§ 3.38 p.m.
§ Debate resumed.
§ LORD PETHICK-LAWRENCE
My Lords, after that tragic interlude about the disaster in another part: of the country, I return to the subject which the noble Earl has brought forward, the Second Reading of the Finance Bill. I should like to preface my remarks on that subject by paying a valedictory tribute to the Chancellor of the Exchequer. We do not have him here in this House in our midst, but we read of his doings in another place, and he has won tributes from my colleagues there, and from others, for his dignity, his perseverance and his integrity, and also for the courtesy, tact and judgment which has enabled him to pilot the Finance Bill, a very difficult Finance Bill, through that House. We are very sorry, I think, in all parts of this House, and in the other House, that he is leaving us. He feels it necessary to retire and, of course, his wish will be accepted. All of us are wondering what manner of man it will be who will fill his shoes— and I say the word "man" advisedly; because, in spite of the fact that that we now have a woman Prime Minister in Ceylon (who will, I have no doubt, in due course come here to attend the Prime Ministers' Conference), I hardly expect that our Prime Minister would select a woman to fill the post of Chancellor of the Exchequer.
I cannot help remembering, my Lords, that some 30 years ago, when I was Financial Secretary to the Treasury and had as my chief Mr. Philip Snowden, a very wealthy and well-known Member of the House of Commons, Mr. Samuel Samuel, gave his annual dinner in the House, to which he invited me, and many Ministers much more distinguished than I was. They included people from all Parties—those in the Government at the time and those out of it—and also financially important people in the City of London and elsewhere. We all had a most convivial dinner together, and at the close we drank one toast; and that toast was, "The public purse". Then, the next day, we started on the most controversial discussion connected with any Budget that I remember in the course of my political life. Well, my Lords, if we are to lose our present 723 Chancellor of the Exchequer, I think we can all, whatever our political and financial views may be, metaphorically drink the toast of "The public purse" and the well-being of the nation.
The noble Earl who opened this debate has, with his accustomed courtesy and, if I may say so, agility, made a most engaging speech. He has recited from memory all sorts of financial facts— which he seemed to be able to do without any reference whatever to his notes— and he has made a very clever defence of the Government's financial policy at the present time. Perhaps he will forgive me if I say that in some respects it was often a little too clever, because what I wondered when he sat down was why, if the facts are all as rosy as he presented them, any financier has any headaches at all, because it is all so simple and it is all going so splendidly well. I shall endeavour in the course of the remarks that I make to call attention to other facts which I do not think are quite so satisfactory as he ventures to think. Very properly, I thought, the noble Earl divided his remarks, and dealt first of all with what is in the Bill; and I propose to follow his example.
The two features that are in the Bill which rank as of greatest importance are, first of all, the increases of taxation and the reductions of taxation, which the noble Earl dealt with perfectly correctly, as we should have expected; and, secondly, the clauses dealing with tax avoidance; and I propose to say a few words about both of them. With regard to the first, I cannot agree that I was ever very happy about the large reductions which the Chancellor of the Exchequer made in 1959, in his famous pre-Election Budget. I was doubtful whether they could be justified; whether they were not too extensive. Then, as to this Budget of 1960, I was not at the time wholly satisfied that it had not become necessary to make greater increases in taxation than the Chancellor actually made. But I said to myself (and I think others who had somewhat the same feeling took the same attitude), "I suppose the Chancellor knows his own business, and if he think that these reductions in taxation are justified, then it is not for us, at any rate, to say that they are not."
724 Looking back upon the situation now, I think we were wrong, in view of the squeeze in various directions, and taking shape in the high bank rate. It is all very well for the noble Earl to speak of little changes in the bank rate which are unimportant, and to say that they are not crises. I think— and I believe this is the view of the country— that a 6 per cent. bank rate, if it is not fully a crisis figure, is a near-crisis figure which has disastrous and near-crisis effects. But the point I am making is this. If that was going to happen when it did, then, looking back on the decision of the Chancellor of the Exchequer, primarily in the Budget of 1959 and later in the Budget of 1960, I think his decision was definitely wrong, because it seems to me to have been entirely mistaken. I do not think you can drive the financial Ship of State by opening the purse and giving allowances to consumers and at the same time block them down by means of a high bank rate. I noticed that, when the 6 per cent. was brought on, The Times said, I think quite correctly, that this new financial squeeze by way of the high bank rate made nonsense of the Chancellor's Budget. I agree with The Times in that criticism.
I turn now to the other main part of the Bill, which is the tax-avoidance clauses. Here I give full credit to the Chancellor of the Exchequer, and I support him in his desire, and that of his advisers, to stop the leaks that have been occuring in the matter of taxation avoidance. I noticed, when reading the debates in another place, that several of my colleagues there in my own Party take the view that, however good the intentions of the Chancellor of the Exchequer may be, the actual clauses of the Finance Bill will not fully achieve their purpose. Now I am not going to say who is right. Only one who is an expert in these tax-avoidance theories can say that; and even they, I believe, would say it with a certain amount of hesitation.
What I will say, however, is this: that I have always had a very high regard for the bulk of the British taxpayers. I think that the great bulk of people who pay taxes in this country, however much they may regret the taxation they have to bear, do their best honestly to make their returns and to pay what they think is their right share. I have the 725 greatest esteem for the great bulk of the British taxpayers in that respect, and I think it is a shocking thing that there are a certain number of people who take a different view and who employ highly skilled accountants in order to "fuddle up" their returns and make it appear that they should not pay as much tax as they really should. I think that is a most shameful thing— these people who seek, by these devious ways, to escape taxation, and thereby throw the burden that ought to belong to them on to other people who pay their taxes honestly. Considering the number of people in this country who pay honestly and up to the full extent that they are required to pay, I think that the people who are guilty of these practices ought to be thoroughly ashamed of themselves. I will put it in a thoroughly English way: I think it is not cricket.
I do not propose to deal with other, smaller points in the Budget, but I turn now to the question of what is not in the Budget of the present year, and I select two matters which I suggest to Her Majesty's Government could well have been in the Budget, and I suggest that they may agree with me that they may find it desirable to include them in a later year. The first is a small matter, which I should say is largely non-Party political. Your Lordships have noticed, no doubt, that there is a great change of practice with regard to the sending of receipts. The old plan was to insist upon a 2d. stamp on every receipt for over £2. If it was to be used for proof of payment in a court, it would not be valid unless a 2d. stamp was on it. I am not going into the whole history of this matter, which most of your Lordships will know full well, but the fact is that in order to evade the 2d. stamp receipt the practice has grown up of not sending a technical receipt at all. This is done not only by small firms, but also by large and important firms and even by public bodies.
I believe that we cannot go back on what has been done, and we must accept the fact that if this 2d. receipt stamp is continued the whole practice of sending receipts will fall into abeyance. I am sure that this has to be dealt with, and the only way is by removing this ancient impost altogether. I beg the Government and the future Chancellor of the 726 Exchequer to face up to reality in this matter and bring about this small change, which must mean a comparatively small amount of money, and so large a part of it has gone already.
The other matter is of much more importance, and here I do not expect the Government are willing to agree with me. Your Lordships will remember the debate we had on the Radcliffe Report. There was one simple thing on which the Report was more or less definite and, I presume, therefore, unanimous— that was, that it was a bad principle to force local authorities to raise their loans in the market. It was only a few years ago that all the local authorities borrowed through the one Government institution, the Public Works Loan Board. I think it was Mr. Butler, when he was Chancellor of the Exchequer, or some later Chancellor of the Exchequer, who altered that, and the present position is that local authorities have to buy loans individually through the Stock Exchange.
I have always opposed this. I was glad to see that, the Radcliffe Committee came out emphatically against this procedure, and I venture to suggest that the Government reconsider it and go back to the old plan. I am supported in this by an article which I have been reading recently by Mr. Harold Cohen in the Lloyds Bank Review for July. I believe it is sound sense. The fact is that it is very inconvenient for all these small loans to be issued, almost daily, and there is no advantage in the present procedure. Originally, the Government had thought that it might induce local authorities to be a little more parsimonious than they were. I do not believe it has had much of that effect. It has proved to be an immense disadvantage to smaller local authorities, and very expensive, and it would be much better to revert to the old system.
