked.
EARL FERRERS: My Lords, would not the noble Earl agree that the kernel of the Question, and of the last question is that the price to the farmer has gone down, while the price paid by the consumer has gone up; and the question to which the noble Lord, and, indeed I, would like an answer is: who is going to benefit from the subsidy?
EARL WALDEGRAVE: No, my Lords.
VISCOUNT ALEXANDER OF HILLSBOROUGH: My Lords, perhaps, when these questions and answers are pub-
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lished, the noble Earl may be able to answer the farmers how it is that the overall adjusted income of the farming industry was £320 million in 1951 and is down to £288 million in the last year, and we shall begin to understand who is responsible for it.

NATIONAL HEALTH SERVICE (TRANSFER OF OFFICERS AND COMPENSATION) (AMENDMENT) REGULATIONS, 1960
2.53 p.m.
LORD ST. OSWALD: My Lords, the National Health Service (Transfer of Officers and Compensation) Regulations, 1948, provide for the payment of compensation to persons who suffer loss of employment or diminution of emoluments attributable to the passing of the National Health Service Act, 1946. Entitlement to compensations is subject to the condition that the cause of the claim must have arisen within ten years from the 5th July, 1948, the date on which the Act came into force. The same condition is an integral feature of the compensation codes which were made to provide for the consequences of the various measures of nationalisation and the present amendment does not seek to alter that condition.
For many years before the enactment of the National Health Service Act, 1946, it had been the practice at many hospitals (mainly mental hospitals) to undertake farming activities partly to provide employment for the patients and partly in order that the hospitals might have their own source of supply of farm produce. In a number of hospitals farming had developed far beyond what was necessary for either purpose. For example, at some hospitals large herds of pedigree cattle or pigs were being maintained.
The Act authorises the Minister only to provide hospital services and he has no powers to engage in farming except to the extent that it is an essential feature of the running of a hospital, and any hospital farming which does not satisfy that condition is outside the scope of the Minister's responsibility. The matter came under examination in the early years of the National Health Service, and in 1954 all hospital authorities were asked by the Minister to review their farming activities and the

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amount of land held by them in the light of certain criteria. This review has led to a considerable reduction of farming activities by hospitals, and where hospital employees have lost their employment or their emoluments have suffered in consequence this has been regarded as a consequence of the passing of the Act and compensation under the Regulations has been paid.
In a few cases the review was protracted, and even after the decision to dispose of a farm had been taken it was not always possible to dispose of the farm before July 5, 1958: that is, ten years from the coming into force of the National Health Service Act. Occasionally also it was found prudent to delay the actual sale of a farm. It has therefore come about in a few cases that employees have not been made redundant until after July 5, 1958, even though the decision to dispose of the farm was taken before that date. The operation of the Regulations as at present worded excludes the consideration of the entitlement of such persons for compensation and this would cause injustice.
The purpose of the amendment is to clarify the scope of the Regulations and to make it clear that even if employment is lost after the expiry of ten years from the coming into force of the Act the case may still be considered for compensation under the Regulations, but only if it was the result of a decision by or on behalf of the Minister taken within that period. I beg to move.
Moved, That the Draft National Health Service (Transfer of Officers and Compensation) (Amendment) Regulations, 1960, be approved.—(Lord St. Oswald.)
On Question, Motion agreed to.

NATIONAL HEALTH SERVICE (TRANSFER OF OFFICERS AND COMPENSATION) (SCOTLAND) (AMENDMENT) REGULATIONS, 1960
LORD ST. OSWALD: My Lords, these are identical Regulations concerning Scotland. I beg to move.
Moved, That the Draft National Health Service (Transfer of Officers and Compensation) (Scotland) (Amendment) Regulations, 1960, be approved.—(Lord St. Oswald.)
On Question, Motion agreed to.

THE ECONOMIC SITUATION
2.57 p.m.
LORD PETHICK-LAWRENCE LORD PETHICK-LAWRENCE rose to call attention to the economic situation; and to move for Papers. The noble Lord said: My Lords, at the outset of my remarks I ask your Lordships' leave to make a disclaimer, or perhaps it would be more correct to say a confession. I do not pretend that I have complete mastery of understanding of all the facts, figures and appendices which are to be found in the White Papers with which the Government have provided us for the purpose of considering this matter. Moreover, I should like to draw the attention of your Lordships to the fact that many of these Papers were compiled several months ago, and that in the interval between then and now there have been considerable changes, so that many of the figures in question are largely out of date at the present time. In these circumstances, what I propose to do today is to give a broad survey of the economic position of this country, as I see it, and to make my inferences from those facts. No doubt if some of your Lordships who follow me in this debate find my facts or my inferences incorrect you will state your reasons for differing from me. What I propose to do is to deal with this matter in the form of several questions, which I will formulate, and I will endeavour to give the answers to all those questions as I see them.
The questions are these. First and foremost, is our economy progressing satisfactorily, viewed both absolutely and relatively to the progress in other countries? Secondly, is our trading position satisfactory—in other words, are we paying our way? Thirdly, how do we stand with regard to the virus of inflation? Fourthly, is our position as world bankers and as guardians of sterling adequately secure? Fifthly, are we, as a great and prosperous nation, doing as much as we should to help the underdeveloped countries of the world to reach a secure and prosperous position? Finally, coming to our own particular domestic circle, are our financial methods satisfactory and are the individual sections of our community and persons receiving just and fair treatment? Some of these questions are, of course, closely interrelated. Nevertheless, I think it would be helpful to try to

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give an answer to each one of those questions separately. It may well be that, in the course of our analysis, without being complacent we shall find that in some things we are doing well, though with regard to others I feel grave anxiety that things are not as desirable as they should be.
I would start with an attempt to answer the first question: Is our economy progressing satisfactorily? I am aware that, as against a year or two ago, we have made considerable progress in our production; but I would remind your Lordships that this recent spurt in production follows a period of several years in which our economy was almost stationary. If you take the whole five years of the past together and see how greatly our economy has increased in those five years, you will find that the figure of increase per annum is not only very small in itself but miserably small compared with that of many of the other countries of Europe, and also of Japan.
It would appear to-day that the wheels of progress are moving a bit faster, but just as that is happening the Chancellor of the Exchequer has thrown a spanner into the wheels which seems to have caused palpitations in financial and industrial circles. I read to-day in the Press that the industrial share index has fallen to the lowest figure of the calendar current year, 1960. I am not sure—and I do not think the City is, either—what this warning portends. Does it mean that there is a likelihood of a further increase in the bank rate, which I personally should greatly deplore? Alternatively it is suggested that it may mean that the Chancellor of the Exchequer is intending to put on special measures of control on the banks, such as special deposits. If so, that might be a lesser evil than an increased bank rate.
I would remind your Lordships that in the Radcliffe Report the Committee were most careful to point out that bank credit was only one part—not a major part—of the liquidity of the country, and that it would be quite improper to make special control of the banks which was not extended to other parts of the credit system of this country. But the real trouble in this whole matter is that in the Party opposite there is a certain section, at any rate—how great it is I do not know—of conservative-minded people
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who, at the bottom of their hearts, do not believe in planning as a method of dealing with the financial and economic problems of the country. In consequence of that we have this free-for-all ideology, which means allowing the horses to go wild in the chariot for a time, then jerking them back with the reins and bringing the wagon, if not to a standstill, to a complete change of pace. I am one of those who do not believe in that method of conducting the finances of the country, though it is in some ways a time-honoured method. It is one which has for many years past proved unsuitable and injurious in these modern times, when control of events has to be foreseen, planned for and worked out in the practical life of the country. I would therefore urge Members of your Lordships' House to consider how far this hit-and-miss spasmodic method of the past is suitable to-day, and how far the Government are not to blame for what has happened in time gone by.
Now I come to my second question: Are we paying our way in the world? I read the White Papers to which I have already made reference—and no doubt many of your Lordships have—and I confess to being considerably alarmed at the figures for last year. I do not say that they are necessarily leading to disaster. I only say that I think they give a feeling of uncertainty and dissatisfaction. To put it quite shortly, the bill for imports has considerably exceeded the receipts for our exports. I am not altogether taken in by that. I realise that in times of growing prosperity, and with an expanding economy, the raw materials have to be found before the country can set to work on making use of them, putting labour into them and turning out exports. That is no doubt true. It is also true that in such times the stocks have to be built up—they were. I believe, at a fairly low level before this increased productivity began.
Nevertheless, taking all those facts into account, I think it is a serious matter if it appears, and if it is true, that we are no longer paying our way. I am given cause for particular disquiet at the present time because of a cloud that I see appearing in the sky, namely, what will happen when the Common Market begins substantially to reduce its internal tariffs and not reduce them to the same extent with regard to ourselves and other members outside the six of the Common

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Market. Of course, this question of our relation to the Six has a long history covering a great many years. I would only say this with regard to the past: that I think that probably Members both on our Benches and on the Benches opposite, if they had their time again, might feel disposed to act somewhat differently than they have done, and make sure that we kept on the best terms and kept as well in as possible with other members of the European community instead of allowing ourselves to fall to a large extent economically apart.
We all know that the Government have formed this European Free Trade Area consisting of the seven other countries apart from the Six. I am far from suggesting that it is not a good thing. But it would be an exceedingly bad thing if the Government were tempted to use the Seven as a battering ram to attempt to break down the opposition and cohesion of the Six. I beg the Government to do nothing of the kind, but to use the fact of their position in the Seven as a means of friendly negotiations with the Six, so that the whole of Western Europe may be united in a common purpose and not divided in these proportions.
Having said that, I want to come to the question of inflation. I think your Lordships will agree with me that I have from the outset always regarded inflation as a very bad thing. It is particularly dangerous if the inflation is proceeding at a greater pace inside our country than it is outside. Therefore, I have always been most desirous of taking steps to check inflation. What I have opposed and continue to oppose is the use of bank rate and other purely monetary devices as the sole, or at any rate the principal, means of dealing with inflation. I have always taken the line that even if monetary methods have to be used—and I think that in this the Radcliffe Report in the main supported my view—they have at least to be taken in conjunction with other methods of a non-monetary kind which alone will achieve the purpose that it is desired to fulfil.
I regard both frequent fluctuations in hank rate and the retention of it at a high level as obnoxious. They have been exceedingly expensive to the Exchequer. I have never succeeded in getting the
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figures out of the Treasury on this matter, but my own estimate is that they have cost the Exchequer at least £1,000 million in the course of the time they have been in operation. Not only have they been expensive to the Exchequer; they have been very expensive to public authorities and have wrought great havoc in the private affairs of citizens. Such methods—financial, monetary methods—may at times be necessary, but in my view they should not be used as a general Wile; they should be retained for purposes of crisis and put into effect only on emergencies; and as soon as the emergency and the crisis has been removed we should try to revert to normal methods.
That brings me to the fourth question, regarding our position as world bankers. I say in all seriousness, and I think my view will be accepted in many parts of this House, certainly not confined to my Benches, that the levels to-day of our cash and foreign convertible currency reserves are very inadequate for a great nation with the immense financial interests in which we are involved all over the world. There is no doubt that that gives many people who know the facts grave alarm. Particularly is that true of last year. Of course I know quite well that part of the drop in reserves last year was due to special causes, in particular to our subscription to the additional resources of the International Monetary Fund. Nevertheless, taking the whole of that into account, I regard a figure of below £1,000 million sterling, which is what our reserves stand at at the present time, as by no means adequate, even though it is true that for outstanding purposes we can draw upon the Monetary Fund for greater help than we could in the past, owing to the contributions that we and others have made. Even taking that into account, I think our present holding is quite inadequate, and I beg the Government to take steps in time, while the going is still at any rate fairly good, to strengthen our reserves. Otherwise, I am terribly afraid that in some crisis—it might be caused by a rapid change in the terms of trade; it might result from some international upheaval—the Government, in order to prevent deflation, might put on great increases in bank rate and take other monetary steps which might prove of great danger and cause great injury to

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the internal economy and the private lives of the citizens of our country.
That brings me to the question of our help to other members of the Commonwealth, to other friendly countries in the sterling area and to the world generally, and this is a matter upon which my Party feel very deeply. I, for one, have certainly no intention of decrying the great assistance that has been given by our country to those other nations since the war. India, in particular, has been able to draw upon her very substantial sterling balances acquired during the war, and a great deal of her present economy has been built up on that sterling support. Not only is that the case, but both in India and elsewhere we have lent large sums of money, we have given large sums of money under the Colombo Plan, and we have had considerable investments in those other countries, all of which have been of untold value in promoting their development. Nevertheless, great and prosperous as we are, and boasting of our wealth and prosperity, I am not satisfied that we have done enough, and I think that that is the opinion of a large number of people in this country. But I would have our people live under no illusions. If they really want us to do more, they will have to make sacrifices in order that we may do it. That must be the driving force compelling our Government to impose those sacrifices upon the people and to give that greater help in the development of the other countries throughout the world.
Now I want to say a few words on the last question, which is the financial position of this country as a whole and the attitude towards individual members of our community. There are some things which the Government have done and are doing and which I find I can thoroughly support. It is a rather noticeable and extraordinary fact. Those of your Lordships who read the accounts of the debates in another place will realise that in his Budget speech the Chancellor of the Exchequer drew most of his cheers from Members of the Opposition, whereas his own supporters sat glum and silent and after his speech was over voiced their disapproval of much that he was doing.
Another factor that was noticeable was that whereas in the Budget of a year ago the Chancellor made various concessions
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in taxation, in this Budget he either retained the existing taxes or in some cases increased them. Without being too suspicious, it has happened before in the history of the years of Conservative Administrations that a Chancellor of the Exchequer, at a time that fortuitously occurred shortly before a General Election, made considerable reductions in taxation and found himself, not long after the Election was over, compelled to take a different view. I will not say any more about it than that. Be that as it may, there may possibly be some excuse for the Chancellor, in the fact that he may not have been fully aware of the large accretions of expenditure to which his colleagues in the Cabinet had committed him before the present Estimates came into being and he had to frame his Budget.
Your Lordships will not forget that one of those items has been the matter of defence. Broadly speaking, I think there is no difference between the Benches on both sides of this House in the matter of our being willing to spend whatever may really be necessary, so far as our resources can extend, in order to give defence to our country, but I think that we have no great desire to spend money on projects which are designed merely to support the prestige of this country—projects which may be costly, may even be wasteful and undesirable, but which do not really advance our prestige in any particularly valuable way. Without going into great detail, and with no wish to reopen the defence debate, I make only that general comment upon the heavy expenditure on defence which is shown in the present Budget figures.
I read with pleasure, and I support, the decision of the Chancellor to put the figure for the railway deficit—I think it is £90 million—on the top side of the line instead of below it, as it has been in days gone by. That seems to me financially sound, because the below-the-line figures are intended for recoverable items, and the Government have recognised that to-day we cannot expect to recover any of the £90 million which is being used for the railways at present. Therefore it has rightly gone to the top side of the line as a definite expenditure.
I want to say just a word or two about the railways, because they are a matter of great importance. I remember very