In opening the debate, the noble Earl, Lord Dundee, passed from the actual provisions of the Budget and the Finance Bill to the wider canvas on which the whole Budget procedure is painted— namely, the whole economic and financial condition of the country. In regard to this I think that the noble Earl did not paint the picture quite accurately— far from it. I believe that the situation of the country at the present time is a serious one and does not admit of the 727 easy remedies which the noble Earl imagines will cure what is happening.
Let me start with this question of the balance between exports and imports. The noble Earl pushed that aside by saying that it wanted only 1 or 2 per cent. more exports in order to bring the situation into balance. I think it is far worse than that. I think the noble Earl forgets that our trade largely arises from our importing raw materials and exporting finished articles. What we get paid for is the work of changing raw materials into finished articles. Therefore, a great deal more than, say, a 5 per cent. increase in exports is wanted in order to get 5 per cent. in the differential, which is the important position. I do not think that I need enlarge on this matter, because no less a person than the Prime Minister himself is obviously deeply concerned about it. He realises that unless there is a change, a very serious position is going to arise. And I fully agree with him in that.
I think it is essential that changes should come about and that we should act speedily, because this matter does not stand alone. Just let me look at other facts. The trading position of the country may appear satisfactory to the noble Earl, but compared with the trading prospects of almost every other part of the industrial world, it is extraordinarily unsatisfactory. Countries like France, Germany and Japan, of all others, are making strides in industrial progress far greater than ours.
And let me take the question of what used to be called the Funds. To some extent they are regarded as the index of the credit-worthiness of this country. I do not think that the noble Earl will disagree with me when I say that at the present time the value of the Funds on the Stock Exchange is at an all-time low. I do not remember their ever having gone so low before. Then we have the fact that the gold and dollar reserve has begun to turn downwards. I know quite well that there are seasonal fluctuations, but it is a very serious matter that from the low figure at which they have stood, quite inadequate for us as a great banking country, they now turn downwards. That is a factor which has to be taken into account. And these are just some of the facts.
728 I agree entirely with the noble Earl that we have to remember that it is not enough for us, as a great trading country, just to pay our way; we have, in addition, to bear the burden of the support which, from the nation as a whole and from private individuals, is being given to the under-developed parts of the world. Finally, there is the delicate and difficult matter of the Six and the Seven in Europe. I think it will need all the diplomacy and all the wisdom and financial skill of the Government if they are going successfully to get through the narrows of that problem and come out at the end no worse than they are at the present time.
Those being, as I see them, the facts, a great deal more lugubrious than those the noble Earl was content to put forward, I think we have to face to-day a very serious situation, and we shall not get through without a great deal of thought, trouble and courage. What are the proposals which the Government have for dealing with this situation? So far as I can see, there are three. The first is that the Government themselves shall make a self-denying ordinance that they will not spend more next year than they spent last year. I may be wrong, but I have at the back of my head a recollection that two or three years ago they said something of the sort and at the end of the chapter the one thing I remember was that the then existing Chancellor of the Exchequer could not see eye to eye with his colleagues and resigned. When the new Chancellor of the Exchequer is proposed, I wonder whether he is going to take the same course.
But, quite apart from that merely personal episode, I think this whole suggestion is a bad one. It is bad for this reason: it will not prevent extravagance if certain influential people are determined to have it. What it will do is provide an excuse for cutting down on really useful things which the Government ought to do and which they are prepared to do but which a certain number of people rather hope they will not do. Sometimes people imagine that it will be a good example to set to the industrialists. I venture to think that that is a bad argument, because, like so many other schemes of the Government, it is a quantitative and not a qualitative discretion.
729 I believe it is much more important that we should use a qualitative control, because it is through a qualitative control and sound investment that we are going to make for the progress of the country.
Secondly— and this is a matter to which the noble Earl made reference in his remarks— there is the statement that we must be prepared to see more frequent ups and downs in the figure of the bank rate. The noble Earl need not be alarmed that we are going to quote him in the matter, because the Chancellor of the Exchequer has himself said so. That appears to some people— and it appears to the noble Earl, apparently— as a very good plan. I think it is a thoroughly bad plan, and I am sure that in that I have the support of a large number of the industrialists of this country. What an industrialist wants to know when he is laying plans for the future is what assurance he has of continuity in Government policy. If he makes his plans on one assumption, and before those plans are brought into being the whole basis of his assumption is proved wrong, because the Government have changed the figure of the bank rate and made a squeeze where there was none before, or vice versa, that cannot help him at all. Therefore, I think one of the worst proposals that I have ever heard is that we are to have frequent changes— I do not think I am exaggerating— up and down in the figure of the bank rate. I regard it as mischievous and most undesirable, and I believe that a large number of business people will wholly endorse what I have said.
The third proposal—well, it is not exactly a proposal, but an action by the Government—is to sell back to private enterprise prosperous Government concerns. I am not one of those people who like to come to a conclusion without hearing all the facts; I like to hear both sides of an argument before I make up my mind. I took the trouble —and it was rather-laborious trouble— of reading through practically the whole of the debate they had in another place on the sale back of the Richard Thomas and Baldwins concern. I looked to find arguments put forward on my side and arguments put forward on the Government side. But I looked in vain. I read with the greatest care the two ministerial statements, but they did not put forward one solitary argument in the national 730 interest. All that they said was: "Well, we won the Election. At the Election we said we were going to de-nationalise; and we do it." But they did not give any reason why, from the point of view of the Government, that was a sensible thing.
I think the House knows me too well to think that I am putting this forward merely as a Party political view. I realise, particularly in times past, and even to a great extent now, that the country owes a great deal to those industrialists and pioneers of industry who have brought into being large, useful and important enterprises in this country, and who in many cases risked their own capital in achieving that object. But personally I regard this as something quite different. Here was a concern, admitted on all sides to be thoroughly prosperous, thoroughly well run and very efficient, and the Government, apparently for ideological reasons, propose to break down the system and hand it over to private enterprise. To me it does not make sense; and unless much better arguments can be produced than were produced in the other place I shall remain firmly of that opinion.
What I want to get at is this— and I say this advisedly from as near to a non-Party point of view as a person speaking from this Bench can get. I am terribly afraid of the scramble in this country at the present time for personal prosperity and wealth. I do not care from which side it comes; I think it is a very dangerous system. People are anxious to feather their own nests and let the country go hang. I remember very well, as I am sure practically everyone in this House old enough to remember will, the great speech of Mr. Winston Churchill When he offered to the nation, not wealth or ease, but blood and sweat; and the country took up the challenge and gave its blood and sweat. And shortly afterwards Churchill said that he thought it was the country's "finest hour".
That, of course, was in time of war, and we are now in time of peace. The frightful menace that faced the country at that time has been removed. But, if I am not mistaken, the economic crisis which is facing this country at the present time is, in its own way, in its threat to the survival of this country, comparable even with that terrible crisis in those days of war. If we lose the 731 struggle for economic recovery and for holding our own in the world, we cease from being a great nation; we go down from our great standard and become one of the minor nations of the world. If we want to win that struggle we can win it, not by putting private interests and private wealth in front— we must put them behind— but by standing together and caring first and foremost for our country and for the well-being of our people in these Islands and overseas.
§ 4.10 p.m.
§ LORD GRANTCHESTER
.My Lords, I think we all appreciate the lucid and courteous manner in which the noble Earl has explained the intentions of Her Majesty's Government, and their hopes as to what their actions will achieve. I agree with the noble Lord, Lord Pethick-Lawrence, when he spoke of the necessity for qualitative considerations when it comes to determining Government investment. Economists have called the yearly Finance Bill an instrument of Government policy— perhaps the most important instrument of policy in the hands of Government. I think everyone will admit that what appears in a Bill such as that before us has an influence upon the economy and an influence greater than its mere provisions would imply. I say greater than would appear on the face of it, because we must not underate the psychological effects of many of the clauses of this Bill, to some of which I should like to refer. For instance, an impression given of harrying the taxpayer or of persecution is very detrimental, whether It is true or not.
Ministers have not been silent recently. We have had exhortations to adventure; to go out into the world to sell; and to play the role of merchant adventurers. We have been exhorted to work harder; to produce more; to modernise our methods and our machinery so as to be able to hold our own in a competitive world. I make no complaint at all about these admirable and rather obvious sentiments. We have been told that the Government do not export anything themselves and that they are dependent upon the enterprise of individuals. This admission of dependence is welcome. So demoralised by false teaching were we becoming, that when we noticed that something needed to be done we were 732 often caught saying, "The Government should do something about it", rather as if Ministers were all-powerful gods.