19
well when the railways were in the private possession of companies. It is notorious that many of them did not spend enough money on modernisation of all kinds—I need not go into specific items—with the result that when ultimately, at the end of the Second World War, the railways were nationalised, there was an immense arrear of work to be done and a great deal of money to be spent in doing it. To a large extent that has been the cause of the railways being "in the red" for a large part of recent years. That is not the whole story. For ideological reasons the Conservative Government decided to reverse the excellent plan that was promoted by the Labour Administration which started in 1945 of treating transport as a whole. They chose to divide transport into two—road transport and rail transport. That dichotomy resulted in the fact that private enterprise got the "plums" and the railway services, which were the nation's, were compelled to carry out all those necessary parts of transport which the private owners had not wanted to take over. That is typical of a great deal of the difference between the finance of the Government of the day and the finance of what would be a Government by the Labour Party.
That reminds me of the question of these large sums of money (which I suppose are going below-the-line in the Budget) that are being lent to the steel companies. Under the Labour Government steel was a nationalised industry. When the Conservative Government came in they reversed that and made steel a matter of private interest again; but having done so they discovered that these companies had to pay a considerable amount for their capital. Her Majesty's Government have therefore decided to spend very large sums in financing the steel companies. In other words, those companies are to get the profit while the Government are to find at least part of the money, and at terms which are below what would be required as the market value for raising money of that kind. On that point I would say this: local authorities need a great deal of money for social and national purposes. The Government insist that those authorities shall pay the full market rate for their loans; and if the Government find the money they
20
insist on the full current market value being paid by local authorities. But when it is a question of private enterprise, which is to make a profit, the Government appear to take an entirely different view.
I do not propose to go in great detail into the tax reliefs and tax increases proposed by the right honourable and learned gentleman the Chancellor of the Exchequer. Those, of course, are mainly matters for the other place, which has a special prerogative for dealing with them; but I propose to deal with two remaining issues before I sit down. The first is the question of the fall in the price of non-dated Government stocks. This is not a new matter. We have had it before the House previously, in Question and Answer, dealt with by the noble Earl, Lord Dundee, who I see is to reply later to part of this debate. I understood the nub of his Answer to be that people who invest their money must take their losses and their gains with a good grace, and that if they have been unsuccessful that is the fault of no one but themselves, or is the bad luck of the game. That, I feel, is not fully correct, for this reason: Her Majesty's Government cannot altogether shake off their own responsibility for what has happened. It is not just a chance thing that has sent down the value of these stocks, and particularly gilt-edged non-dated stock. That results from the direct policy adopted by the Government.
For many years the bank rate stood at a low figure—I believe 2½ per cent. or something of that kind; and while that existed the Government appealed to the public, in those circumstances, to invest money in Government securities. Having got that money the Government proceeded—I do not say as a consequence, but simultaneously—to resuscitate the old weapon of a high bank rate and thereby changed altogether the nature of the investment to which many of those most patriotic citizens had been asked to subscribe. Not only that; a very few months ago Her Majesty's Government announced something else, something which may be good in itself—but that is not the point; that was, that in future trustees should be allowed to invest part of their money in equities. No one would for a moment pretend that that announcement has not considerably altered the

21
prospect of a rise in gilt-edged Government stock.
In my view, therefore, Her Majesty's Government have changed the rules after having made a contract with these people; they have done so adversely to them, and therefore cannot shake free of the responsibility. The responsibility rests upon Her Majesty's Government. I do not suggest that wealthy people with large sums of money invested in these stocks should be compensated in some way. After all, if they have been wise they have put their eggs into many baskets and must take the ups and downs as they come along. But that does not apply to the people of whom I am thinking, those who have invested their main savings in these stocks, largely from patriotic motives, and who now find that the marketable value of their capital is only a fraction of the price which they paid. That being so, I believe that the Government ought to do something to recompense or protect those individuals. I have suggested that on previous occasions in this House, and I do not in the least change the view that I took then.
Now I come to the last matter, one which I have not raised before but which is beginning to attract a good deal of attention in this country. I refer to the question of the treatment of husbands and wives for the purpose of taxation. In the days of the 19th century, both before and after the passing of the Married Women's Property Act, the husband and wife were regarded as one person. That was not correct, but it was near enough and did not matter very much. Income tax was only a few pence in the £ and sur-tax did not exist; and if there was some slight injustice in it, nobody made any very great complaint. When the new century dawned, and taxation went up, this situation became more serious, and a great many of us made an outcry that the law was really a tax on marriage. We said that as the law then stood married people were being made to pay much more than they would pay if they were two single people. That was recognised to a very large extent, because, although the main principle was not changed, a great many alleviations were brought about—children's allowances being just one example out of many; so that for people with moderate incomes the nub of the criticism was removed. I myself
22
took the view that the injustices which were left affected only people with very considerable incomes, who if an alteration was made, could so manipulate their affairs as to get rid of a large amount of the taxation Ito which they ought to be subject.
In recent years, however, there have been further changes. First, there is the fact that a great number of married women go out to work and become, as is said, "gainfully employed." Not only that, but the wages of women generally, and married women in particular, have very substantially increased, so that the earnings of the woman partner in a marriage are today, in many cases, quite a considerable portion of the family income. It is really absurd that because a man and woman are living in wedlock they should be singled out for treatment different from, and much more adverse than, that of two other people—mother and son, brother and sister, or even a man and woman living together, co-habiting, who have not taken the marriage vows. I will be very heavy-mouthed over this and I will say, frankly, that the present law is a premium on immorality; I am not "talking through my hat," for there are quite a number of people who are refusing to get married because they are not prepared to pay this premium which is demanded of them if they do. I think that your Lordships should agree with me that it is about time that this injustice was got rid of.
I do not suggest that this change should apply, at any rate for the present, to investment income—that may be going further than the House would be prepared to go at the present time; but that it should apply, and very soon, to earned income I have no doubt whatever. I believe that once this matter begins to be discussed, and reaches public opinion, it will be found that public opinion has a very large decision in its favour. This is not a question of taxation of different classes of the people; it is the rectification of a particular injustice which I think is derogatory to the inherent good sense of the people of this country and causes great injury to individuals. With those concluding statements I propose to bring my speech to a close and to move the Motion which stands in my name on the Order Paper. I beg to move for Papers.
LORD AMWELL: My Lords, before the noble Lord sits down, may I ask him to clear up one point? I do not interrupt lightly; I think it is very important. He began his speech by indicating or implying, as I understood it, that some recession or lack of buoyancy in the prices of stocks and shares was an indication of bad national financial and economic policy. May I ask what becomes, then, of the arguments we were putting forward only a few weeks ago: that increased prices of shares and buoyancy of the Stock Exchange were an indication of gross exploitation and injury to the people of this country? May I ask him whether Socialist economics have gone the same way as my crusty loaf?
LORD PETHICK-LAWRENCE: My Lords, the noble Lord desires me to answer the question. I answer by a flat denial. I never said anything of that. Therefore I certainly have nothing to answer.
3.43 p.m.
LORD GRANTCHESTER: My Lords, it is always a great pleasure and an experience to listen to the noble Lord who has just sat down. Like him, I find the papers with which we have been supplied rather indigestible, but I feel that these debates are useful in helping some of us to learn as well as to speak. May I first apologise for what otherwise might seem discourteous to some noble Lords who will be speaking later: the fact that I shall have to leave before the debate is concluded and rely upon reading what some noble Lords may say, in order to rejoin by to-morrow morning the British delegation at the Council of Europe, where the matters to which the noble Lord, Lord Pethick-Lawrence, referred are being discussed? I was for that reason very interested in what the noble Lord said about the Sixes and Sevens and the Fives. To me the greatest difficulty in joining the Common Market would be to be tied to a high external tariff level without the right to vary it without the consent of all members. I wonder whether it would not be worth while to make a suggestion that we should favourably consider joining the Common Market if we were met by a considerable reduction in the level of the external tariff. This has recently been published and amounts to some-
24
thing like an average of 25 per cent. If it were cut, say, by 50 per cent., I think it would considerably ease the doubts of this country and remove some of the fears that we have in suggesting joining under present conditions.
Although I have made a considerable effort to be here this afternoon, having flown from Strasbourg this morning, I do not pretend that I have anything very new to contribute. I am sure I shall be considered out of date by some who are content to see the State assume an ever-increasing part in the direction of our lives, or, if they are not content, at least regard this as inevitable—inevitable because they are stunned, perhaps, by the scale and complications of the problems with which we are confronted to-day. But I think we have to say that there is really nothing magical about the State. It can operate only with the money it either takes in taxes or borrows; and to-day its credit-standing in most countries—that is, the credit-standing of Governments in most countries—is lower in the market than that of many private institutions.
In the circumstances in which the Chancellor of the Exchequer found himself I think he deserves our sympathy. I am sure that if anyone had said that the first result of re-electing the Party opposite at the General Election would be to ensure an increase in taxation, every member of the Party opposite would have said that it was malicious slander. But they do not seem very clear about what should be done about it. Perhaps this is the price we pay for having no Opposition pledged to the concepts of thrift which made this nation powerful in the past. Even the resignation of a Chancellor of the Exchequer in a self-sacrificing effort to concentrate attention upon the peril of allowing the drift to go on had little effect. "He must have been wrong", so they said, "because we are getting away with it"—and so it seemed for a year. Is it too unkind, as the noble Lord, Lord Pethick-Lawrence, has already hinted, to say, "So it was made to appear in Election year"?
My Lords, even after the reductions in taxation which were made during the previous term of office of the Government, it has turned out, on the average, that the taxpayer last year paid rather more in amount than in the year before,

25
which, of course, means that the Exchequer is reaping part of the benefit of his increased work. That is not a result very beneficial to the taxpayer. I do not wish this afternoon to hark on what cannot be altered. The bill has to be paid, however unpleasant it is. Every spendthrift, in order to get help to pay his debts, vows that it will not happen again. No one believes him, and I do not think we should be expected to believe any professions which may be made to-day unless they are backed by determination stronger than words. On more than one occasion recently we have heard Ministers boast that they do not intend to be inhibited by any dogmas. Such statements are often applauded as evidence of a thoughtful and an unbiased approach to a problem, but it is very often a cover for the abandonment of principles. And I suggest, my Lords, that this is true of the exhortations which have been made by a number of Ministers since April 4 last.
May I illustrate what I mean? The accounts show Government spending up and Government lending up, so they threaten to restrict private lending and private spending—that is to say, they preach, but do not take any steps to practise what they preach. They proclaim that no harm has been done by the policy pursued by the Government; that they are at least safeguarding us against further inflation. The noble Lord, Lord Pethick-Lawrence, has already referred to his doubts on that subject; and I should like to ask: are they in fact safeguarding us against further inflation? If we take a look at their own statistics in the Economic Survey for 1960, we find that they show that the gross national product for the past four years has been rising by nearly £1,000 million a year. But this is followed by a little correction, called in the Survey, "Adjustment to terms of 1954 values." Then it appears that it has risen over the last four years not by £3,700 million, but by not quite £1,000 million. In other words, since 1954 there has been a depreciation of £2,700 million on £20,000 million, of which £200 million has been added since 1958. So inflation is not quite dead in this country, at any rate, whatever Mr. Per Jacobsson may think of the overall position of the Western free nations.
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I say, my Lords, that it is not quite dead in this country, whatever the Government would have us believe: and I think that this is proved in another way. One distinguished economist who is read by many small investors recently made this observation:
"While we cannot recommend the small investor to buy Government stocks with confidence in their future value there is something still wrong with the economy of this country."
My Lords, any Government which does not treat this matter of inflation as a cardinal feature of its policy is in fact, in my view, countenancing fraud. There is only one safe way for any Government which intends to avoid inflation, and that is to spend no money which it has not either raised by taxation or borrowed in the market. The Government are not observing that very sound principle, and, therefore, they are always in danger of bringing back and helping to keep with us the virus, as the noble Lord, Lord Pethick-Lawrence, called it, of inflation.
If we are not to go on in the same way of drift, there are certain problems on which the Government must take some decisions. In some cases further study may be necessary, but that is an additional reason why we should mention them this afternoon and raise the subject well in advance of next year's Budget. I put first a critical review of expenditure in all fields. I realise how much Departments dislike any inquiry such as the Geddes Committee carried out after the First World War, but some drastic action is urgently necessary if incentive is to be worth while and if modernisation is to be kept in the forefront, as it should be in these rapidly changing days.
May I indicate same particular sectors of expenditure which I think merit review? Now I am not attacking welfare properly arranged; nor am I being inconsiderate to the poor, as some noble Lords beside me might say when I make these suggestions. It is rather the reverse. I believe that this sort of change would be in the interests of those who are really poor, because I believe it would enable us to see that they were better off than they are now. But could we not abandon the principle that because we wish to help the needy we must give to all? The way to help those who pay income tax is surely to reduce that tax: not to pay them so-called benefits. It is