We are living in an awakening world, a world of awakening peoples and of awakening individuals. The very air is vibrant and alive. Perhaps we have been somewhat slow in catching the spirit of the new age. If so, we may well ask, why? I would answer that one of the reasons is that we are being held back by Bills such as the one we have before us to-day. I would ask that your Lordships should pass judgment upon this Bill remembering the exhortations which have been made to us. As I have said, the words of Ministers have been fine and right. If this instrument of policy— this Finance Bill— links up with those words, your Lordships will, I suggest, say that this is a good Bill. But if it is a hindrance, then let us say plainly that we think it is a bad Bill.
May I give a few examples of what I think are sins of commission and sins of omission in this Bill? In conjunction with the present taxation levels, take, for instance, Clause 28. This is a blanket clause which originally gave the Revenue unlimited powers to nullify an alleged tax advantage if in their opinion a tax benefit was one of the main objects of the relevant transaction. I am glad to see that this power has now been restricted to certain transactions, but the attitude of mind which can bring forward proposals of this sort is to my mind quite incomprehensible. Do the authorities really think that a citizen, having the option to do a transaction in two ways, will, or even should, choose the way which will make his liability to tax larger? Do the authorities wish to create a nation of imbeciles? Because that is really what it amounts to. Perhaps the fact that this is Mental Health Year has something to do with it. Even in limited circumstances, for the authorities to seek to put themselves above the law because no offence is defined, and to oust the jurisdiction of the Courts by introducing a Board of Referees is, I think, undesirable.
The sooner the Government admit— and I think the noble Earl this afternoon did make half an admission, for which we are grateful— that it is the over-high level of taxation which has corrupted the taxpayer, the better. If it, affected 733 only a few people who could do things on the grand scale, as the noble Lord. Lord Pethick-Lawrence, implied, it would not be so bad for the national character. I emphasise, "for the national character." But the corrupting influence, as we all know, has spread so far that many of the smallest taxpayers are to-day affected, and if they are not affected they are stultified. Why do not the Government take some of the critics of the present level of expenditure and put them into the spending Departments? For I agree that it is the decisions on expenditure which are vital and which govern the level of taxation. The enterprise and initiative and extra effort for which Ministers are calling will not appear if the reward is considered inadequate. We must remember that merchant adventurers were made because there were glittering rewards for the successful adventurer, with a profit share-out among the participants. I suggest that the example set by throwing over our long-cherished tradition that no man need prove his innocence is far-reaching and is injurious in the long run to the professed aim of Her Majesty's Government.
My Lords, having mentioned these sins of commission, may I refer to two sins of omission which I think are equally unfortunate? I have already mentioned the call for modernisation. There is not one word in this Bill to make anyone believe that the problem is understood. In some industries in this country we are in competition both with American industry and with industries in the Common Market. The regulations in America and in the Common Market are somewhat different, but taxwise they are the same, Plant and machinery may be depreciated over a short period of eight years. Talk by Ministers about the necessity for keeping up to date provokes some scepticism in those to whom this exhortation is addressed while our taxation laws remain unmodernised.
The other insistent call at the moment is for more exports. Is there anything in this Bill which would lead anyone to believe that exports were vital to the economy or to give any incentive to export? One hears bitter criticisms and complaints from exporters and from firms who try to obtain orders from abroad, complaints that they are at a disadvantage, compared with, for instance, 734 the Germans or Americans. Here I should like to pay a tribute to the noble Earl who is sponsoring this Bill, for the most courteous and careful way in which he has replied to a number of letters which I have passed to him from people who have made complaints. He explains with great care the rules of the Berne Convention and invites firms to pass to him any evidence that they are not being complied with or are being circumvented by any signatory Government to the Berne Convention. But it is clear that there is great dissatisfaction, and current correspondence in The Times, I think, confirms this.
The Minister responsible for the Export Credits Guarantee Department has an advisory committee to help him. I do not know what responsibilities rest upon this committee, but could we not be told a little more about the functions of this advisory body? If they have made any special recommendations to help exporters, what has happened as a result? Would it be possible for a yearly report to be published about the work done by this advisory committee? Although a number of eminent gentlemen give their services on this committee, it might not be a bad idea to shake it up occasionally and perhaps put some of the critics on it and see what they can do. Committees tend to get out of touch with what is happening unless their members are individually up against the problems involved.
There is another matter which I think I ought to mention. One hears business men everywhere saying that they themselves can very well cope with the commercial risks connected with their business, but they are not prepared to jeopardise their own assets or to risk their shareholders savings in taking political risks which, because of the increasing intervention of Governments in business, overshadow so many transactions. It is particularly necessary, I suggest, that this matter of political risks should be discussed as a matter of urgency, particularly between this country, Western Europe, the United States of America and the members of the Commonwealth, and that this matter of political risks should have priority over discussions concerning the development of the less industrialised parts of the world.
If real progress is to be made in any such development, it must very much 735 depend, under present conditions in many countries, upon a satisfactory insurance scheme against the political risks involved. This is a risk which Governments have introduced and have made infinitely greater by their actions than ever before. It is therefore up to Governments to deal with it, I suggest, within a framework of law and order, so that trade can freely flow. I regard the political risks in the world to-day as akin to the risk of piracy in the Middle Ages. Some of the actions of Governments to-day bear a close resemblance to what was called piracy in the Middle Ages; and piracy had to be suppressed before traders could go about the world on their legitimate business.
As this Bill is a main instrument of Government policy, we are, I think, entitled to raise its effect or its lack of effect on the economy, and there are one or two other matters to which I should like briefly to refer, particularly as the noble Viscount, Lord Mackintosh of Halifax, is going to speak a little later. National savings are, I understand, falling at the moment, and the view has been expressed— I do not know whether the noble Lord will agree— that this is due to fears of renewed inflation. I have said before that in my view inflation is almost inevitable if the Government spend more than they collect in taxation or raise in the market. The Government have increased recently the money supply to finance their commitments, and in an attempt to avoid the inflationary effect of so doing have sterilised with the Bank of England £200 million of private deposits from the joint stock banks. If a Socialist Government had done the same thing, I wonder whether the public might not be going round to the banks to draw out their deposits, for it is their money, or in part their money, which is being transferred from the banks in which they deposited it to the Bank of England, at the order of Her Majesty's Government.
We have been told that it is desirable to check the excesses of the hire-purchase system. Then, I would ask, why do the nationalised industries lead the way in offering easy terms for payment for the goods they sell in competition with private retailers? I ask, is this Bill designed—
§ LORD STONHAM
My Lords, may I interrupt the noble Lord? Is it suggested that hire-purchase conditions in the nationalised industries are different from those in private undertakings?
§ LORD GRANTCHESTER
I understand that one can buy from the show rooms of the Gas Boards and the Electricity Boards on easier terms than were usually offered by private traders, and that the excuse for making private traders terms easier is the example set by gas and electricity undertakings. I ask, is this Bill designed to express the Government's policy on any of the important matters to which I have referred?
THE EARL OF WOOLTON
My Lords, I wonder whether I may interrupt the noble Lord for one moment. I apologise to him, but if I heard him rightly it seemed to me that he was suggesting that if a different Government had been in power there would have been justification for people to go to the banks and ask for their deposits back— a most dangerous remark. I hope he will make it quite clear that there is no call for people to take any such action now. The noble Lord's position is not clear. I know he was making a political remark, but the economic consequences of it might be most serious.
§ LORD GRANTCHESTER
I will tell the noble Earl what I have in mind. I remember, I think it was some time in the 1930's, when it was suggested that savings in the Post Office were being used by the Government. At that time there was a run on the Post Office by people who wanted to draw out their savings. It was certainly not necessary for them to do that then; nor is it necessary for people to go to the banks to draw out their deposits now. I make that perfectly plain, and I thank the noble Earl for enabling me to make the point plain. But when such things are done, they set in train ideas in people's minds. I do not like the Government to tamper with savings which are put into private institutions and entrusted to those institutions— in principle, I think it is undesirable.
THE EARL OF WOOLTON
I was only asking the noble Lord to give the public a sense of security instead of one of insecurity.
§ LORD GRANTCHESTER
The noble Earl knows what happened. He remembers as well as I do what happened to Post Office savings in the 1930s when that scare was started.
This Bill is full of complicated administrative provisions which, in many ways, seriously affect the freedom of the individual. These administrative provisions are buried, so far as we are concerned, under its certificate as a Money Bill. The Government tabled a large number of Amendments to this Bill in its later stages in another place. They were Amendments to its administrative provisions. Can anyone pretend that they have received proper consideration? Lawyers who specialise in this field confess their inability to understand many of the clauses of this Bill. Provisions such as are contained, for instance, in Clauses 25 and 26 are more involved than many clauses in the Companies Acts. It might not be a had thing if the Chancellor of the Exchequer could sometimes attend in your Lordships' House and answer your Lordships' criticisms. Your Lordships are debarred from making any Amendments to these administrative clauses; your Lordships can say only that this is a bad Bill. For the reasons which I have given, among others, I hope that your Lordships will say so in no uncertain terms.
§ 4.36 p.m.
§ VISCOUNT MACKINTOSH OF HALIFAX
My Lords, you will be glad to know that I do not intend to take up more than a few minutes of your Lordships' time, for although I think that this Bill, on the whole, is a good Bill, I do not feel competent to speak about it as a whole; I speak only as to its effect on national savings. There are other noble Lords here much better able to discuss the wider aspects of the Bill. I am sure it will not be long before the noble Lord, Lord Brand, will be giving us the benefit of his wide experience. In his Budget the Chancellor of the Exchequer did not give the Savings Movement any new tools, but he sharpened some of our present securities, particularly Premium Savings Bonds, which are dealt with in Clause 71 of this Bill. I welcome those provisions and their effect on the Bonds. At the same time, I should like to offer your Lordships some explanation of the background for these changes, for in the 738 clause itself there is no real indication of what it is all about.
Premium savings bonds were introduced by the present Prime Minister when he was Chancellor of the Exchequer in 1956. The bonds broke tradition in many ways and were not launched without some initial controversy. I am glad to say that the bonds soon settled down and have become a worthy part of the National Savings family of securities. Some 12 million people have already bought bonds worth over £300 million, and even alter three and a half years the encashments have been so low that over £260 million remains invested. It is not generally realised, I think, that in fact the encashments of premium bonds are much less than in any other form of National Savings. But during the twelve months or so before the Budget there had been some falling off in the popularity of these bonds— and, after all, when they were introduced in 1956 we had had no experience of this type of security. We felt, therefore, that after three years' experience it was time to have another good look at them. We arranged, therefore, for a professional market research investigation. Some 7,000 people of all types in all parts of the country were interviewed. The results, generally speaking, were as follows.
In the first place, it was found that the public generally were well satisfied with the bonds. The majority of holders wanted more prizes, rather than bigger ones, but there were a substantial minority who wanted to have rather bigger prizes. Only 2 per cent. of the people interviewed had encashed bonds, and in nearly every case they gave as the reason their need of the money. Only 8 per cent. complained that they were tired of waiting for a win; and only 2 per cent. considered that the odds were poor. Less than 3 per cent. of those interviewed objected to premium bonds on moral grounds. The chief complaint was of the six months' waiting period after purchasing the bonds before they qualified for a drawing.
As a result of this inquiry the Finance Bill, in Clause 71, has redesigned the bonds to meet these apparently conflicting demands. There will be both bigger prizes and more prizes; so in a sense 739 bond holders will be able to have their halfpenny and enjoy their cake. From November 1 next there will now be from eight to ten prizes of £5,000 each month, as well as the usual number of £1,000 and £500 prizes. But there will be fewer prizes in the medium brackets, with a good many more £25 prizes. For instance, in a typical month, with a prize fund of just over £800,000, the total number of prizes will be increased by over 3,000 to a total of nearly 22,000 prizes in all. The six months' waiting period has been shortened to three-months. Each bond will contribute only one month's interest to the prize fund, whether the bond is in the draw for the first time or has been in the draw before. At the same time, the rate of interest on which the prize fund is based is being increased from 4 per cent. to 4 ½ per cent. The effect will be to shorten and stabilise the odds. The new bonds come on sale on August 1 and the new prize fund will operate from November 1.
I anticipate a big revival in the sales of these bonds from now onwards. Indeed, ever since the Budget announcement sales have improved. One thing in favour of the premium bond is that it is largely money which would not have come our way in any other way. It has tapped a new source of National Savings for the country. Further, premium bonds have this to recommend them: they bring a bit of excitement and fun into the lives of millions of people with every monthly draw. In fact, I have been half afraid that the Chancellor of the Exchequer would rope them in for entertainments tax, instead of allowing prizes to go free of tax. We have to keep a proper sense of proportion, however, for although premium bonds get more publicity, because of their entertainment nature, they are only a very small part of National Savings as a whole— less than 5 per cent. of the £7,000 million, which is the new record total we have just reached.
§ LORD BOOTHBY
My Lords, if the noble Lord will forgive me for interrupting him, I have held premium bonds for a very long time, and so far I have had neither excitement nor fun.
§ LORD MACKINTOSH OF HALIFAX
Noble Lords must wait until after November 1. Some 25,000 people do get that every month, and I hope that the noble Lord's turn will come, for I am certain that he deserves it.
But to return to what I was saying, this sum of £7,000 million of total savings is equivalent to savings of £135 per head of the population, men, women and children, or £475 per family. It represents over a quarter of the National Debt and is almost equal to the total deposits in all the London clearing banks. All this vast sum, which is at call, we must remember is the property of the small savers of the country— a proof of the confidence the ordinary men and women of this country have in Britain. The noble Lord, Lord Grantchester, suggested that it was fear of inflation that was now keeping back sales. I do not believe that for a moment, for, as the right honourable gentleman the Chancellor of the Exchequer said in his Budget speech, speaking of personal savings in general and National Savings in particular [OFFICIAL REPORT, Commons, Vol. 621(No. 91), col. 36]:It was a practical demonstration of confidence in the policies of the Government, and it was a most important factor in the attainment of expansion without inflation.Although they are not part of the Finance Bill, the Budget gave encouragement to all our securities, National Savings Certificates, Defence Bonds and deposits in Post Office and Trustees Savings Banks, mainly by increasing the permitted holding of those securities. Last year saw record National Savings figures. The net total, including accrued interest, reached £385 million and completely covered the overall deficit of the Chancellor of the Exchequer. I had hoped that this year we might raise at least £318 million to cover the anticipated overall deficit for the present year. Unfortunately, circumstances have changed and made it—not impossible but more difficult for us to achieve that total. To date, after sixteen weeks of the financial year, net National Savings have yielded just on £100 million, against £125 million in the same period last year. When, in January last, the bank rate went up to 5 per cent., and after credit was tightened in April, I felt that National Savings were going to be somewhat at a disadvantage. In fact, we surmounted 741 that hurdle pretty well; but now that we have a 6 per cent. bank rate the going is tougher. For instance, we have just launched a new issue of 5 per cent. Defence Bonds of which investors will, for the first time, be able to take up as much as £5,000 worth. The issue has not started too badly, for these bonds have many advantages for those who want to be safe and sure in days when investments are exposed to all kinds of risk and uncertainty. But all the same, when I look at the state of the Gilt-Edged market and at what is being paid on various fixed-interest investments competing with National Savings— for example, deposits with local authorities— I find myself wondering if a 5 per cent. Defence Bond can hold its own.
It seems apparent that we are shortly to lose the Chancellor of the Exchequer, Mr. Heathcoat Amory. In my nineteen years in National Savings I have worked with nine Chancellors of the Exchequer, of all Parties, and I have found all equally helpful and encouraging to the Movement; and I would mention particularly the noble Lord, Lord Dalton, whom I saw here earlier to-day. I have in my office photographs of all these nine Chancellors, and I have an empty frame for the tenth. But we shall always think— and I speak here for the whole of the National Savings Movement— of Mr. Heathcoat Amory with very special affection, for it was during his term of office that we had our "golden years"— to use a term which he himself used.
§ 4.49 p.m.
§ LORD BRAND
My Lords, I should like in the first place to echo what was said by the noble Earl who introduced this Bill about Mr. Heathcoat Amory. I happened to be a colleague of his for many years on the Board of Lloyds Bank, and I have never known a more upright, reliable or intelligent man. I regret very much that he is leaving his present position, but I am quite sure that he must have good reasons for doing so. I listened with great interest to the noble Earl's introduction of this Motion. I wish I could retain in my head (although perhaps I am a little older than he is) all the figures he retains, so as to be able to do with as few notes as he uses. I thought his was an admirable elucidation of the financial problems of the country.