27
ridiculous to tax people to provide such benefits, and then to pretend that they are being given something free. We all know that nothing which the State provides is free: the only question is, who pays? If you overpay for a packet of cigarettes so that a bottle of medicine or a packet of aspirin tablets can be included with each purchase (which is about what it amounts to to-day), government is becoming rather farcical to an electorate which is rapidly becoming more critical as it is better educated. My Lords, those who have been born since the wars may find these ideas strange at first; they have become so used to what is happening. Before alterations can be made, a good deal of study and work is necessary. I should like to commend a study of this matter to the Government, and to know that they have at least given instructions for the aspect that I have mentioned to be gone into.
Then there are the questions of subsidies, both open and hidden, to which the noble Lord, Lord Pethick-Lawrence, has referred. I think they must be looked at, and looked at carefully. Additions are continually being made, both in amount and in scope. We have just entered into a new association with the Scandinavian countries. And even those almost sacrosanct agricultural subsidies should be reviewed, I think, in the light of this new Stockholm Agreement. Perhaps—I am only making the suggestion—it could be considered. Perhaps the Government would find it cheaper to redeem their pledges, and those of their predecessors in office, by compounding for annual payments, by making some sort of "golden handshake" with the farmers, after which British and Danish farmers would be placed on the same footing. This might set a pattern for an extension to countries within the Common Market and so make a consistent and common plan possible, both for us and for the countries already within the Common Market.
To-day it is heresy to question anything which is labelled "research", but I suggest that to push too much money into research and so force an unnatural rate of progress may defeat good sense. We have almost reached the stage when nothing new can be used or enjoyed because it is out of date before it can be
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produced in any quantity. This may keep more and more scientists busy, but that is not the whole purpose of the exercise. In the atomic field, the Government plunged very heavily. I have not sufficient information to be at all dogmatic on this subject. The noble Lord who will wind up this debate knows a great deal about it. But I should like to draw his attention to what was said by the Information Service of the European Power Services (I think it was in the January issue, but certainly it is a recent statement), that
"The immediate requirements for nuclear power are not so pressing as had been thought a few years ago."
Countries which went a little slower, a little more cautiously, than we did have saved quite a lot of money, and surely the Government's plans in the atomic field should be reconsidered in the light of the changed circumstances which have been mentioned by those overlooking the European Power Services as a whole. I should have to add to my list a review of defence expenditure, but as it is apparent that this must be reviewed, or is being reviewed, by the Government, I will say no more this afternoon on the Defence Services.
Having made reviews of their policies of lending and spending, and having taken firm decisions thereon, then—and only then—will the Government be in a position to tackle some of the fundamental issues which. I believe, profoundly affect the future of this country. First, a revision of the whole structure of taxation is much overdue. The Government show no sign as yet of realising how much hangs upon their being able to make such a revision. They do not take it seriously enough, or they do not appear to do so. They regret that it has not been possible to "give more away," as it is called to-day when taxes are reduced, but with the example set the public, in an atmosphere in which a mere £50 million does not matter, it is amazing how sensible the majority show themselves. Only their personal thrift in helping the Government out by lending it back in the form of National Savings has saved the Government from the disaster of a deficit.
When I call for a revision, or steps to make a revision possible, of the structure of taxation, I mean something which

29
is vital to the preservation of individual initiative, which in fact will make it worth while. I mean something which is absolutely necessary if our ships and plant and machinery are to be kept modern. I mean something that will keep us looking forward all the time, able to meet and adopt changes as they come and not years after our competitors have adopted them. That can be done only by a system such as they have in the United States, of accelerated depreciation and so on. We must be ready to go out into a competitive world, and for this we must also be able to stand up to free imports in the home market. With this reform there is linked the necessity for full and free convertibility, to which the noble Lord referred in just a few words. In the absence of agreement with the Opposition, convertibility was excusably postponed until, as we thought, after the Election. But there is only one reason that I can see for postponing full convertibility now, and that is because the Government fear that the citizens to whom they are responsible may show that they lack confidence in them. Otherwise, what prevents the final step of convertibility?
Again, the Government profess to think that this is not a very important matter or one which is vitally urgent. They say that it can wait. But, my Lords, can it? It is remarkable that so much confidence has been shown by other countries in the integrity of the people of this country because of a reputation built up over a century, which established sterling as the only real international currency; but until the pound is at least in every way as good as the dollar, there remains the threat of possible displacement. Is not the real reason why this step has not been taken the desire to keep the capital of residents imprisoned lest they refuse for ever to accept an over-high level of taxation? This is not a sign of a healthy economy. If the recurring problem of the balance of payments is not an unhealthy sign, it is certainly a very disturbing one. It will be with us until we are able to get back, to a mechanism such as operated automatically as a corrective in the days before 1914. And this is where I differ somewhat from the noble Lord, Lord Pethick-Lawrence. We believe in automatic corrections rather than in relying upon indiscriminate interventions, unpre-
30
dictable interventions, which is really what any Government planning boils down to in practice. We believe that automatic corrections are much more valuable and operate much more quickly than these interventions which are called "Government planning".
Having gone so far along the road to dismantling controls, which aggravate the effects of mounting disequilibrium, I wonder whether this problem of restoring some automatic check is not now soluble. At all events, perhaps it could be restudied in the light of current conditions. I hesitate to make any suggestions when others more qualified could better do so, but I should think it worth considering widening, at least for a temporary period, the difference between the upper and lower points of the exchange rates: perhaps a 10 per cent. difference, instead of the present rather narrow limits.
Finally, my Lords, I come back to the point I made earlier, about setting an example. The manner in which the Chancellor of the Exchequer proposes to deal with what he terms tax avoidance reminds me rather of Goering's convenient—convenient, that is, for him—but not much-admired dictum: "I decide who is a Jew". To abandon principle and to accept expediency does not raise the moral or ethical standard. It has been a well-established and well-guarded principle of British law that provisions which cut into the pockets of citizens should be strictly construed against the State who always hold the big stick. This is a good principle and should not be lightly discarded. I should think that there would be even more loopholes when trying to determine motive than in construing a Finance Act. I suggest that the legal advisers of the Government might make an effort to define the acts which the Revenue wish to stop. I apologise for having imposed upon your Lordships' time for so long, but my excuse is that to-day we are considering some very important issues.
4.13 p.m.
THE MINISTER WITHOUT PORTFOLIO (THE EARL OF DUNDEE): My Lords, it is said that
"In the spring a young man's fancy
Lightly turns to thoughts of love."
Always in the spring the fancy of the noble Lord, Lord Pethick-Lawrence, turns with equal agility to the economic

31
situation. I have just been calculating that the noble Lord has now been moving these annual Motions in your Lordships' House for longer than any Chancellor of the Exchequer has ever held office in this country—or any Shadow Chancellor either—and for every reason I hope that he will continue to do so for at least as many more years again. But if I may be allowed to say so, the noble Lord's fine performances on these occasions always remind me of another well-known phrase from Tennyson:
"Old age hath yet his honour and his toil."
I am sure we all greatly appreciate the trouble which the noble Lord always takes to address your Lordships with such great balance and with such scientific care on this subject, on which he is an acknowledged authority.
The noble Lord began by saying that he was not going to bother about any of these White Papers but was going to put his subject in the form of a number of questions. This at first filled me with great apprehension, because I was afraid that I should not be able to answer his questions in the way in which the noble Lord always deserves to be answered. I cannot describe to your Lordships the relief with which I heard him announce that he was going to answer them all himself, which I am sure your Lordships will agree he has done in a most convincing and satisfactory manner.
I should like to try to define, quite briefly, the present objectives of our economic policy, and although the noble Lord may not agree with the methods by which we are pursuing those objectives, I hope he will at least agree with the definitions themselves. I want to mention them together, because there are a number of different objectives that have to be carefully balanced with each other, and it is impossible to do that if one thinks about them only One at a time. First, we want to maintain full employment and to create full employment in those development areas where employment is at present below par. Next, we want to encourage increased production, so that our standard of living may rise; and since in this country our living depends mainly on foreign trade, we must always try especially to earn a large surplus on our trading account. We want to use some part of that surplus to help
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under-developed countries, particularly those within the British Commonwealth. Then, we want to improve a number of social and public services which are very expensive, and at the same time we want to reduce taxation which is very high—still far too high in relation to our gross national product. Finally, we want to maintain the purchasing power of our currency and to keep stable prices. I should like to put it to your Lordships that successful progress towards all our other objectives cannot be made unless we do this.
It is obvious, I think, that these various objectives must sometimes be difficult to reconcile one with another, and particularly the aim of having greater expenditure and that of having lower taxation, which has been the chief concern of the noble Lord, Lord Grantchester, in his speech. I think that, with few exceptions, your Lordships agree that we must spend more money on roads, on education, on school buildings, on universities, on building new hospitals, and also with respect to the noble Lord, Lord Grantchester, on scientific research. As for our other social services, even if we do nothing to improve them, but leave them as they are, their expense will still automatically increase year by year.
The noble Lord, Lord Grantchester, suggested that we should have a critical review of our expenditure to see how we could cut it down. I was not quite clear at all times whether or not he meant a review which might involve major changes of policy. When he referred only to giving aid to those who needed it in relation to the National Health Service, I took him to mean that we should introduce a means test into the National Health Service. That I should describe as a major change of policy which would have to be decided politically and not in a review. I was not quite clear what the noble Lord's precise plan was in regard to the farmers—first, giving them a "golden handshake", and then giving them nothing at all. But it seemed to me that that would involve some major change of policy; and changes of policy have to be decided by the Government and by Parliament; they cannot be made by a Royal Commission or a review. If the noble Lord was thinking of a review of expenditure without any major changes of policy, I would say that I have known, and many

33
of your Lordships have known, a great many such reviews within the last twenty or thirty years. They always remind me of the family who found that they were spending too much money and getting into debt, and had a family conference all afternoon. The final result of their deliberations was that the kitchen matches might be used in the drawing room, and that, in order to balance the remainder of the deficit, father would have to work a great deal harder.
LORD GRANTCHESTER: My Lords, may I make the position clear to the noble Earl? I think that both a review and changes of policy are necessary. I think the two things should be done together. May I also suggest that income tax is, in effect, a means test?
THE EARL OF DUNDEE: My Lords, I am grateful to the noble Lord for clarifying his views on this matter.
I would ask your Lordships: how far is it reasonably possible to spend money, which most of your Lordships agree must be spent, and, at the same time, to reduce taxation? Of course, it can be done and, of course, it has been done. Our total expenditure eight years ago was, I think, £4,100 million. In the current year it is £5,600 million. On social services alone, if you take what is contributed by the Government, it has gone up from £1,100 million eight years ago to just over £2,000 million to-day. If you take roads, which is one subject on which many of your Lordships—and quite rightly—are often very pressing, the Government contribution to road expenditure has gone up from £27 million to over £100 million in the past eight years. But, at the same time, taxation, which was in 1951 over 31 per cent. of our gross national product, is now clown to just over 25 per cent. of the gross national product. Purchase tax, which eight years ago ranged from 100 per cent., on the highest levels of goods, to 33 per cent, on the lowest, now extends from 50 per cent. on the highest ranges to 5 per cent. on the lowest, and the standard rate of income tax has come down from 9s. 6d. to 7s. 9d. There has also, of course, been a wide range of improvements in income tax allowances. Therefore, a large increase in social expenditure and capital expenditure by the Government has in fact been accompanied by a fairly substantial reduction in taxation; and I hope that will continue.
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But if expenditure is to continue, with all regard to economy, on a scale which is necessary to fulfil the policy on which we are agreed, it is not possible to reduce taxes every year. Some of your Lordships—the noble Lord, Lord Pethick-Lawrence, and, I think, the noble Lord, Lord Grantchester—have suggested that the present Government reduce taxation only when an Election is imminent. I hope very much that the noble Lord is wrong about that, because the next General Election may not be until 1964, and that would be a terribly long time to wait. But whether the year is an Election Year or some other year, one year is a very short time. While I do not suppose any of your Lordships would want to abandon the traditional practice of having annual Budgets, I think we must remember that a modern Budget is not simply a series of proposals for raising revenue to pay for the expenses of the public service. A modern Budget is a major instrument of policy in carrying out our general economic intentions, and it would be a poor economic policy which could not look more than one year ahead.
The purpose of the Budget of my right honourable friend the Chancellor of the Exchequer at the beginning of this month was to strengthen the growing prosperity which this country is at present enjoying, and to protect it against the loss, the disturbance, and perhaps the destruction which it would suffer from a renewal of inflation. I am quite sure that my right honourable friend the Chancellor of the Exchequer would be the last person to claim that either his own judgment or the judgment of his advisers is infallible, and we always welcome informed criticism and advice from all quarters, particularly the advice which we have the advantage of hearing in your Lorclships' debates on this subject. But it is the responsibility of the Government to take what decisions may be necessary, and we must take those decisions to the best of our ability, in the light of the circumstances as we see them.
Let us look for a moment at the position as it is set clown in the Economic Survey for 1960. It is a very good position. Production has gone up in the last twelve months at the rate of 10 per cent.; employment has increased by between 300,000 and 400,000; personal

35
incomes are going up; private investment, as well as Government investment, is showing every sign of going up in a very satisfactory way; and the prospects for world trade are good. But there are certain features which call for special attention—and all of them were mentioned in a comprehensive way by the noble Lord, Lord Pethick-Lawrence. I should not have mentioned the problem of the European Common Market and the Free Trade Area if the noble Lord had not done so, because less than a fortnight ago, on April 14, a full and thorough statement was made on this subject in another place, by my honourable friend the Economic Secretary to the Treasury, and there is nothing more that I could add to what he said. Since the noble Lord has mentioned it, however, I would just say that I agree with what he said on this subject. There is no harm in reneating it, because our intentions are so often misunderstood abroad. It is not true to suggest, as is so often done abroad, that our country is hostile to the Common Market, that we are jealous or antagonistic towards it, and that we are trying to upset it. On the contrary, we welcome it, and we think it is a wonderful thing for the future of Europe. As the noble Lord said, the formation of the European Free Trade Association, in which we have joined, is not intended, as he called it, as a battering ram or a hostile instrument in any way. It is meant to be a help towards better co-operation in the future.
LORD PETHICK-LAWRENCE: My Lords, I hope the noble Earl will acquit me of any intention of suggesting that the Government were using it as a battering ram. I said that I hoped there would be no question of it.
THE EARL OF DUNDEE: My Lords, I intended to imply that that was the noble Lord's intention in saying what he did. I entirely agree with his view on the subject, and for that reason I am glad he raised it.
The noble Lord also mentioned the signs which are apparent from the Economic Survey that there may be a renewal of inflationary pressure if steps are not taken to prevent it. Personal incomes and expenditure are rising very rapidly, and although production is also increasing, it does not appear to be cer-
36
tain that expenditure will not outstrip production and outrun the capacity of production to meet demand.
The noble Lord, Lord Pethick-Lawrence, also referred to our trade deficit. I think he referred to it in a very reasonable and balanced way. He did use the word "alarming". I do not complain of this, but I would rather use the word "concern". He himself mentioned a number of reasons why it was less alarming than it seemed at first sight, when it is compared with the large trade surplus we had the year before. One reason is that since the Montreal Conference our aid—that is, Government aid alone—to other members of the Commonwealth has increased from £81 million to £138 million a year. That is a good thing, which I am sure your Lordships all welcome. Another reason to which the noble Lord referred was our large increased subscription to the International Monetary Fund, which, as he said, gives us the right to borrow four times as much, if we find that we need it. Another reason is that we have paid off an unusually large amount of foreign debt, which is again a very good thing. And finally there is the great increase in our stocks. All these things ought to be welcomed. At the same time, the trade deficit is large enough to cause concern. It is larger than we should like it to be; and so also, of course, is the reduction in our reserves.
There are two things which we might do about this situation. We might wait in the hope that inflationary tendencies will not after all develop. Then if they did develop we should, of course, have to introduce sudden and perhaps severe measures, as has so often happened before. The other thing is to take measures now, not in order to cure conditions which have not yet arisen, but in order to prevent them from happening. Of course, everybody appreciates that the risk of doing that is that the longer ahead you look the more chance there is you may have made some error in your calculations, and your action may not in the event be necessary. But what would happen if these tendencies which now appear to be visible were allowed to develop? We have to think mainly of our exports. If inflationary pressure comes back, two things will happen: one is that prices will go up, and that will weaken our competitive