On the other hand, I did not think that he would be likely, speaking as a 742 representative of Her Majesty's Government, to say anything very pessimistic about the present state of the country. In this respect I am rather inclined to echo what was said by the noble Lord, Lord Pethick-Lawrence: that we may face possible difficulties of a very considerable importance with which it may not be easy to deal. We do not face them at the moment, but they may come, because the world does not look quite so good as it did a short time ago. What I want to do is to say a few words about what I think the noble Lord, Lord Pethick-Lawrence, will agree with me is the central economic and financial problem of this country; that is, our balance of payments and our country's reserves compared to its liabilities. I intend to devote my remarks to that subject.
It is the insufficiency of our reserves and our inability to build them up ever since the end of the war that has been our chief problem. It is this that has been the headache of every Chancellor of the Exchequer; it is this which compels any Government to resort to restrictive measures in order to ward off any danger of a run on sterling and an exchange crisis. We have seen what the present Government have had to do lately, foreseeing some possible difficulty in the future. Personally, I entirely support the comparatively mild measures which the Chancellor of the Exchequer recently put into force; I believe that the steps he took were necessary. They arise from the fact, as I have said, that we have not solved our fundamental problem, which is that the net surplus of our annual balance of payments is not sufficiently substantial to enable us to increase our reserves sufficiently.
At the end of 1954 our gold and convertible currency reserves were £986 million. On the other side of the balance sheet, our liabilities, namely, our overseas sterling holdings, were in the same year £4,179 million. In 1959, five years later, our overseas sterling holdings were a little bigger, £4,209 million, and our currency reserves were just a little less, £977 million. Therefore, taking both these years, five years apart, we see that we have moved no further towards building up our reserves. I believe that before the war our gold and dollar reserves were 100 per cent. of our sterling liabilities. They are now about 25 per cent. Moreover, it does not look 743 as if our reserves position has improved much during the last few years.
What I say is not entirely true, because in the crisis of 1955 we borrowed heavily from the Export-Import Bank in the United States and from the International Monetary Fund. We have recently repaid these loans and, in addition, we added substantially to our subscription to the International Monetary Fund: our total now amounts, I believe, to some £140 million in gold and convertible dollars. This gives us a much larger borrowing power than we had before. It will be very useful if ever another crisis arises, and to this extent our position is stronger. But we have not yet moved towards strengthening our own position. We are still like a bank whose own reserves are known not to be large enough to meet its possible liabilities. This has been our predicament for years. It has led to more than one devaluation of the pound sterling. It is our constant headache which we have never been able to cure.
The real question, therefore, is this: Can we add, year by year, to our reserves until, at any rate, 50 per cent. of our liabilities is covered by our reserves? This, of course, we can do only by an excess of exports, both visible and invisible, not only over our imports but, as the noble Lord, Lord Pethick-Lawrence, said, over what we find ourselves either obliged to lend or think it necessary to lend abroad. Such lending (and this is often not understood, I think, in either Party) can be done only out of the surplus of our exports, visible and invisible, over our imports or out of our reserves. Therefore, to accomplish what I regard as our most vital objective we must either increase exports, visible or invisible, or decrease imports, or do both, or, as an alternative, lend less abroad, whether to developed or underdeveloped countries. I will not weary your Lordships with a mass of figures from the Economic Survey and other Government Papers. It is sufficient to say, as an example, that in 1959 our imports exceeded visible exports by £58 million. On the other hand, invisible exports amounted to the large sum of £431 million. But, first, after taking account of Government expenditure abroad there remained a net current surplus of only £145 million; and secondly, 744 after taking into account our capital investments abroad there was a net deficit in this year 1959 of £140 million, which must have come out of our reserves unless, meanwhile, our creditors increased their balances with us. If they did so, this, of course, would involve an additional liability.
How, then, can we export more? Or how can we increase our invisible earnings? Or how can we restrain the growth of imports? These are all much too large questions to discuss in detail here, but it is these questions which we must face. A day or two ago, I looked at the Board of Trade Journal for July 22 of this year, which shows that our exports are very large. We export about £10 million a day. That sounds enough, but it is not enough. We import the same amount or a little more. The Board of Trade say that while our exports are very large and have increased in the last year, our exports of manufactured goodsagain increased less than the average between 1957 and 1959 and in the first quarter of 1960. The countries expanding their exports vigorously were Japan and nearly all Continental European countries".Further on, the Journal gives as "its main conclusion" thatin 1959 the expansion of United Kingdom exports and manufactures was once again significantly less than the average rate achieved by other manufacturing countries".It adds that,the trend as regards manufactured goods, which has now been evident for many years, for this country's exports to grow more slowly than the exports of most of the other principal manufacturing countries continued over the 1957 to 1959 period.That, my Lords, is rather depressing reading. Germany, on the other hand, as all your Lordships know, not only has found no difficulty in adding very greatly to her reserves, but has been actually embarrassed by the size to which her reserves have grown. Recently, she has made a very large loan— something like £50 million, I think— to the International Bank in Washington as a means of reducing her official net reserves, although this sum is only on loan. I have read to-day— I do not know whether any other noble Lord has also seen it— a most interesting article in the Financial Times by Mr. Harold Wincott, whose name is no doubt known to your Lordships and who has 745 apparently just visited Germany. His conclusion, in which I think there is some truth, is that the great thing is to be hopelessly defeated in a war and then to become an ally of your late enemies, so that they have to support you. You should apparently have your factories largely destroyed so that they can be rebuilt completely anew, and you should have your labour force feeling that they have got to work like the devil in order to get right again, and that they cannot ask for more wages until things have been put right again.
I would add (though Mr. Wincott does not say this) that I have always thought it slightly ironical that Germany received a great deal of Marshall Aid. I think we did, too: I do not know who received the most. But before Marshall Aid came into force we, who had fought the whole war from the first day to the last, were in a very bad way so far as exports and imports were concerned, and we borrowed from the United States and Canada very large sums of money. Those sums were not absorbed in Marshall Aid; and we, and we alone, the country which fought through the whole war, are paying to this day interest and sinking fund on these loans amounting to many millions a year.
I do not know whether the Germans work harder than we do. I think they are better at exporting. In 1941, in the early part of the war, I went in command of ten or more exporters, strangely enough, to South America, on an expedition which I remember Lord Keynes described to me as purely a piece of exhibitionism on the part of the Board of Trade, because we were supposed to get more orders for exports, whereas, because of what we were doing in the war, we certainly could not make more exports. But it was a most interesting experience. We travelled through every State of South America. I got the strong impression there that the Germans somehow integrated themselves more with the populations of the South American countries than did the agents for the English firms. Some of them married Brazilian wives. They all talked either Portuguese or Spanish, and they seemed to go about their task in a way that probably we, being more insular, find it difficult to do. It is probably our insularity that still stops some of our exporters taking much trouble. My 746 experience in banking was that whenever a German, a Dutchman, a Belgian or a Swede came into our office we always talked English and not German, French or Swedish. They always talked English perfectly, whereas we talked very few of their languages. Such knowledge of languages, no doubt, helps them when it comes to exporting.
I would, however, say that the greatest difficulty about our small exporters is revealed by Mr. Harold Wincott to-day, when he points out that a small exporter has to take a great deal of trouble, yet if he makes profits they are nearly all taken away by the Government, owing to our huge taxation, so why bother? I should think that that is a very strong influence. I may say that an eminent German banker told me a day or two ago that German banks prefer German industries whose plants were completely destroyed during the war. They were a much better risk than industries which had had their factories only partially destroyed, because those industries then patched up their old factories, whereas the totally destroyed ones built a perfectly new factory and were in a much better position to make profits.
I think it is likely that we are entering on a more difficult stage so far as our exports are concerned. I see that exports were down in June. That may be only a "flash in the pan", but it looks as if industry throughout the world is going down slightly. I see that in to-day's Financial Times there is a large heading reading "World-wide check to U.K. exports in first six months of 1960". We may therefore be reaching a somewhat difficult position. The question is: how, in such circumstances, can we maintain our exports and not increase our imports? I suppose one consideration is whether we are going to face another round of wage rises following on the railway settlement. If we do, our export position will become even more difficult, and if our imports stay up we shall perhaps reach a position where the Chancellor, whoever he is, will have to take further restrictive measures, which would be very unsatisfactory.