37
power in our export markets. The other is that an unduly large proportion of our own production will be used up by the home market, so that there will not be enough left for export, deliveries will be delayed and our balance of trade will fall: we shall have a balance-of-payments crisis.
These things are not just theory; they are based on experience; they are what has happened before. This sort of thing has been the curse of our economic history since the war. And in a world which is growing more keenly competitive every day we cannot afford to let it happen again. We think it is better to take precautionary measures now rather than drastic measures later on. I think the noble Lord, Lord Pethick-Lawrence, who prefers planning, ought to be in favour of taking advance action, rather than waiting until some crisis is upon us. The bank rate increase in January was not a measure taken to deal with an emergency; it was only a precautionary measure to prevent one from arising. The small increases of taxation in the Budget, I think, are calculated to have, not a very severe effect but a certain effect on spending power.
The noble Lord asked particularly (this is one of the questions he did not answer himself) about the Chancellor's statement that, if necessary, he might have to take measures to restrict credit; and naturally the noble Lord was very concerned about it. I am sure he will not expect me to say whether or not any action is likely to be taken. But may I just put this consideration to the noble Lord and your Lordships? I think that we ought to get our minds accustomed to the view that if we are going to have a successful managed currency, and if we are to be successful in keeping our production and our industrial expansion up to the highest possible figure that is consistent with stable prices, it must surely follow that we shall never be very far away from the risk of inflationary pressure. And, therefore, although of course we do not want it to happen more than it need, we must get accustomed to regard it, not as a frequent occurrence, but as a normal possibility that the Government should be prepared temporarily to introduce measures of credit restriction to prevent the economy from outrunning its capacity at any particular time. I do not think we should regard it as alarming or
38
injurious to anybody. After all, it is not an unmitigated misfortune to be restrained from increasing your bank overdraft, and I hope the country will get accustomed to think of it in that way.
LORD PETHICK-LAWRENCE: I quite agree that you have to foresee the danger of inflation. The sole point I made was—and it is in accordance with the Radcliffe Committee's Report—that it is a mistake to rely almost exclusively on purely monetary methods.
THE EARL OF DUNDEE: I entirely appreciate the noble Lord's point. I do not wish to go again into the Radcliffe Report, but I think we have made it clear that the Government are not dogmatic about this question, and certainly do not rule out other measures besides monetary ones if they consider such measures are necessary. I should like to impress upon your Lordships that the Government are not deflationist or restrictionist in any way. The object of our policy is to obtain the most rapid increase of output which is consistent with stable prices. That is what we are trying to do, and I cannot help feeling that people are often apt to forget about any particular evil which has been out of sight for some time.
It is two years now since inflation stopped and since prices have been stable. During those two years "Mr. Rising Prices" has been locked up in the cellar, and some people, I think have forgotten that he is still alive. If we are not careful he might easily get out again, with his long neck and irritating face. We think it is of the greatest importance to protect the economy against his reappearance, and the Government's policy is directed to that end. I think we all agree, at the same time, and I expect the noble Lord would also agree, with what the Organisation for European Economic Co-operation has said, as quoted in the Economic Survey, that in Great Britain (this is in its review of the United Kingdom economy)
"price stability depends not only on Government measures but also on the attitude of everybody concerned in industry towards prices and wages."
We want wages to go up so long as they do not defeat their own object by running ahead of our capacity to meet the extra demand

39
which they themselves create. So long as they are within that capacity, rising wages are wholly a good thing. As for profits, we believe that high profits are necessary to finance future expansion in industry. At the same time, my right honourable friend the Chancellor of the Exchequer has repeatedly, over the last six months or more, said that in present circumstances we should like to see a higher proportion of profits being used to bring about a reduction in prices, which we think would be a great benefit to the economy.
I think the most encouraging sign of good sense and economic co-operation in sound policy on the part of the public is the large and satisfactory increase in savings which is still going on at present; it is all the more gratifying because it has falsified the cautious estimates that we made last year. This high level of savings, if maintained, will help to finance the heavy capital expenditure in the private sector of industry which is expected within the next two years. It will also help our economy to bear any strain created by increased Government expenditure below-the-line, Government capital expenditure, particularly in respect of the development areas where we are all agreed it is necessary. It will also indirectly help us to achieve the increase in exports at which we are all aiming to pay for our own needs, as well as to enable us to help our fellow members of the Commonwealth. I think there are good hopes of attaining all those objectives if only we can manage to make sure that we earn our money before, and not after, we spend it. I am sure that these aims are appreciated by everybody who is engaged in industry, and while we fully and naturally expect and welcome criticism of our methods from all angles, we are, I think, entitled to ask the public to support our aims and for their help in trying to achieve those aims and in gaining the great rewards which can be derived from their successful pursuit.
4.44 p.m.
LORD DALTON: My Lords, for one who has spent, as indeed the noble Earl who has just preceded me did, many hours and often many nights in another place debating Budgets and kindred financial subjects, seeing wonderful sunsets and sunrises across the river and
40
passing other tests of endurance, physical as well as mental, it is most interesting for me to see for the first time how these matters are dealt with, in a slightly abbreviated fashion, in your Lordships' House, and how we are able to plan one concentrated day of discussion on the economic situation in which, and only as one possibly minor item, are the Budget proposals of the Chancellor of the Exchequer. I do not propose to cover so wide a field as was sketched out by the noble Lord, Lord Pethick-Lawrence, to whom I also wish to add my tribute for the most masterful manner in which he raised questions, asking if not always answering, covering so wide a field and dealing with them in so masterly a manner, so cool and cogent and logical throughout. I appreciated greatly his contribution, looking back to others made by him in years long ago in another place, when he and I were colleagues there.
I propose to begin by making one or two observations on the economic situation as a whole, and then make one or two comments upon the Budget proposals. The noble Earl who immediately preceded me laid out in his own fashion, in just as orderly and logical a fashion as Lord Pethick-Lawrence, approaching it from another angle, all the aims which he assured us the Government had in mind. Between them, if those aims could all be achieved, they add up to paradise upon earth at some date, perhaps not very close; but still, if they could all be achieved, we should all indeed be happy. But, of course, as is to be appreciated from some of his remarks, we have sometimes to choose between two or more aims, admirable in themselves, which may be conflicting in particular situations.
I should like to suggest for a moment an aim which I think should have an overriding preference at the present stage in our affairs as a broad objective of Government policy. But, before I come to that, I propose to follow up the brief reference made by the noble Lord, Lord Grantchester, who has flown away to Strasbourg, to deal, so far as Strasbourg can—I have served at Strasbourg; its powers are indeed limited—with the problems and difficulties arising from the Six and the Seven and the Common Market. The noble Lord mentioned in passing the remarks of Mr. Jacobsson

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which many of your Lordships will have noticed in the City column of yesterday's Times. Long ago I met Mr. Jacobsson. Undoubtedly he is a man of remarkable intelligence. He is a most distinguished Swedish citizen. He is now the Secretary of the International Monetary Fund. Before that he was associated with a somewhat debatable institution, the Bank for International Settlements.
In yesterday's Times the City Editor says:
"When the City is daily awaiting the next turn of the credit screw, with its nerves becoming frayed in the process,"—
the morale of the City is not at its height for the moment, in view of the slightly imprecise menaces in the Chancellor's Budget speech of what might be coming in the way of further credit restrictions—
"it may seem incongruous to talk about the threat of world inflation being over for the first time since the war."
The column goes on to quote some remarks made by Mr. Jacobsson on this subject. It says that he was talking about the Free World as a whole and not about this country in particular; but, none the less, some of his somewhat hopeful observations evidently had a bearing upon this country as upon other countries in Western Europe. He said—I quote one or two of his points because they seem to me to go very near to the root of the matter—
"The world is now faced with a large commodity-producing capacity as well as with surpluses of both coal and oil. As for manufactured goods, European industry can now rival the United States not only on price but, more important, on delivery. In short, both the shortages of materials and goods and the excess of liquidity have disappeared."—
at any rate for the time being.
"This diagnosis,"
says The Times,
"even after making all the obvious reservations, is not without its relevance to the present state of the British economy."
That is evidently true, and I feel that we should pay attention to Mr. Jacobsson's observations, because he is, and I believe he has long been regarded as, one of the deepest and clearest thinkers in Europe on these matters. I hope that one of the consequences of the speech that he has made will be to carry a little good news and good hopes to the right honourable gentleman the Chancellor of the Exchequer
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and the Governor of the Bank of England, and at any rate slow down any inclination which they may feel towards introducing at this time or in the near future (and nobody can see very far) any of the further credit restrictions which were threatened in vague terms in the speech of the Chancellor of the Exchequer.
What comes into my mind, having read the passage in The Times which I have quoted, and also studied various statistics which have recently been produced, is that our primary aim, the aim we should have and for which we should be prepared to some extent to sacrifice other aims, not for a few months at a time and not for a year at a time but for a series of years, should be that of continuously raising our national output and continually raising, also, that proportion of that national output which is involved here. It seems to me that if that could be maintained over a term of years it would give us more lasting benefits than any comparable attainments, even those sketched by the noble Earl in his admirable speech.
It was some years ago that the right honourable gentleman, Mr. Butler, when he was Chancellor of the Exchequer, declared that we could and should double our standard of life in 25 years. I believe the arithmetic there was well enough and that it should be regarded as being within our capacity to perform such an operation. I forget how many years have passed since that declaration was first made, but in the interval we have not maintained the steady rise in production from year to year. Many figures have been quoted in another place (though I have not them ready and do not propose to unload a number of them upon your Lordships now) and many statistics have been given from good sources showing that we have done much less to increase our output, our production and our productivity over recent years, than have a wide variety of other countries with which comparison is legitimate.
It seems to me that in first place among the desiderata of the moment is that we should speed up our annual production so as to create, as it were, a surplus out of which so many desirable developments could be financed. The noble Earl enumerated various objects of capital

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expenditure on which, he assured us, Her Majesty's Government were set—education at all levels and in all forms, hospitals, the Health Service, other social services and the like. Though he enumerated all these, the noble Earl did not specifically mention one development by which my friends in the Labour Party, both here and in another place, set great store: the desirability of improvement of the pension level from its present very unsatisfactory figure and putting at any rate in a considerably higher priority, among all the desirable objects, some improvement in the old age pension and in other related social service payments.
All these things, including those I have already mentioned, however, could be financed far more easily and in much greater volume if we could only be assured of much higher total national output, increasing year by year and maintained at a higher level from year to year so as to give us the surplus to pay for all these things. To mention just one more, which falls conveniently into this concept of desirable things to be financed out of such a surplus of output, there is the question of development within the Commonwealth and the great general concept that the richer members of the Commonwealth should aid the poorer members in their development, in capital schemes and new plans such as are now on the tapir in regard to many of the Commonwealth countries whose Prime Ministers are assembling here in a few days' time.
All this would be brought much more readily within the bounds of practical politics and practical economics if we had this steadily expanding output year by year. Putting it in purely fiscal terms, it means that while all must desire reductions in taxation, and while in certain Budgets this desire can be more easily gratified than in others, according to given circumstances, the immediate consequence of the steady increase in the national output must be, given a taxation system containing particular taxes and particular rates of tax—any particular tax system such as ours at this moment—that it is much more productive in terms of revenue. There is buoyancy of revenue. The yield of taxes goes up and therefore the Chancellor of the Exchequer finds himself
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with a substantial surplus which can be extended in these various directions.
I do not wish to dwell too long on this particular theme, but for my part, trying to pick out from all these rival desirable developments one which should have the first place, the one which, I repeat, I would put in first place, is the need to wipe out the reproach—because it is something of a reproach—that in recent years we have lagged behind a number of other countries in Europe and elsewhere in the rate of our increase in output and productivity. I urge that this should always be kept in first place among governmental objectives and that at least nothing should be done which would conflict with it or slow it down. If, within 25 years from the time when Mr. Butler spoke those words, we are to double our standard of living, then we must hurry forward. Already a number of years have passed since that challenge was first made, and these 25 years must not appear, in the eyes of history, to be years which the locusts will have eaten. We must hurry forward.
I turn now to some features of this year's Budget. I noticed (and my noble friend Lord Pethick-Lawrence has mentioned it) that the right honourable gentleman the Chancellor of the Exchequer got a very warm reception from members of the Labour Party at the end of his Budget speech. I was not present and did not hear it, but we all read it in the papers and have heard from our friends about it. But he got a rather cold silence from his own supporters. That is unusual. I noticed also that in the following days of the debate upon the Budget the right honourable gentleman was the object of vehement attacks from some Members on his own side of the House—and I was surprised by their vehemence. In some speeches there entered a spirit of personal bitterness and even of abuse which, I think, should have attracted the censorious attentions of the Government Chief Whip in another place and others whose duty it is to watch over the manners of those whose footsteps they normally guide into the Lobby. I should have thought that by Conservative standards some of those speeches were not wholly edifying, and I trust that in due course the right honourable gentleman the Chancellor of the Exchequer will regain any ground he may have lost in those critical days

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of his Budget speech and the following debate.
So far as my judgment is concerned, there are many proposals and proposed changes which I welcome, and one group of proposals in particular—namely, the proposals, which already have been referred to to-day, to tighten up the provisions so as to prevent wealthy people by various forms of manipulation from dodging their due contribution to the Revenue. I will return to that point. Quite apart from that, the Budget is, of course, substantially a standstill Budget; the changes in taxation, either for increase or reduction, are very small compared to the gross total of the Revenue collected, and compared also to the changes that have been made in other recent Budgets. I confess that if the point is reached at which the Chancellor of the Exchequer had to consider where he should look to get increased revenue—though I agree with one noble Lord who this afternoon said that it was a curious thing that a Conservative Chancellor of the Exchequer should be looking, only a few months after a substantial electoral victory, to seek to find how best to increase taxation—there is much to be said for selecting profits tax and tobacco duty, rather than other imposts.
I have some notes in my diary of past years on both these taxes. The profits tax differential with a discriminating rate—a higher rate on distributed than on undistributed profits—was indeed first introduced in a Budget which I had the honour to present in another place in 1947. It was, I think, two years ago that the present Chancellor of the Exchequer reverted to the single rate, and I remember making too long a speech against it in the other place. To-day I only recall that I still think it was a mistake to depart from the double rate and come back to the single rate. Though I know that the change was supported by the Royal Commission, I thought their argument on the point was not very strong. I revert to it now only in order to make the obvious arithmetical point that, if the Chancellor of the Exchequer had not reverted to the single rate and had maintained the dual rate, then, having in this Budget to make the choice and call for more revenue from the profits tax, he would have got still noticeably more revenue had he been
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operating on the old basis which provided for a higher rate on distributed profits. None the less, I cannot quarrel with his feeling that, if there had to be more taxation, the profits tax was a pretty good source to which to go for some of it.
As regards tobacco, this is a more sensitive matter. Here, too, I have a note in my diary for some years ago, because in the same Budget in which I introduced the dual rate of profits tax I also increased by 50 per cent.—a substantial proportion, it was thought at the time—the tax upon tobacco. That was done for very special reasons, many of which are no longer compelling. It was done at the time when we were in an exceedingly difficult position with regard to our overseas trade balance, and in which we were literally smoking away the American loan. We were actually spending more upon the purchase of tobacco from America in the year 1947, when the sharp increase was introduced, than the whole value of the exports from this country to the United States; and that was a fantastic situation which I think it was quite right to deal with pretty drastically. However, that is part of history; and compared to that increase the increase this year is relatively small. In terms of a percentage, the former increase in the rate of tax was nearly 50 per cent.; this year's increase is only of the order of 5 per cent. It will, however, cause a feeling of hardship and deprivation to many people. Therefore it is not possible, I think, for many of us to look upon that with quite the same complete satisfaction with which we look upon the increase in profits tax as one of the contributors to increased revenue.
I should, I think, make one further point here. I increased the tobacco tax in 1947—I think I increased it in 1947 as I have indicated and Sir Stafford Cripps made a further slight increase in 1948, in the first Budget he presented as Chancellor of the Exchequer—and I believe my memory serves me aright when I say that it has not been touched again by any Chancellor of the Exchequer since. It has not been so commonly resorted to, although it is a wonderful temptation to any Chancellor to do so, as I remember from calculations brought to me, because tobacco duty is a wonderful revenue raiser. I think that Chancellors of the Exchequer, when they want more money,

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certainly do not "pass by on the other side" first time; they do think about it just a little when they have this wonderful elastic source of revenue before them. But it is not, I think, since 1948 that any increase has been made in this duty.
I wish, however, just to touch upon what I described earlier as a slightly delicate point. There is an argument adduced by some authorities—I do not claim to be one of such authorities, since they are medical authorities—as to the effect of heavy tobacco smoking upon the risk of lung cancer. That was not at issue away back in 1947. Indeed, the argument that heavy tobacco smoking, cigarette smoking in particular, increased the danger of death by this terrible disease began to come to light only some years later. Nevertheless, I was very impressed at the time. I had long since left the Treasury (I aim talking now only of comparatively recent years) when the present Minister of Health sounded warnings, which become relevant now if we are discussing the taxation of tobacco and its consequences and justification. The present Minister of Health did sound warnings in 1957. I remember them very well during debates in another place.
I am not going to read long quotations this afternoon, but in June, 1957, he issued from the Ministry of Health a circular to all local health authorities, Smoking and Cancer of the Lung, and drew attention to the Report of the Medical Research Council on the subject. To put it in one sentence, it was indicated by those specialists that, in view of all the evidence, there was little doubt that heavy cigarette smoking did increase the risk of death from lung cancer. Others, even among the experts, have treated the evidence more lightly. But I was much disturbed at the time to read all this; and in a sense it raises a moral problem, as many seemingly purely economic questions do. If this be true, and if this heavy cigarette smoking does increase the danger of deaths by this terrible disease, it raises a certain moral question which each of us must deal with as best he can by his own conduct. But—much more important—it also concerns the influence we may have on other people and their habits, particularly people younger than ourselves. I am
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not going to pursue the subject further, but I myself have never felt quite the same about tobacco smoking since this evidence came out. I am not talking of my own personal habits, but about what one's attitude should be. I leave it there. It raises a moral problem for any one of us who reflects upon it. It has a bearing on these problems of taxation, and we must each deal with it as best we can according to our own state of knowledge and how we value the relative risks of life.
Now, having said that I think that on the whole these two taxes were well chosen for an increase in revenue, I come finally to the other matter to which I have already referred—namely, the provisions in the Finance Bill against tax avoidance. I have, with some effort, procured a copy of the Finance Bill. I do not know whether there are now other copies in the Printed Paper Office, but I hold in my hand a copy of the Finance Bill. When I read the Budget speech I thought I foresaw that it would be a long, complicated Finance Bill, with many technical clauses, and that it would lead to long debates in another place—and the Bill surely is long. I have been glancing through it very rapidly, but I have not yet had time to study all the clauses and Schedules. There are, I know, a series of clauses, of which the Chancellor of the Exchequer spoke in his Budget speech in general terms, to strengthen his hand in dealing with people who so manipulated their affairs as to diminish their share of taxation. I have not the words here, but I remember them. He referred to the intention to introduce this year a rather more general power in the Inland Revenue Commissioners to disallow what might be called arrangements obviously designed for the avoidance of taxation. I have been looking for the words, and I hope to study them carefully, but I have not found them on a cursory glance at the Bill. However, I am sure that the Chancellor and the Government should be supported on this issue.
I think that this, also, in a sense, is a moral question, and that all good citizens, regardless of Party, should support the Government on this issue. There has been a very unhappy tendency, which has grown in recent years, for highly-skilled practitioners in tax avoidance to multiply and to flourish;

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and, without going into any detail at all this afternoon, I am sure that there are great sums of money, large sums of losses of revenue, which should be recovered by the Government of this country, whatever the colour of that Government may be—and, in particular, now, by this Government of to-day and by this Chancellor of the Exchequer. There are large sums of money which are being withheld most improperly and most immorally by numbers of people who are able to brief and secure the assistance of highly-skilled practitioners in this particular art—advice on tax avoidance.
I shall look with great attention in due course at these clauses, as I am sure will many other noble Lords. On this point, I hope that the Chancellor of the Exchequer will stand absolutely firm in the House of Commons. On these clauses he has already been officially promised the full and loyal support of Her Majesty's Opposition in another place, and I hope, therefore, that he will stand firm. Because, as I have said, this also is one of the moral questions of to-day, and to deal with it is essential, particularly if we are to achieve those aims to which I referred previously. If we are to get ample revenue collected in order to do all those things which we all desire to see done, we cannot afford to allow quantities of revenue to leak away through methods which I hope this Finance Bill is going quite specifically to place outside the law—and good luck to the Chancellor of the Exchequer for bringing in these proposals! My Lords, I will not pursue any of these matters in greater detail. As I said earlier, in securing the various admirable aims of policy which the noble Earl told us the Government have before them, I trust that the choice that they make will be made having some reference to some of the considerations which I have ventured to develop this afternoon.
5.15 p.m.
LORD BALFOUR OF INCHYRE: My Lords, we are indeed fortunate this afternoon to have had the benefit of the speeches of two such wise members of your Lordships' House as the noble Lord, Lord Pethick-Lawrence, and the noble Lord, Lord Dalton, who is an ex-Chancellor of the Exchequer. If I might be allowed to offer my humble and sin-
50
cere congratulations to Lord Pethick-Lawrence, I would say that he always delights all sides of the House with his wise discourses, ranging widely but not lengthily; and, whether we agree or not, we are all the better for having listened to his speeches.
Lord Pethick-Lawrence started off with a disclaimer of full understanding of the figures in the various Government publications. He then went on to his first question: is our economy progressing satisfactorily? I think the answer to that must be very puzzling to the ordinary citizen of this country. In your Lordships' House we have had the benefit of the noble Earl, Lord Dundee, giving us a wise discourse on these matters; we can read the Economist; and we can read the City articles in The Times: but let us for a moment get away from these rather rarified sources of information. I suggest to your Lordships that, for a moment, we should look at what the ordinary man in the street would say in answer to the first question posed by Lord Pethick-Lawrence: is our economy progressing well? In 1957 he was told that our economy was in danger: we had a 7 per cent. bank rate; there were restrictions on hire purchase; and the bank manager shut the door in our face if we went and asked him for any facilities at all. But then, come 1959, it was all smiles: we were told to spend more; and we could get £100 "on the nod", without any security at all, from any bank manager. There was almost a corn-petition in lending, and the bank manager had "Welcome" on the mat.
Now, in 1960, we are told, as the noble Earl, Lord Dundee, says, that we are in a good position economically: but I think that the ordinary man in the street finds it difficult to reconcile the fact that we are in a good financial position with the dangers that he is told surround us. Restrictions are threatened: the "squeeze" again; the bank rate rises, and the bank managers frown once more. No wonder the ordinary man in the street remembers the words of that song which some of your Lordships may remember:
"You lift me up and you knock me down.
And I don't know where I am."
No wonder he says that it is a strange way to run the economy of the country. The noble Earl has explained it very well, and your Lordships realise the reasons which have brought about the

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present dangers; but I suggest to the Government—and this is why I make this point—that it is a job for the Government information services to take up in a much more definite way than they have hitherto, to educate the public by means of Press and radio as to the simple realities of the position, so that these apparent inconsistencies are better understood by the general public than they are at the present time.
The debate has concentrated, in the main, on the monetary position; but finally our economic well-being depends upon successful home and overseas trade. Money must be the servant, and not the master, of trade. I therefore make no apology for making some remarks, for a very few moments, on the trade position as opposed to the monetary position. I find some puzzlement and some contradiction in our trade policy as I understand it. At the Commonwealth Economic Conference in 1952, the course was set boldly and definitely on the policy of world multilateralism based on nondiscrimination, and to that end we support the General Agreement on Tariffs and Trade. Yet that Agreement is being violated by all and sundry, with little protest and, so far as I know, no sanction. There is the United States' agricultural surplus policy; their commodity import restrictions, and their discrimination against certain of our imports, such as Scottish tweeds, to mention but one, are violations of the spirit of nondiscrimination. In the United Kingdom we have, quite rightly, our agricultural support and protection policy. I was amazed at the suggestion of the noble Lord, Lord Grantchester, that agriculture should be given a "golden handshake" and then thrown to the economic wolves. I can only think it comes from the remnants of the Liberal Party who despair of ever having any serious voice in the councils of this country.
The Six and Seven certainly violate the spirit of non-discrimination, and I think that in the case of the Seven they actually violate the law of G.A.T.T., in so far as they are trying to bring their outside territories within the purview of the Seven. Surely this pledge to multilateralism is also inconsistent with our declared primary purpose, mentioned by the noble Earl, Lord Dundee, of developing Commonwealth trade as a
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first objective. It seems to me that we are trying to ride two horses at the same time: we are trying to ride the horse of multilateralism, and the horse of Commonwealth trade. And if the Six and the Seven do not get together, as may well be the case, and we have something like an economic war in Europe, we shall very definitely have to decide which horse we ride. It is not an idle word to say that this danger does exist. The noble Earl, Lord Dundee, gave reassuring words on the possibility of a happy outcome between the Six and the Seven, but I find in The Times of April 1, in the Prime Minister's statement, issued by the Foreign Office, the following:
"The Prime Minister restated the view which he has expressed both publicly and privately on many occasions. He emphasised once again a vital British interest in the fundamental unity of Europe and emphasised the dangers of a grave economic split reaching proportions that would inevitably threaten the political unity of Europe too."
So, I do not exaggerate when I say that we must take into account this possible danger. Though I sincerely hope that it will never come, it is just as well that we should be prepared with a course of action if it should come.
The second inconsistency in this adherence to pure multilateralism seems to me to be contained in the helping of developing countries to industrialise their economies. I am glad that we are doing all we can, in the public and private sectors of overseas investment, to accomplish this task. Indeed, I have just come back from Australia, and it is good to know that in that country no less than 65 per cent. of private overseas investments comes from the United Kingdom, and only about 25 per cent. from the United States. That is fine work. But I look at the leading article in the Financial Times of April 20 and find this statement, which I think puts it very well:
"Helping the developing countries to industrialise implies an obligation to buy the products of their factories, even if established industries in some parts of Europe and America get hurt in the process."
Yet the pundits of pure multilateralism keep telling us that even the tattered remnants of the Imperial Preference system should be swept away; indeed, that is the avowed final objective of G.A.T.T.

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I ask the noble Lord, Lord Mills, who is going to reply: How can we preferentially buy, as is suggested in the leading article of the Financial Times, where we have given money to industrialise if we allow no preferential system at the same time beyond that which we have at present? It seems to me that we have something approaching "double talk" in our trade policy as regards multilateralism and Commonwealth priority. To me the tragedy is that meanwhile we see chances of Commonwealth trade expansion slipping by. In the new Commonwealth it will not be political ties that count; it will be trade ties that will make a coherent entity of the Commonwealth. Thirty per cent. of world trade is done by the Commonwealth, and nearly half of Commonwealth trade is done within our own family. So we have something pretty big here. Yet countries in the Commonwealth are looking elsewhere because, while our words may be good, our actions do not always fulfil the words.
I have just told your Lordships that I have recently been in Australia, where the Commonwealth Parliamentary Association delegation was so highly thought of as an organisation, and as a Congress. I had the honour of presiding at the Triennial Congress of the Federated Chambers of Commerce of the Commonwealth, attended by delegations from all member countries of the Commonwealth. Mr. Keir Hardie once went to India and stayed three weeks, then wrote a book about India—a very foolish thing to do. It is very silly to try to say anything about the country you have visited for only a short time. On the other hand, if you go to a house, you at once know if the atmosphere is happy or sad. One has only to go into Australia to sense that it is an exciting country, a country of enthusiasm and of enormous potentialities, populated by the most charming people, I think, of any community that I have ever visited. It is a land of limitless opportunities. If I were 20 again I know that I should try to make a life there; and if one were willing to work one could not fail to succeed.
What did I find there? I found the view that the preferential system was worked in a one-sided way against Australia. Australia has given us very
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considerable preferences in her markets, but we, partly because of the Free List entry from Ottawa, are prevented from giving her comparable preferences. Somehow we have got to put that right. It does not help when we make an Agreement in 1957 to take so much wheat and fail in our undertaking in 1959 and take Italian wheat instead. That does not make for Commonwealth trade. It is an example of multilateralism versus Commonwealth. Which horse are we going to ride in this case? We are Australia's best customer. We take twice as much of Australia's exports as the next country on the list. But as one Member of the Parliament of Australia put it to me, if we could take £120 million a year more of Australia's primary products she would be bound to us economically with joy for many years in the future.
VISCOUNT ALEXANDER OF HILLSBOROUGH: Have you not to come to some form of Government bulk purchase if you are going to get a guarantee of that kind?
LORD BALFOUR OF INCHRYE: I am not dogmatic, and I would go a long way and throw away all sorts of preconceived notions in order to build up Commonwealth trade. I can tell your Lordships that I had a delegation from India, high-powered "Indian gentlemen who held prominent positions in that country. My debt to that delegation is enormous. Their brains were like rapiers; their outlook was clear and they were always constructive and helpful. It is wonderful to hear how Britain is riding high in India at the present time. Never has our prestige and good will been greater than it is to-day. In the aeroplane coming back I sat next to the managing director of a world-wide American concern, an Englishman who has built up his business there, and he said something which is cheering to know when we think of British trade. He said that British deliveries are good, that our quality is still unsurpassed in respect of capital goods coming into India, and if we will but take advantage of the opportunities that lie at our feet we shall have India as a partner economically for many years to come.
I spoke a moment or two ago of the very real dangers which I believe surround us as regards the European position—dangers which I hope may not