If we were a Communist country, I suppose we could easily solve this problem, because people would have to do what they were told. I imagine that if there were a local Mr. Cousins in Russia, 747 or a Mr. Ted Hill, they would not be allowed to play much part; neither would the shop stewards or anybody else be able to put a spoke in the wheel. I do not know whether the Labour Party would regard as a wrong view or a right view that these problems are much more easily dealt with by Communist countries, unless, that is, we can educate our population sufficiently to understand what is involved. But how can we educate millions of people to take an interest in the balance of payments? I do not know. I do not think you will ever interest them in the balance of payments. We shall cone back then to relying on the Government's taking measures, whatever they may be, to see that we do not get into a situation again where we shall be in danger of inflation, or in danger of a sterling crisis. The Government seem to me to be the only authority with power to deal with these problems, helped by the advice of the Bank of England.
What I have said is for the purpose of persuading your Lordships that this question of our reserves is the central and most important problem of the country. We shall never meet the dangers of crisis until somehow or other we increase our central assets, our gold and currency reserves, to a point where the world will understand that we are perfectly capable of safeguarding our currency.
§ 5.10 p.m.
§ LORD NEWTON
My Lords, in addressing your Lordships for the first time, I ask for your Lordships' indulgence towards the shortcomings I shall disclose and the errors of terminology and, indeed, of argument which I fear I shall commit. I am conscious that, although I was a Member of another place for nearly nine years, the last six of them were spent in virtual silence because of the nature of the posts which I held. I am also aware that it is 18 years, 7 months and 23 days since a member of my family last spoke in this Chamber. I shall try to be as diligent a Member of your Lordships' House as my grandfather was.
I think it would be not fitting for me to offer any comment upon the speeches of the noble Lords who have preceded me in this debate, but it is an honour 748 for me to follow them. It is an honour to be speaking in this debate, in which there are so many distinguished speakers, and perhaps I may say that I am particularly honoured to be speaking in a debate which is to be wound up for the Opposition by the noble Lord, Lord Pakenham. Your Lordships may agree with me that it is appropriate that I should be doing so when I tell your Lordships that, when I was an undergraduate at Oxford, the noble Lord was my tutor—a very agreeable experience for me but, I fear, an unrewarding one for him. The subject which the noble Lord taught me was called, appropriately enough, politics. I must add, in fairness to the noble Lord, that it is not his fault and should not be held against him that I sit on this side of your Lordships' House.
I supported this Bill in another place—I should have liked to speak on the Second Reading in another place—and I support it here to-day, because it incorporates the provisions of a Budget which at the time seemed to me to meet the needs of the economic climate, and I still think so. There were some who professed disappointment and, indeed, amazement that the Budget did not contain handsome reductions in taxation; but, with all respect to those who took that view, I am unable to understand how anybody who had studied the omens between the turn of the year and Budget Day could adopt that attitude of mind. The Chancellor of the Exchequer had to face an increase of above-the-line expenditure of £340 million. I want to say a little more about that later. He was also determined to do whatever he believed necessary to prevent the return of inflation, to protect sterling and the internal purchasing power of the pound. How right he was.
I do not wish to be banal, but I have no shadow of a doubt that stability of the price index has been by far the biggest blessing we have enjoyed in the last 2½ years. I know it is probably the case that most people in the country benefit from creeping inflation. I know that anything but a very low level of unemployment is not tolerable and that fear of it, because of past history, is a psychological factor which permeates the whole of our society. But I know, too, that inflation causes as much misery to those who are affected by it and can do nothing about it as deflation ever did.
749 They are a smaller number. They are less vocal. They bear their burdens with stoicism. But they cover a wide range of society and, rightly or wrongly, they happen to believe that relative standards matter. No one who has represented in another place a constituency such as mine was could ever fail to support policies which were genuinely and deliberately designed to prevent inflation, however unpopular or disappointing those policies might be in other respects.
Much has been said this afternoon of the clauses in Part II of the Bill which relate to tax avoidance, and I suppose that those are the clauses which have aroused the most controversy. It may be that there would not have been any controversy at all, or at any rate very little, if they had been introduced at the same time as a Budget containing popular tax reductions, but we have not had that sort of Budget this year and, as I said just now, I do not see how we could have. None the less, these clauses seem to me to be fair and right.
I am as aware, I suppose, as anybody that there is probably no harder way of earning a living than farming, but I do not believe that this Bill is going to hurt the genuine farmer. I have no sympathy with those who want to strip dividends or wash bonds. Since it is the law that incomes shall be taxed, it is clearly in the interests of the general body of income tax payers that all taxable incomes should in fact be taxed. But it should be recognised that it is a most important principle, and one that must be safeguarded, that a man has the right so to arrange his financial affairs that they attract the least possible tax. I am the last person to want to see a situation in which the gentlemen from Somerset House could direct otherwise.
It seems to me that the trouble arises when tax avoidance measures are pursued too far in a certain direction and so become a scandal. But this problem would not arise at all were the general level of taxation not so high as it is. People would not go to the bother and expense of employing experts to advise them how to pay less taxation by the devious, though legal, arrangements to which the noble Lord, Lord Pethick-Lawrence, referred in his speech, unless they were deeply aggrieved by the determination of the State to take away from them so much of their own money.
750 If one looks at the point objectively, it is surely an extraordinary commentary upon our civilisation that one of the best qualifications for a highly-paid job in industry to-day is a period of service in the Department of Inland Revenue. We in this country have cultivated a linguistic convention to the effect that there is a difference between tax evasion and tax avoidance, the former being illegal and the latter legal. But if you look up the word "evade" in the Oxford English Dictionary, you will find that one definition is "avoid"; and if you look up the word "avoid", you will find that one definition is "evade". It really amounts to a distinction without a difference, the distinction being that in one case you offend against the letter of the law and in the other against its spirit.
I have no doubt that this sort of thing has been said many times before in your Lordships' House, but I hope that your Lordships will not regard it as tedious repetition, because I am convinced that in politics it pays to go on repeating the obvious: not for the benefit of our lords and masters in high places, or on the Front Bench, or anywhere like that—they know it all well enough—but in order to make an impact upon public opinion. I believe that if one goes on repeating the obvious enough it makes an impact. Take, for example, the obvious truth, "You never had it so good". During the last General. Election campaign I never used that phrase, but I was staggered by the number of questioners at public meetings who prefaced their questions to me by saying: "I know we 'never had it so good but…"—and then went on to ask their question. That seems to me to be proof of the value of going on stating the obvious, particularly when it happens to be true.
I do not want to give the impression in my maiden speech that I am a dyed-in-the-wool reactionary; I am nothing of the sort. But I am rather concerned about the trend of public expenditure. I see no end to the capacity of the population to demand what they want at somebody else's expense. I know it is theoretically true that it does not matter from the point of view of the taxpayer if expenditure rises in stet with the national product; but, all the same, I am rather worried about the situation.
751 For some years I have watched closely the process of granting Supply. What happens? The Government get their Supply—and, indeed, it has been part of my job to try to make certain that they did. There has in recent months been a lot of talk in the Press and elsewhere about the need for what they call greater Parliamentary control over expenditure, and various suggestions have been put forward which I should like to discuss, but which I am sure it would be wrong for me to discuss, since they concern the functions of another place. They may well be good suggestions; I do not know. But I do know that the problem of securing effective control of expenditure is a very old one and that many minds more expert than mine have been applied to it. Therefore I am not optimistic that there is some simple solution around the corner, just waiting to be spotted.
The crux of the matter seems to me to be this: that expenditure springs from decisions of policy; and that whatever the constitutional theory may be, in practice, policy is not made by Parliament. Parliament examines policy; criticises, elucidates, influences and even alters it from time to time; but it does not make it. Whence, then, does policy, in the sense of being the decision to spend public money, arise? Basically, I suppose, it comes from the judgment of the Government of the day about the needs of the people. But in day-to-day practice, surely it comes from the proposals of those Ministers who are in charge of the spending Departments. They are the people who, quite properly and naturally, want to spend public money.