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eventuate, but which, if they do, may have grave effects upon our economy, as well as the economic balance not only of Europe but of the rest of the free world. If you face unknown dangers, stormy turbulent seas which may toss you one way or another—and you are not sure which—you do two things. First of all, you make quite secure what you have, and then you make certain that you do not lay a course which will in any way endanger those things which you have just made secure. In respect of the Commonwealth trade, of which I gave your Lordships the figures a moment or two ago, it consists of one-third of the trade of the world and nearly one-half of that in our own family. There we have something which we should secure now, in case the dangers which surround us in Europe eventuate; and we should be sure that Her Majesty's Government pursue no course which in any way endangers that which we have and which is now, and will be in the future, of such inestimable value.
5.33 p.m.
LORD HAWKE: My Lords, we are, as usual, deeply indebted to the noble Lord, Lord Pethick-Lawrence, for putting down this Motion. In the course of his admirable survey of the situation he said something that I was pleased to hear—namely, that if we were to give further aid to the underdeveloped countries it would mean sacrifice by our people here. I believe that those who glibly cry out for us to do more for these countries do not realise that it means taxation of themselves here, and, moreover, taxation without an immediately compensating wage increase. At several stages in the debate so far the position of our reserves has cropped up, and it is indeed unfortunate that our first-line plus our second-line reserves are still not enough to enable us to go full ahead with any expansion that the economy can manage. It is indeed tragic that every time we seem to get into top gear we are brought up by the fact that we run into balance-of-payments difficulties in the stocking up of raw materials and so on. It is vital for the interests of these underdeveloped countries, and probably far more vital than the provision of mere loans, that we should be able to buy their products unrestricted. Until we can persuade the Americans to tackle this ridiculously low
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price for gold, I personally can see no solution of the difficulty.
I am sorry that the noble Lord, Lord Grantchester, has had to fly off to Strasbourg, because we always have a little brush in these debates. However, he said that he would read any riposts with interest, and therefore I intend to refer to his speech. He, of course, regards all Government spending as bad and all private spending as good; and he believes that Government spending automatically leads to inflation. But when we look round and survey the world as we see it, I do not think we could safely say that Governments in the past have always spent too much; indeed, in 1914 and 1939 we found that Governments had been spending a great deal too little for our safety and happiness. After a year when bank advances have gone up £750 million and hire purchase nearly £300 million, I should have thought that it was the pot calling the kettle black to say that Government spending was responsible for any degree of inflation with which we are now faced.
The Budget which we have just had is a very dull one, but I personally believe that psychologically it struck the right note. In the past we have had various theories of Budgets, ranging from what one might call the Gladstonian theory, when the Chancellor lifted exactly to the nearest penny the right amounts from the pockets of the people to pay for his expenditure, to the Keynesian theory, where the Budget was a balancing factor in the economy between demand and resources: when the economy was too optimistic its duty was to dampen and when it was too pessimistic to sustain and encourage. I think that theory is now breaking down, if it has not gone for ever, for two reasons. First of all, the inevitable below-the-line expenditure has got so big that in no circumstances could it be covered by taxation without placing an intolerable burden on the people. Therefore, borrowing, to some degree, is inevitable, whatever state the economy is in, Secondly, there is the uncertainty as to the amount of borrowing which can be achieved from the genuine savings of the people and what proportion of the total borrowing has to be met from the banking system—and thus inflation. So that the Budget as a precision instrument stabilising the economy has lost its influence. It still has a psychological

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effect, but the influence on the economy of the purchasing power which the Budget can inject or subtract is far overshadowed by new factors which have come to light recently.
Those greater factors are hire purchase and loans from the banks. The banks, through their hire purchase associates and their personal loans, have found a far more profitable avenue for moneylending than the more humdrum and old-fashioned overdraft. And what is most important is that this new method of lending is more or less proof against any influence from the bank rate, because the interest rate is much less material to the borrower than it is in the case of the overdraft. For instance, there was a sportsman, about whose doings I had a newspaper cutting which I have lost, who got five loans from five branches of the same bank, I think it was, each for a considerable sum and who promptly went "bust". The interest rate he paid was of no interest to him whatever; he was interested only in getting the cash.
Furthermore, the return on banks' holdings of gilt-edged securities is so much lower than they can get in this new market that 1 or 2 per cent. on bank rate is no longer going to have a decisive effect on their holdings of gilt-edged as compared with their lending in these new ways. So the bank rate is becoming a much less effective instrument in the last year than it was before, and its influence, I would say, is confined largely to expenditure on capital account rather than consumer account.
We have seen how we have gone from an incipient slump to a consumer boom in eighteen months. The problem then was how to stimulate without danger, and now the problem is how to dampen without tears. The process has been carried out through the increase in bank advances of £750 million and hire purchase debt increase of nearly £300 million, As a means of balancing the economy the Budget is no longer effective, and the bank rate is only partially effective. At the moment, the Chancellor of the Exchequer appears to be relying upon psychological warfare, and it seems to be pretty effective; but, sooner or later, the bluff of psychological warfare is called and some action has to be taken. At the moment we have warnings and rumours of warnings which are met with answering growls from the
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economy. Surely, it is time we had something better and more certain. The interests of the Government, the banks and the nation are ultimately indentical: to see that demands on our resources do not march far ahead of those resources—I say "far ahead", because unless they are slightly in advance we shall never get that expansion which we require. Surely in 1960 we can expect the Treasury, the Bank of England and the banks to be constantly meeting to discuss what should be the level of credit and how to attain and keep that level. In the last resort, the Government have the sanction of the special deposits; but with goodwill and common sense I do not believe that it should be necessary to use that sanction at all.
Of course, the control of credit through the banks leaves one big loophole, and that is the power of the hire purchase moneylenders to borrow direct from the public. Their borrowing would be at the expense of deposits in banks or the holdings of the public of gilt-edged. They can afford to pay rates to their depositors with which the banks or the gilt-edged market could not possibly compete. We are a nation of capitalists and becoming more and more so every minute. I personally can see no effective indirect way of limiting this borrowing power and the ultimate selling power. If it is considered that consumer demand in the country is too large, then some direct control of credit to the hire-purchase houses, or some direct control of hire-purchase sales, must be available to the Government, and it must be a flexible system which can be altered frequently and easily.
So much for high economics. As to the Budget itself, the Chancellor of the Exchequer has been much criticised for his tackling of avoidance. I have heard it said that it is not cricket. I think the system of avoidance has gone rather beyond cricket, even that form of cricket which at the moment seems to consist of cheating at the bowling crease, time wasting and attempted grievous bodily harm. I believe that the bulk of the rank-and-file Conservative voters will support the Chancellor in anything he does which is fair and which can be seen to be fair. But where I do not think he quite played cricket is that he has not tackled the root cause of the avoidance,

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which is the ridiculous rates of tax imposed on the higher incomes. There has been little attempt to adjust the rates of surtax to the fall in the value of money since the war, and rich people deeply resent being taxed at rates which, measured in terms of purchasing power, are little changed from those imposed by a Socialist Government for doctrinaire rather than fiscal reasons.
There is another big field of avoidance which seems pretty hopeless to tackle and that is in the enormous number of wage earners who have spare time jobs, on the remuneration for which they never pay any income tax. Of course, that is not avoidance that is evasion, which is illegal. But I cannot sec how the Chancellor can possibly catch them. The only other feature of the Budget which I thought particularly interesting was the mitigation of the five year rule of gifts inter vivos, which seems common sense. Here, again, the rates of death duties are so high that the Chancellor of the Exchequer must continue to lose revenue, and the field still remains clear for the bold Chancellor who is prepared to reform the system in such a way that rich people may find it worth while making a profit while they live and then die possessed in this country of all their means. Perhaps next year we may hope to come somewhat nearer towards that end.
5.48 p.m.
LORD MERRIVALE: My Lords, I shall be as brief as I can in a debate on this subject, in which I hesitate to intervene. I trust that it will not tax your Lordships' patience too much if I say a few words on purchase tax, and in particular on its effect on one industry, the record industry, of which I have a little knowledge or, perhaps I should say, a very limited knowledge. I am glad to do so to-day, for as the noble Earl, Lord Bathurst (who I am sorry not to see in his place to-day) will be aware, the electronics and record industry are closely associated. In the course of a recent debate on the Air Estimates, he rightly paid a strong tribute to the electronics industry. On April 6 he said [OFFICIAL REPORT, Vol. 222 (No. 66). col. 793]:
"… we are second to none in the tactical application of these electronic devices, both to our offensive forces and to our radar defences."
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I also believe that we lead in that our musicians were the first sight-reading musicians in the world, and that our recording engineers and our recording editors are amongst the first in the world. I believe that with regard to the industry as a whole one can safely say that we are in the lead, in spite of formidable competition from the United States. As Sir Compton Mackenzie has put it so well:
"The treasury of recorded music, already rich in masterpieces, becomes richer with every month that passes. For this treasury the contribution made by the British gramophone industry is recognised throughout the world as the largest in the past."
Now I should like to come to this question of purchase tax, and I should like to go back to 1940, when the late Sir Kingsley Wood, then Chancellor of the Exchequer, introduced the tax. He said:
"There will be a high rate of tax on the purchase of goods which we can either do without or of which we can at least postpone the replacement."
I have omitted his words "in the hard circumstances of war", for purchase tax is still with us. I assume, therefore, that in the eyes of the present Chancellor of the Exchequer gramophone records come within the category of goods which we can do without. In 1940 the purchase tax on gramophone records was 33⅓ per cent. it is now 50 per cent. The question of postponement of replacement would normally not arise, for each record contains a unique musical performance which can be individually preserved and stored in a library, like books. But to what extent can we do without, or should we do without, records?
Perhaps I may again quote some words written by Sir Compton Mackenzie, in January, 1959:
"The record has become as necessary as the printed book to education authorities, community centres, discussion groups, youth clubs, summer schools and colleges of music."
Here I would pay tribute to the work that is being done at the moment, and has been done in the past, by the Schools Broadcasting Council. Take only their musical series of broadcasts, from their "Music and Movement" series, for young toddlers, to their orchestral concerts for boys and girls of the age of thirteen and above. Teachers are encouraged to obtain records for the necessary follow-up work. It seems to me that a 50 per cent. rate of purchase

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tax is a high rate when one considers that these records are for educational purposes. In Sweden, where there is a sales tax of 12 per cent. on gramophone records, spoken records for educational purposes are completely exempt from the tax.
I should now like to bring to the attention of your Lordships some economic considerations appertaining to this industry. Whilst it is common knowledge that from 1946 until the middle of 1958 the sales of this industry continued to rise, in the twelve-month period from the middle of 1958 to the middle of 1959 there was an approximate 10 per cent. reduction, according to the Board of Trade figures. However, since then there has been an increase, and it is estimated that this year manufacturers' sales will reach the approximate figure obtained by the industry in 1957, when the figure for the industry with regard to home sales was over £10·4 million. This may be due to the fact that the purchase tax was reduced last year from 60 per cent. to 50 per cent. But the fillip that was given then to home sales had no effect whatsoever on the sales of records for export. In fact, exports have been steadily going down since 1958. Exports for January and February of this year—and these I believe are the latest figures available or published by the Board of Trade—have gone down in the region of 20 per cent. compared with the first two months of 1959.
This industry contributes in no mean fashion to the general export trade of this country. Again according to the Board of Trade figures, the exports in 1957 amounted to over £3·7 million, and if one adds to that figure approximately 10 per cent. to account for exports by parcel post, one can see that the industry then contributed to the tune of over £4 million. I think, too, that such a high rate of purchase tax, added to the high cost of recording (to record an opera, for instance, costs in the region of £20,000), means that those responsible for the future of this industry must necessarily hesitate to give the opportunities they would like to give to new British composers, performers and orchestras. As I mentioned in the earlier part of my speech, there is increasing competition from the United States, a country where, per head of population,
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sales are over double this country's sales. I am advised that in 1956 in the United Kingdom, in spite of a high level of employment and income, the proportion of disposable income spent on gramophone records per capita was only 0·128 of 1 per cent.; and the present purchase tax still adds 33 per cent. to the retail price.
That brings me finally to the problems of the retailer with regard to stocks. As your Lordships will know, sales can be considerably curtailed several months before Budget Day if the distributive trade feels that there may be a reduction in purchase tax. I am advised that this year there was no such decline in demand by retailers during the pre-Budget months as occurred last year. This may possibly have been due to the fact that the retail trade did not feel there would again be a reduction in purchase tax, as there was—a very small one—last year. However, this is an aspect to which I think Her Majesty's Government could give considerable attention, because it affects a number of trades, and manufacturers feel strongly on this point. In conclusion, I would just add that I feel that this tax of 50 per cent. is a very high one indeed; when one considers that it affects a medium for education and culture, as well as for recreation. I would add en passant, that it has proved to be perfectly feasible to make an alteration in the purchase tax schedules in one class of a group without affecting another class. For those who may say that any reduction in purchase tax would affect only the sale of "pops", I would reply that many popular records subsidise many serious records.
6.1 p.m.
LORD STONHAM: My Lords, I hope the noble Lord, Lord Merrivale will not mind if I do not follow him in his intricate case of purchase tax of 50 per cent. on gramophone records, although I wish him well in his efforts. I have a foreboding, however (because he mentioned that purchase tax was introduced in 1940 by the late Sir Kingsley Wood, who I think was also the author of postwar credits), that, much as we welcome the improvement in the current Budget regarding the payment of post-war credits, we shall all be repaid our postwar credits before purchase tax is finally disposed of, although I hope there will

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be some modifications with regard to gramophone records.
This debate has reminded me of that point in the trial of Bardell v. Pickwick when Sam Weller was asked how he spelled his name and, mindful of the shouted advice from his father,
"Put it down with a 'wee'",
Sam said,
"It all depends on the taste and fancy of the speller."
It seems to me that in like manner the figures in the Economic Survey can be used to paint a considerable variety of pictures according to the taste and fancy of the artist. The Government are entitled to choose the glowing colours—they can legitimately point to some quite good points, such as the 10 per cent. production increase in the last ten months, 400,000 more people employed, 6 to 8 per cent. rise in output per man and 10 per cent. increase in the gross profits of industry. But for a true picture I think we must look at it in the way that my noble friend Lord Pethick-Lawrence mentioned when he started his quite remarkable speech.
He put six questions and he then proceeded to answer them in a way which I felt could not be challenged. The first of those questions was that, in thinking of our progress, we have to consider where we started from and compare our progress with that of other European countries. We started this last financial year from a trade recession, which was described by the noble Lord, Lord Hawke, as incipient but which at least produced a total of some 600,000 unemployed. That was a trade recession which was imposed, planned and successfully carried through by the Government, and it was a recession which did not affect Germany and other European countries. When we take that into account, we find that for most of the year we did little more than take up the slack, and it was not until the last three months that we really got going. Even with the exceptional boost of 1959, both total production and total productivity per man show only an annual average increase of 2 per cent. since the Party opposite came to power. My noble friend called this "miserably small" compared with other countries, and it is indeed miserably small. In fact, it was only one-
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third of the average of the 6 per cent. increase in production which was achieved by the Labour Governments of 1945 to 1951 under conditions of much greater difficulty.
The two main reasons for this serious failure, which it is, to make anything like full use of our opportunities are, first, the Government's doctrinaire refusal to exercise any sort of control over private industries which are making large profits. The noble Lord, Lord Hawke, objected to the continuance of penal rates of taxation equal to those imposed by the Socialists for "purely doctrinaire reasons". I think that the Party opposite and the country for that reason are suffering vastly more because of the doctrinaire views of Conservative politicians; and, as a consequence of those views, it is impossible to maintain expanding production and full employment without creating difficulties with our balance of payments and our gold and dollar reserves. The noble Lord, Lord Hawke, himself mentioned how difficult it was to go on buying from our overseas friends and the Commonwealth without running out of cash. My noble friend mentioned that £1,000 million sterling was, in his view, the lowest limit of safety for our gold and dollar reserves, and it has fallen much below that. I can well remember in 1951 that the figure for gold and dollar reserves was not much below what it is now; and we were told then, as were the electors, that we were on the edge of a precipice, and that we were just going over the precipice because our gold and dollar reserves were not much below what they are now. We do not hear so much about those disasters now.
LORD HAWKE: My Lords, is the noble Lord being quite fair? Have we not added a second line of reserves, drawing powers and the International Monetary Fund, since then?
LORD STONHAM: Yes, and we have also since then borrowed considerable sums of money, all of which we have not repaid. If a balance sheet of fresh borrowings and repayments were added up, I think that my comment would be seen to be absolutely fair. If it is not, I am sure that the noble Lord who is to follow me will point out my error. But it is my sincere conviction that in the Tory economy the pound will not remain

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strong unless we have at least half a million unemployed. I would point out, if your Lordships doubt that, that in 1958 the gold and dollar reserves rose in a bad year when we had rising unemployment, by £284 million. In a better year, 1959, they fell by £119 million.
In 1958 we had a trading surplus of £349 million; last year it was only £145 million, and this year, if present trends continue, there will be a deficit. Our imports for March, last month, were an all-time record—£393½ million—and although exports and re-exports at £322 million were the second highest on record, we had a visible trade gap of over £71 million on the month. For the first three months of this year our visible trade gap was £170 million. Surely, in such conditions the sensible thing would be to control the level of less essential imports. That is exactly what a businessman would do in his own business. If he could not afford to take the longer view to pay for the level of his purchases, then he would reduce those purchases, and he would reduce first those with which he could most easily dispense. And that is precisely what we as a nation ought to do. We should particularly reduce imports of manufactured goods, fancy foods and so on—the very imports which are rising most at the present time.
Instead of what I regard as the sensible course of restricting less essential things, we shall presumably have again the bank rate rise and credit restriction used as a blunt, undiscriminating instrument, Which will not stop the less essential imports, because they are the most profitable and most easily attract capital. I fear that the new measures which Her Majesty's Government will bring in will give a sharp jolt to basic industry and check the very capital investment upon which our future prosperity depends. This stop-and-go technique is completely destructive of confidence, and in my view it is the major reason why we have fallen so far behind the expansion rates of other European countries. The first step in limiting private lending was, of course, the rise in bank rate in general, bringing in its train increased costs throughout industry and in domestic affairs, such as increased interest on house loans.
Then we have had the statement from the Chancellor of the Exchequer that the
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time may soon arrive when it will be right to take other steps. My guess is that we shall know all about that before the end of the week. Of course it is right to limit consumption that we cannot afford, but the all-important thing is the way in which that is done. As my noble friend has pointed out, at present the mere threat has been enough to depress equity prices on the Stock Exchange, and already some capital development plans have been deferred. Industry is still booming, of course, but various views are being poured out of the Stock Exchange because of Mr. Amory's threatening noises. It is a new form of government.
We are used to, and approve of, government by taxation, provided that our money is wisely spent. We have become resigned to government by exhortation, although we believe that higher taxation of distributed profits and a capital gains tax would be more effective. But now, as I believe the noble Lord, Lord Hawke, suggested, we are experiencing government by intimidation; and if Her Majesty's Government are not careful they will soon be talking us into a slump. The Chancellor of the Exchequer quoted with approval the dictum of the right honourable gentleman the Prime Minister, that we cannot give aid abroad unless we are prepared to that extent to limit the growth of our consumption at home. My noble friend and the noble Lord, Lord Hawke, said words to the same effect. That is a statement of fact, of course, like two and two making four; but the method of limiting consumption used by Her Majesty's Government is the bludgeon, which mows down alike the serious and the frivolous, the essential and the unnecessary, and will throw the country back on its heels, in my view, in a way which is stupid, indefensible and disastrous.
The second main way in which Her Majesty's Government handicap us in our efforts to live and grow in the world is by the encouragement of inflation. Their exhortations to limit consumption are usually addressed to workers in industry. But these people cannot be blamed this time. Basic wage rates went up by only 1 per cent. last year, and earnings by 4 per cent.; but production reached 10 per cent. above 1958. There was an actual fall in the labour cost per unit of output. But distributed profits

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took a great lunge upwards, and experience has shown that in that sector exhortations are quite useless. Unless the Government are prepared to take quite stern measures over profits their words are useless and hypocritical; and they cannot complain if industrial workers demand, in the shape of a larger wage packet, an increased share in the production they have created.
In my view, however, it is in waste of the taxpayers' money, arising out of political incompetence or carelessness, that Her Majesty's Government are the greatest creators of inflation. The very authority which holds them down is the main agent in raising wages and costs and constantly handicapping us in our efforts to increase exports. A few years ago the right honourable gentleman Mr. Macmillan, who was then Chancellor of the Exchequer, pledged Her Majesty's Government to reduce expenditure by £100 million. Instead, it has since risen by £1,000 million. The rise in interest rates, as my noble friend has mentioned, is a prime example of increasing costs as a deliberate act of policy. I believe my noble friend said that costs have increased by £1,000 million, though I do not think it is possible to compute the figure, while since 1951 the servicing of the National Debt alone has increased by some £177 million a year.
Another grossly inflationary factor is the enormous rise in share prices. A representative holding of equity shares worth £10,000 in 1958 was worth £18,000 in January of this year. It is no use saying that these are merely paper profits. They become cash profits when the shares are sold; and many have been sold, and the profits have been spent and have added materially to consumer demand. It is quite disgraceful that, because of such spending, the Chancellor of the Exchequer now feels that he must reach for his bludgeon. It will be used to hit thousands of worthwhile businesses and millions of innocent people. In our view a capital gains tax would have prevented most of this form of spending.
Then there is the shocking waste of taxpayers' money which even a modicum of common sense would have prevented—for example, that on the various missiles. Like my noble friend, I will not talk about defence, but I want to
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comment on the difference between the original estimate of the cost of some of these things and what they have cost so far. Seaslug, originally estimated to cost £2½ million, is at present estimated at £40 million. Thunderbird was originally estimated to cost £2½ million, and the latest figure for it is £27 million. Fire-streak, originally estimated to cost £4 million, is at present estimated to cost £43 million; and the biggest example of all, the now abandoned Blue Streak, will probably cost another £100 million.
Everyone knew three years ago that from fixed bases these missiles were useless, "sitting ducks". We on these Benches have for three years opposed the claims made for them, and have been laughed at for our pains. Surely over this field as a whole common sense demands the admission that technical changes are so rapid that each of these costly weapons is out of date before it can be produced. Russia and America, with their greater resources, may be able to afford to go on producing and scrapping such missiles, but we cannot. It is useless to argue that we can, or that these things are a protection. They are useless. The man in the street knows it and the Government should have known it. It is impossible to escape the conclusion that we have been put to enormous and useless cost because of the stiff-necked obstinacy of Ministers in the Government. When one thinks that because of these mistakes we cannot afford, or so we are told, to case the lot of old-age pensioners, have decent clean hospitals or pay reasonable salaries to the people who work in them, it becomes all the more intolerable. This list of indefensible errors has made our economic situation precarious when it should have been comfortable.
I will mention, in conclusion, just one more, which I believe beats the lot; that is the £259 million, the cost of agricultural support. I am a fervent upholder of British agriculture, and whatever the cost I would not begrudge a penny, if it provided better prices for the farmers and lower prices to the consumer. But as I believe was very clearly demonstrated at Question Time to-day, it does not. Farmers are getting their lowest prices since the war, and housewives are paying the highest prices ever; and the only difference between the cost of farm support to-day and the cost of direct

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food subsidies in 1951 is £83 million. The Government refuse to admit the obvious and tell us where the £259 million is going. Certainly it is not going to the producer, nor to the consumer. The money is just swallowed up as the food goes on its journey from the farm to the larder. The Government have taken credit to themselves for the last two years (I think it is) for having kept the cost of living steady. It should have fallen, because import prices, particularly food prices, have dropped remarkably. But no part of this fall has reached the consumer. That is my reason for referring to this waste of public money and this indifference to the massive profits arising from it.
The right honourable gentleman the Chancellor of the Exchequer rightly declared that the success of our export drive depended on the level of our costs; and, further, that we must increase our export earnings. That, he said, is the central challenge, and we should delude ourselves if we ignored it. We can increase our exports only if our prices are competitive; they will be competitive only if increased wage demands are not forced on the workers through high profits and inflated prices of food, rent and other major items of their expenditure. But it is just in those very things, food and rent, that the cost is being inflated by Government policy.
I consider that we, the Government or the country as a whole, have been very fortunate over the terms of trade. The Chancellor of the Exchequer admits it. But that period is over. We have to succeed on our merits, and we cannot do that if our resources are wasted on high interest rates, high profits and Government ventures which are doomed to failure before they start. Nor can we succeed when twelve months of industrial expansion is succeeded by a year of repression. We ask the Government to give the useful section of the community "Full speed ahead" for their endeavours, but to keep a tight rein on less essential or unnecessary spending. Also, just as they have admitted how wrong they are over Blue Streak, let them have the honesty to admit that they are even more wrong to disregard completely physical controls. If we have less doctrinaire thinking and more common sense and honesty in public affairs, then the next
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four years will be much more prosperous for us all.
6.23 p.m.
THE PAYMASTER GENERAL (LORD MILLS): My Lords, we have had a very interesting and instructive debate on the economic situation, and I am sure we are greatly obliged to the noble Lord, Lord Pethick-Lawrence, for initiating it and for the moderate and careful way in which he gave his views on the economic situation. I remember that in the debate last year the noble Lord questioned the policies of Her Majetsy's Government on financial matters because they did not pursue a regular and smooth course but changed in force and direction. I should have thought that the debate we had last year had convinced everyone that the economic situation cannot be kept in hand without changes in Government policy. Last year the noble Lord likened the Government's financial policy to bad driving in a motor car. This year he change his metaphor and likened it to a chariot. I do not know whether he was alleging that his own thinking was going backwards or that Government thinking was going backwards. I suspect the latter.
In a country whose economy is so finely balanced as ours is, it is necessary to see that certain forces do not grow to such an extent as to upset that balance and leave us in a state of mounting inflation, on the one hand, or conditions of growing unemployment on the other. So far as 1959 was concerned Her Majesty's Government's financial policies produced—or perhaps I should say helped to produce—in the main a good year for the United Kingdom economy. The expansion in trade and industry which was evident last year when your Lordships were debating this subject gradually gathered momentum and, as has been stated, employment rose by some 300,000 men. Between 1958 and 1959 industrial production rose by some 5½ per cent., and at the end of 1959 bad increased by 10 per cent. over the level at the beginning of the year. I am aware that the noble Lord, Lord Stonham, contrasted the average for the years since the Government bad been in power with what was done by the Socialist Administration from 1945 to 1951. I have often heard that comparison before. And why is it so wrong? It is wrong because we were at the end of the war and it is

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comparing the growth with relatively nothing. And prices in 1959 remained stable. But 1959 is behind us and we have to deal with the current year and with the future, and in considering that aspect we have to consider closely the trends which have emerged rather than the favourable results we have experienced.
Let us look at them for a moment. The rate of growth in the economy has become mare rapid; more and more unused resources have been taken up; the demand for labour has been steadily increasing and spreading throughout the country. Personal incomes continue to increase; industrial turnover and profits are still outstanding—and I will deal with those matters when I come to reply to the noble Lord, Lord Stonham. Consumer expenditure continues to rise. Agricultural production has been good. Personal saving is at a higher level despite large increases in hire purchase and bank borrowing: fixed investment in industrial building and equipment is expanding rapidly; house building continues at a high level. Exports are showing improvement in most markets. Imports, however, have been expanding at a greater rate than exports, and some prices have shown a tendency to rise. The requirement for capital for undeveloped countries, for an expanding Commonwealth, and for international agencies and funds is growing year by year and is now exceeding the balance we are earning. Invisible income declined in 1959, and is not yet showing a tendency to increase.
Because imports continue at a higher rate than exports, and because our invisible income does not expand, while external demand for loans and investments goes on increasing, our external monetary position has been deteriorating. This position must cause concern (which was the word used by my noble friend Lord Dundee), but can be remedied if one or all of these factors can be improved: greater exports, lower imports than exports, an improvement in invisible earnings, and a reduction in overseas lending. While prices and the cost of living have remained stable, industrial production might well cost more owing to recent wage increases and reduction in hours. I think it is right that I should sound that warning.
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These are the main trends (those I have just enunciated) which must influence Her Majesty's Government in looking to the future and the Chancellor of the Exchequer in framing his Budget. The Budget this year is deliberately a Budget for expansion: not the green light all round, as in 1959, but expansion that is safe, steady and in the right direction—and I am sure that that is what the noble Lord, Lord Dalton, meant when he made his most instructive and helpful speech.
LORD DALTON: My Lords, I was wishing to emphasise, the need for keeping up the annual increase in production as being the basic requirement among them all. I do not know whether the noble Lord would say that he anticipates, as a result of this Budget policy, that that will take place. I hope he does.
LORD MILLS: That is just what I mean, but I also mean that it will take place in the right direction. We cannot afford, for example, to go on increasing our home consumption without an increase in exports at the same time.
LORD DALTON: That is very important, of course.
LORD MILLS: But the noble Lord is quite right: what we need is a regular increase in production: because growth with stability benefits everybody. Excess has to be avoided in any direction which is calculated to hold back a balanced growth or to defeat priority which should be accorded to urgent needs.
Now, we have to face the fact that the Government are already committed to expansion in certain bigger programmes—roads, schools, power and hospitals. The aim of the Budget is to leave the way open, also, for the increased private investment that has been planned, and for the increased exports that we must have. I wonder whether it is generally realised that a small percentage increase in our exports as a whole would finance both our import requirements and our assistance, our investments, to other countries. We need more and more firms to enter into the export field, and not to spend all their energies on what is a much easier market, the home market. But if those firms who are already taking advantage of overseas markets, and are