I imagine it to be inevitable that in any Administration the number of Ministers who want to spend money will exceed the number of those who do not; and I suspect that if I happened to be at the head of a spending Department I should regard it as my duty to try to squeeze out of the Chancellor of the Exchequer not every penny I could, but every million pounds I could. At any rate, I cannot imagine a more unenviable task than being the Minister in charge of a spending Department in a period during which it had been decreed that the clamp should be applied to the spending of that Department. So, my Lords, it appears to me that at any time 752 in the foreseeable future, under any Administration, of any Party, the pressure to spend more money will be greater than the pressure to spend less, bearing in mind the appetite of the public for blessings for which they pay through taxation.
What, then, is the answer, if there is one at all? Surely it is only this: that there will have to be a decision of policy, as a matter of pure policy, that there shall be economy for its own sake; not just to meet the needs of a temporary economic setback, but because economy is a good thing in its own right. Your Lordships may recall that that point was argued very cogently in a leading article in The Times not long ago. But I do not wish to suggest that this is a simple matter, because it is not. The commitments are so great, and it is so easy on this subject to talk with two voices. Take defence. Some experts are now telling us that the cost of having our own independent nuclear deterrent will prove in time to be more than we can afford. I happen to take the view that that is a risk which ought to be disregarded. So already on this matter I am talking with two voices.
Then consider the prospects for what one may call the Welfare Services. It seems to me that the demand for higher pensions of all kinds will never end. The Government have courageously stuck to the maintenance of the insurance principle, but the time is not far off, I believe, when there is going to be active resistance to further increases in the weekly rates of insurance contribution. What will happen then? It may be that if the affluent society (to use the phrase of the noble Earl who opened the debate) progresses, then children may be more willing to care for their aged parents. It may be that the appeals of the noble Lord, Lord Mackintosh of Halifax, and those who work for him will achieve spectacular results; and I hope that they will. But one cannot be sure of these things. It may well be that in the end the taxpayer will have to foot the bill to meet these higher pensions, which I am quite certain are going to be demanded.
Then consider the National Health Service, a bottomless pit, so far as pubic expenditure is concerned, because it seems that the advances of medical science always outstrip the quantity of 753 money which is available to pay for their application. Then take education. I am certain that the demand for more education, for better education, is the most compelling urge of all in this country to-day. And how much I sympathise with it! We have done so much, yet there is still so much more to be done: more schools, better schools, more teachers, smaller classes, better grant, improvement in all sorts of standards, and so on. The list is unending, and it will cost money. I certainly hope to live long enough to see the day when it will be the rule, rather than the exception, for every grammar school in the country to have boarding houses.
All this is going to cost a great deal of money, and I mention these things because I do not wish to give the impression that I think anything other than that the task is going to be a most formidable one if taxation is to be kept within bounds that will be tolerable to the taxpayer. Yet I believe, as I said earlier, that there should be a decision of high policy that there shall be economy. I do not believe that such a policy would be workable unless there were a definite assessment of priorities covering quite a long term and without fixing limits of expenditure—and fixing them arbitrarily—which some, if not all, of the spending Departments would not be allowed to exceed in any circumstances for a period of years. That sort of policy would, of course, be a major decision. It would have to be declared as such, and I have no doubt that it would become a major political issue.
I fear that I have trespassed too long upon your Lordships' indulgence, but I am grateful to your Lordships for having listened to me. If I have spoken for too long, may I plead this excuse? I have been, Parliamentary wise, as it were, a corked-up bottle—the bottle was opaque, the contents fermented and the effervescence has escaped this afternoon.
§ 5.33 p.m.
§ LORD BROCKET
My Lords, we have heard a maiden speech from my noble friend Lord Newton, who said that when he was at Oxford he was taught by the noble Lord, Lord Pakenham. I think Lord Pakenham must have taught his pupil exceedingly well. In spite of his being a "corked-up bottle" for nine years or, as I was going to say, before 754 I learnt that expression, "under the purdah of the Whips Office" in another place, I feel that there is no reason for him to get into practice in your Lordships' House, for he seems to be well in practice already. Having listened to such an able maiden speech, I feel that I had better disclose my interest in the noble Lord, in that he is the stepfather of my younger son's wife. I do not know quite what relationship the Heralds' College would attribute to us, but I am proud to claim as near a relationship as I can. I hope we shall hear him frequently in future, but on the Finance Bill I am afraid he will get only one opportunity a year, so he will have to reserve himself for this date in a year's time. But we hope he will also speak on other matters.
I am afraid all this makes me feel very old. I was working out that, since I was elected to the House of Commons in June, 1931, I have listened, either in another place or from the Peers' Gallery, to twenty-nine Budgets. I am afraid that, unlike my noble friend who has just spoken, I was very disappointed with this last Budget. It may well be, and I expect it is so, that the Chancellor of the Exchequer had his good reasons for announcing the various measures which he announced in the Budget. But I must agree with the noble Lord, Lord Pethick-Lawrence, that after the Budget before the Election it was rather an anti-climax to find a Budget of this kind coming after the Election. I am afraid I was equally as disappointed as many other people.
There is one reason which I feel may have compelled the Chancellor of the Exchequer—apart from inflation, which we all wish to avoid—not to reduce taxation, as some of us had hoped for, and that is the continuing high expenditure. If one takes the Health Service and the other expenditures of different Departments and, as my noble friend mentioned, the question of provision for pensions in future which will always be required to continue to grow, one comes to the conclusion that he may well have thought that expenditure in another year will not be very much lower than it is now, and that it might be inadvisable to reduce taxation now, in case it had to be put up again in the Budget of 1961. Therefore, looking back at it, perhaps 755 it was not quite so disappointing as it seemed to be from the Peers' Gallery at the time when we were listening to it.
I should like to say how much we welcomed the concession on death duties. This concession, which I regard only as a concession, and also perhaps as an admission of the iniquity of this form of taxation, was granted to those people who fail to live the requisite number of years after making gifts inter vivos. I welcome that concession—not that I am thinking of passing away in the immediate future, but as an admission that it is a bad form of taxation. I only hope that future Chancellors will not point to the Budget of 1960 and say, "That is all we can do, and that is all you can expect." I hope that in future there will be reductions in rate in this form of taxation, because it has a bad effect on agriculture, on forestry and even on architectural and historic houses which find their way to the National Trust. I have sat on one of the National Trust Committees for over 20 years and, frankly, we cannot afford to take a number of the historic buildings offered to us. It has a bad effect on the export of pictures and other articles of art, and in all I feel that it is a form of taxation which, looked at not politically, but economically, is very bad. This form of taxation also has the effect of compelling the sale of private businesses and the merger of small private businesses into larger companies. In some instances this may be good, but in other instances it may do away with a family interest which had existed for very many years.
I always agree with the noble Lord, Lord Pethick-Lawrence, on the subject of rates of interest. It is interesting, now that we have the noble Lord, Lord Dalton, in our House, because when he was Chancellor of the Exchequer War Loan stood at round about par. It now stands at about 60. Apart from the capital loss which holders of War Loan, or the Funds, have suffered during the last few years, I cannot help feeling that this question of high rates of interest is inflationary and not deflationary. I have said this on several occasions before, but, frankly, if we wish to export more from this country that is not going to be helped by high rates of interest.
I happen in another capacity to be chairman of various companies, and 756 business does like to know where it is and at what rates it can borrow. If it wishes to expand its plant in order to export more, if it can borrow, as I was lucky enough to borrow on behalf of my company when the noble Lord, Lord Dalton, was Chancellor of the Exchequer at 2¾ per cent., which it is impossible to do now, it can proceed to export at a lower price. This 6 per cent. rate of interest is very unfortunate and unfair to trade and exports.
I only wish that some Chancellor, or Chancellor plus Governor of the Bank of England plus the advice they receive from the Treasury, could work out a scheme whereby internal borrowing need not be so joined together with external rates of interest, other words, if a local authority has to borrow at 7 per cent. instead of 5 per cent. in order to build council houses, the occupants of council houses have to pay £1 a week extra rent. As a result, they will wish to have higher wages in order to pay the rent, and the inflationary spiral starts off. I hope that the next Chancellor, whoever he may be—and in this case I am sorry to say he can only be in the other place—will consider the question of rates of interest and will take the advice which has been so consistently offered by my noble friend Lord Pethick-Lawrence over the years.