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thus meeting the national need for a balanced trade, increased their exports by as little as 5 per cent., we should be better able to cope with the various demands upon our economy. It would be a good thing, my Lords, if that fact were more widely known. I know it is difficult for firms who are busy and expanding solely on a home trade to apply their minds and to realise that, if their goods are suitable for export, they should give some priority to selling overseas.
Now while, as has been mentioned, the United Kingdom's share of world trade has been declining, the current growth in world trade supplies the right background for a record expansion of our overseas shipments if, at the same time, home demand is held within proper limits. Expanding exports are essential. If, however, we are unable to match the growth in total demand with an increase in output, that would be inflationary, with serious reactions on our ability to import, on export earnings and on our overseas monetary position. As stated by the Treasury in their latest appreciation of the economic situation, issued this month, the aim of policy is to maintain growth while moderating any tendency towards inflationary developments. It is an object of policy to change the climate for private lending—and first steps to this end have been the raising of the bank rate by 1 per cent. on January 21.
Now the Budget provides for some withdrawal of spending power at home, and I suggest that this seems right in the face of present trends. It is true that, while prosperity has been growing at home, the balance of payments situation has been weakened. There is always a risk of this happening—and that was the point to which my noble friend, Lord Hawke, drew our attention. The Budget has been framed to avoid this danger: first, by preventing home demand from swamping exports and lengthening delivery dates to the disadvantage of overseas trade; and, secondly, by moderating the growth of imports. In order to build up our export business we must have price stability, if not price reduction. A rapid growth in output in 1959, of which I have just given the figures, helped price stability in that year: but the build-up of demand now in sight—current demands of per-
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sons and of the Government for private and public investment—could outstrip the likely rise in output and bring a return of inflationary pressure. By not adding to the pressure, the Budget is a necessary condition for holding costs. Profits, as has been said, have been running at a high level, and it was therefore only reasonable on the part of the Chancellor of the Exchequer to ask for an extra contribution in the shape of an increased profits tax. If, in addition, prices are lowered wherever this is possible, wage increases on a scale that would bring about inflation and reduce our competitive power are less likely to be negotiated.
The Budget has also provided fresh encouragement to savers, which is so necessary to help finance growing investment in increased means of production, as well as to meet the call for help from overseas development. In our economic situation one thing is clear: we cannot afford to spend, lend or give away more than our receipts from overseas. That is why the emphasis is on exports. If our demands at home are to increase, if we wish to invest or to lend more abroad, exports have to meet the bill and production must be sufficient to fill the requirements and keep delivery dates reasonable. Scientific and technical developments help us to expand. I was very sorry to hear the noble Lord, Lord Grantchester, say that they were really a hindrance to us, because we are going forward too rapidly, and that it would be better if we held back on scientific development. I think that he is wrong, and I should like to say so, because we continue to shine in the field of scientific and technical development. But other means are needed to keep our economy in balance, and this is the constant care—and I claim the successful care—of Her Majesty's Government.
I should like to deal now with various points that have been made in this debate. I have already said that the contribution of the noble Lord, Lord Pethick-Lawrence, was a very helpful one, and I accept a great deal of what he had to say, although there are one or two points on which I do not agree. The noble Lord, Lord Grantchester, made the remark, which has already been referred to, that we should give a "golden handshake" to agriculture and let it face the world on level terms of

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competition with the rest of the world. That, I must say, is not the policy of this side, and I am sure that it is not the policy of my noble friends opposite. In connection with research, the noble Lord mentioned nuclear power, in which I was deeply concerned as Minister of power. I still think that we did the right thing, whatever the European Power Services may have to say on the matter. This country is pre-eminent in that art and in due course will reap the benefits of our courage in dealing with the problem.
The noble Lord, Lord Dalton, made a most helpful speech, which, coming from one who has been a distinguished Chancellor of the Exchequer, is all the more acceptable to us. His first point was the question of raising continually the national output. I have already touched on that, but I would add that that is quite right, provided that we export the right proportion. I believe that what my right honourable friend Mr. Butler stated as a target some time ago—the doubling of our standards in 25 years—is still practical politics. As a matter of fact, I think that if my noble friend Lord Dalton looks up the situation, he will find that to-day we are well ahead of schedule.
LORD DALTON: My Lords, would the noble Lord remind me of how many years ago that declaration was first made?
LORD MILLS: I am afraid that my memory does not serve me.
LORD DALTON: I just wanted to watch the passage of the years since then.
LORD MILLS: I have been reminded that it was said at the Blackpool Conference in 1954.
The noble Lord said that this year's Budget had had a cold reception on the Conservative Benches, and I think that he almost ventured a hope that the Chancellor of the Exchequer would regain the ground he had lost. I want to say that I do not believe that he has lost any ground at all. I think that the country already realises, and will realise still more, that he put forward the Budget we had expected from him, a Budget which has no other object except to serve the needs of the country. The noble Lord referred to the tobacco tax
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and profits tax, and took us through what he himself had done in establishing the two rates. He said that if the Chancellor had followed that precedent, he would get more revenue. I do not think that the Chancellor wanted more revenue, so there is no need to bring that to his attention. But the noble Lord did say that he thought these two subjects of taxation, bearing in mind the objective, were well chosen, and I am sure that my right honourable friend the Chancellor of the Exchequer will be glad to have his support, and on the important question of tax avoidance as well, something which I am sure none of us wish to see.
My noble friend Lord Balfour of Inchrye said that in his view it was necessary to give more publicity to our financial position and to the reasons for doing this and that. He quoted
"You lift me up and you knock me down".
I quite agree with him. I think that we should give more publicity, and some of the things I am saying this afternoon are said with the object of giving publicity. I think that we have to give publicity to the need for balanced trade and to the vital need for exports. We have to make this country export conscious, and I am very grateful to my noble friend for emphasising this suggestion.
Then we had the benefit of the noble Lord's views on the Commonwealth and on the question of multilateral trade, and on the differences which might exist in those two conceptions. I have travelled the Commonwealth extensively. I am a great admirer of, and a great believer in, the possibilities of the country which the noble Lord has just visited. But I do not think that the two concepts are incompatible. We do a great trade with Australia, and we do a great trade with India. With Australia, most, if not all, of her products come in here free. But Australia does not hesitate to put up tariffs against us when she thinks it necessary. Nor, I am sure, do we resent that, because Australia is a growing industrial country; and in the end, if not at the time, that helps our trade. So I think it is the right policy. In the case of India, we have invested far more this year than ever before. Therefore, while I go with the noble Lord entirely in wishing to develop in every way Commonwealth trade, I do not think that that

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is inconsistent with trying to get a bigger world trade and sharing in the expansion of world trade.
We had an interesting speech from the noble Lord, Lord Hawke, who gave us the objectives of Gladstone and Lord Keynes. But I could not quite follow the noble Lord in drawing a distinction between hire purchase finance and bank loans, because, after all, even if the public subscribe direct to the hire purchase houses, they have to get the money from somewhere.
LORD HAWKE: Perhaps I may interrupt the noble Lord. I thought I made it clear that they were doing it at the expense of their deposits in the banks or their holdings of gilt-edged securities.
LORD MILLS: I understand that, so far as it goes. But if there is going to be greater credit available, a good deal of it must come, in the initial stage, from bank loans or a reduction in deposit, too: there is not a great deal of difference.
Then we listened to brilliant support from the noble Lord, Lord Merrivale, for the electronic record industry. I suppose at one time, as I was a director of a record company, it would have delighted my heart, but now I take another view, not against the record industry, but one in which that fact does not affect me at all. All I can say is that the Chancellor of the Exchequer will see what the noble Lord has had to say, and I only hope that at the time he reads it somebody is not playing jazz music in the next flat.
I now come to the noble Lord, Lord Stonham. I should like to congratulate the noble Lord. He is the most wonderful exponent I have ever heard of overselling. He does not spare his punches. He says that there has been a shocking waste of the taxpayers' money, and that if there had been a modicum of common sense on the part of the Government it would not have happened. He said that we are "stiff-necked" and obstinate. He referred to what has happened in connection with defence matters, and in the next breath said that the technical changes are so rapid. In other words, he excuses himself, whatever money may have been spent on things that have become obsolete by the time they are produced.
LORD STONHAM: May I make my point clear? It is that this country cannot afford to make and scrap these missiles in the way that possibly Russia and America can. That is all.
LORD MILLS: This country, I suggest, cannot either afford not to do the things it ought to do for its own protection and play its part with its Allies in looking after that.
The noble Lord referred to the Economic Survey, and then said that the true picture is quite different. He accused the Government of having carried through a deliberate trade recession, and he attacked the making of large profits. I never attacked making large profits; I attacked making undue profits. But businesses have necessities. They cannot, as the nationalised industries can, just get their money from a Chancellor of the Exchequer. They have got to plough back money in order to expand and carry on their business. That is the reason for profits being adequate, and perhaps even looking large. I do not think there is anything wrong with that. The noble Lord also made the remark that the Conservative Government believed that the pound would never remain strong until we had 500,000 unemployed.
LORD STONHAM: I must correct the noble Lord. I did not say that the Conservative Government believed that, but that I believed that, while we followed Conservative policies, the pound would not be strong unless we had 500,000 unemployed.
LORD MILLS: I am glad to have that statement from the noble Lord, because the last thing a Conservative Government and the last thing a Socialist Government ever wants is to see unemployment. I want to make that quite clear. The noble Lord referred to the recession as if this country alone had produced it, whereas we were sharing in a world recession. At any rate, that was the impression created on my mind, and that is why I was so venturesome as to congratulate the noble Lord on his over-statements.
I should like to conclude by thanking the noble Lord, Lord Pethick-Lawrence, and all who have taken part in this debate. It has been a useful debate. The noble Lord, Lord Dalton, said that

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it was interesting to him to see how this House in the course of an afternoon dealt with a subject which takes the other place quite a length of time. Well, this is how we deal with it. I hope that the noble Lord, Lord Pethick-Lawrence, has had some satisfaction in initiating the debate, which I think has been a very good one.
6.59 p.m.
LORD PETHICK-LAWRENCE: My Lords, before asking leave to withdraw my Motion I will keep your Lordships for only a few moments. I, too, should like to thank all those who have taken part in this debate for the most interesting contributions they have made, and I feel that I owe them a debt of gratitude for the kind things they have said about me and my speech. There is one point in the speech of the noble Lord who has just sat down upon which I should like further information. If he cannot give me the information now, as is likely, since it is a matter of figures, I should be grateful if he would supply them to me in writing. I think I am correct in saying that he said the contribution or the investment that we had made in India for the past year was greater than in any previous year. I should be glad if he would give me the figures, not because I doubt them, but because I should like to know them. What I should like particularly to know is whether, in making that statement, the noble Lord took into account the fact that at the end of the war there was a large Indian sterling balance, and for a number of years after the war India was drawing down that balance at a considerable rate. In the last year, when the balance had been brought down to small dimensions, the drawing down has been very small. Therefore, instead of that we have been lending and investing money in India. I should like to know whether that fact is taken full account of in the statement—whether he is comparing like with like, or whether he is comparing two things that are not quite on the same footing. If the noble Lord feels like interrupting me, I shall be glad to sit down; if not, perhaps he would send me the particulars in writing.
LORD MILLS: My Lords, may I answer that? Of course, I am aware of the drawing down of the sterling
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balances by India. But India has now become an independent country. We could not prevent India from drawing down her sterling balance, but we could have refused to invest in India to the extent to which we have. I think our record in India, in the investments we have recently made there, is very commendable indeed. I will gladly supply the noble Lord with the information he requires.
LORD PETHICK-LAWRENCE: I thank the noble Lord. I should be glad to have the information, not for any criticism of what has been done, but because I should like to know the facts.
There are some other words used by the noble Lord to which I should like to draw attention. He said that it would be a great help if persons engaged in industry at the present time, and who were almost exclusively supplying the home market, would divert some of their products to external trade. Of course, everyone on all sides of the House will fully endorse that statement. I would point out to the noble Lord that in my opinion the record of Her Majesty's Government does not fully absolve them from blame in that regard, because, in the first place, they encouraged commercial television, which has been a tremendous racket in advertising on an immense scale and is inducing the people of this country to spend money on a great many useless articles; and, secondly, by making such large cuts in the Budget last year they put a great deal more purchasing power in the hands of the home market. Had that not been the case, it might have been that a larger proportion of the manufactures of this country might have gone abroad. I do not say that in any carping spirit, but I think the noble Lord should bear those two facts in mind when he urges British manufacturers to send a larger amount abroad.
LORD MILLS: My Lords, I cannot say what is the result of commercial television advertising and how much that may have benefited our export trade—because in certain industries it is necessary to have a good home basis in order to have exports at the right price. But in regard to the increases in the purchasing power which were introduced into the Budget of 1959, that

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was one, of the movements which was necessary to help trade forward. Of course, fundamentally we take the view that it is necessary to help, or to try to adjust, trade, in order to keep it in balance. I am grateful to the noble Lord for raising those two matters.
LORD PETHICK-LAWRENCE: My Lords, I do not wish to pursue an argu-
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ment with the noble Lord at this stage of our debate. I do not wholly agree with what he said, but that does not matter. I beg the leave of the House to withdraw my Motion.
Motion for papers, by leave, withdrawn.
House adjourned at six minutes past seven o'clock.