Now I come to the question of economy, and when I look at the size of the annual Budget I feel it is very depressing indeed. I have not reached the mature age of the noble Lord, Lord Pethick-Lawrence, but I remember very well when I was in the House of Commons between 1931 and 1934 making a speech, when Mr. Chamberlain was Chancellor of the Exchequer, complaining that a Budget of between £700 and £800 million was too high. Now we regard Budgets of between £5,000 and £6,000 million as commonplace. I rather agree with Mr. Gladstone, who thought it was best toallow money to fructify in the pockets of the people.I do not believe in high taxation, and although Members of Parliament and Ministers of spending Departments are pushed by their constituents and supporters to spend more of the taxpayers' money on grants, doles, pensions or anything else, I frankly believe that the citizens of this country would really be 757 happier with more of their own money in their own pockets and not paying quite so much to the Government every year.
I cannot help agreeing with those Members of the other place who have been putting forward the view that there is not enough control of expenditure before it gets to the stage of the Budget. I feel definitely that the nationalised industries spend far too much money. This year the taxpayer has been asked to stand for the loss on British Railways. I have been reading a Report from the Select Committee on Nationalised Industries which was set up on November 30, 1959, and has been presided over by Sir Toby Low. In that Committee members of all political Parties have met and have asked for evidence from such eminent chairmen of nationalised industries as General Sir Brian Robertson. The Committee have produced a most able report on the question of the railways.
I, for my sins, and very uncomfortably, often travel to the North of England on the Crewe main line. The line between Liverpool and Manchester and Crewe, and perhaps south of Crewe, is at present being electrified. In paragraph 210 of this Report the sum of £161 million is given as going to be spent on electrifying what was the London & North Western, in the old days, or the L.M.S. in more recent days, or the London Midland Region nowadays—on electrifying the line between Manchester and Liverpool and Euston. But, greatly to my surprise, I find that in paragraph 222 the Report says:…. in giving a banker's sanction to the expenditure on the London Midland electrification for example, the Ministry did not know what the alternative expenditure in using diesel locomotion would be.It is incredible to me that a business of the size of the nationalised railways should undertake an expenditure of not less than £161 million—probably more by the time it is finished, if it is finished, and frankly I hope it will never be finished, because I feel it is a very great mistake—and the Ministry should not know what the alternative expenditure might he if they had gone in for dieselisation and not electrification.
In, paragraph 224 the Report says:The Departmental witnesses could say, 'I see no prospect at all that they (the Commission will be able to service the new capital 758 and pay on the old'; and even the increases in traffic that modernisation has brought in the last few years are not, in their opinion, enough to leave one other than pessimistic.I think it is very deplorable, and I feel it is one example of lack of authority and lack of looking forward to see what expenditure should be before undertaking it.
I am afraid it is the same not only with the nationalised railways, but with lots of other Government Departments. If ever we are going to have economy—and it seems to me that probably it will be a very long time before we do get real economy—there must be supervision of expenditure in these Departments. We see Budgets going up and up, and we have heard before that the budgetary expenditure of the next year is going to be no more than that of the last year. We had Mr. Thorneycroft resigning as Chancellor of the Exchequer because of the expenditure. But it keeps on going up. Nothing ever seems either to keep expenditure static or reduce it. If ever we are going to have a reduction of taxation, it is absolutely necessary for the Government of the day to have some control over expenditure, not only of their own Departments but in the nationalised industries.
I do not want to detain your Lordships any longer. It is a great honour and privilege for your Lordships' House once a year to be able to express an opinion on finance, but of course we know that we have no control over it, and it may well be that the general public does not pay very much attention to what we say. The noble Lord, Lord Newton, talked about repetition and the old saying, "We never had it so good". I feel that if we go on repeating how essential it is to have economy in administration of the Government and its Departments, at some time in the future it may be that somebody will take some notice. We hope that the first person to take notice of what we have to say will be the Chancellor of the Exchequer, whose name may he announced in the very near future.
§ 5.49 p.m.
§ LORD CITRINE
My Lords, I want in the first instance to congratulate the noble Earl on the fair and reasoned way in which he introduced this debate, and I should like to congratulate him, too, upon the succinct terms in which he dealt with the general economic situation. It 759 is an immensely wide subject, and it would be quite impossible, were all the Members present to speak on the subject, to cover adequately the various facets that from time to time evoke public attention.
Like the noble Earl, I am not an economist, but in the days when I was Secretary of the Trades Union Congress I had to familiarise myself with the broad policies and subjects which involved finance and economics. I served for some ten years on what was then called the Economic Council, where I met many of the leading financiers, bankers and economists, including two men who I think were eminent in the sphere of economics—namely, Lord Stamp and Lord Keynes. My association with those gentlemen led me to doubt, at least on occasions, the accuracy of the definition of economists given by the late Lord Hailsham, who said that wherever six economists were gathered together, there would always be seven opinions and that two of those opinions would be those of Lord Keynes. I found Lord Keynes a man of great flexibility and dexterity of mind, and I think the work he put in during the war, quietly in the Treasury, without much public attention, has never been properly valued.
In subsequent years, as chairman of the electricity supply industry, I represented the national industries on the National Production Advisory Council. Needless to say, in those ten years I had from time to time, as chairman of the supply industry, to deal with financial and economic questions, matters of capital investment and related subjects, and to engage in a great deal of that mature planning which I think lies as a fervent hope in the mind of Lord Brocket, judging from what I heard him say. I can assure him that that kind of planning takes place most adequately, and that the electricity supply industry does look far ahead.
As a member of the National Production Advisory Council—which, as noble Lords will know, is presided over by the Chancellor of the Exchequer, accompanied by Ministers who are associated with economic and industrial subjects—I heard successive Chancellors speak on many occasions with a good deal more frankness and intimacy than is normally 760 possible for a statesman speaking in public. The message varied, the emphasis changed from time to time; but invariably the basic theme was the same—"We are paying ourselves too much in salaries, in wages, in income of one kind and another. We are not exporting enough, and we are continually harassed, not merely by the spectre but by the reality of inflation". It was borne in upon me then, and it has been since, that this is not a temporary phenomenon. The situation we are discussing to-day is, basically, no different from that which has existed for a large part of the postwar period.
It may be that the view of the Chancellors of the Exchequer to which I have referred is not a complete analysis. But is that view a faulty one? Or is it fundamentally accurate? It is clear that in the post-war period, the early part of which harassed the Government by difficulties which are now almost nonexistent, it meant that we were not producing enough to meet the demands both of our own people in the domestic market and in the export trade: that we were consuming too much, and not investing sufficiently or looking far enough ahead into the future to see that we had the competitive power and efficiency to compete on satisfactory terms with our foreign competitors. I have a note which I made before this debate began, which is almost identical in language to that used by the noble Earl. What I wrote was. "The system is under strain". I think that, however robust it may appear from time to time, it would well behove all of us just to remember that as an ever-present fact. This is not a temporary situation; it is something that will recur from time to time—something which may get quite out of hand, all depending on the way in which it is handled, and perhaps on external circumstances outside of this country which we cannot properly control.
I feel that perhaps we do not pay sufficient regard to the useful preparatory work that has been done to enable us to discuss this subject with some degree of intelligence this afternoon. I think of the White Paper of 1944, in which the problem of trying to provide employment for the people of this country in the post-war period, coupled with a rising standard of life, was, so far as 761 I know, for the first time properly surveyed in a Government publication. I am not unaware of the work of Lord Beveridge, with which the Trades Union Congress was associated and which, in a sense, was pioneer work that formed the basis of the policies of fuller employment pursued ever since. There are also the Economic Surveys which the Labour Government introduced, and which, I think, have been followed year by year by their successors. It was well recognised that full employment must bring with it some dangers of inflation.
The noble Earl has to-day said that, in substance, anyhow, with a full employment policy we must always be somewhat near that delicate balance between inflation and a stable currency. He did not use those words, but I think that is what he meant. The risks were well worth while, particularly in the minds of those who remember the days in which, to a large portion of the working population of this country, unemployment was an inevitable accompaniment. I think that, in a way, the achievement has been remarkable. Due to the incidence of war, of course, which was partly responsible, and subsequent policies, in substance we have had 20 years of full employment. One of the disadvantages is that many people who have never experienced the vicissitudes of unemployment, assume that full employment comes about automatically, and is entirely divorced from anything that Governments may do. I think some of the extravagances that we have seen from time to time are due to that lack of understanding.
In the Labour Movement the view was commonly held, in certain sections, that a solution of the unemployment problem was quite impossible under capitalism; that capitalism produced unemployment because it needed a reserve of labour sufficiently large to be able, on the one side, to fulfil orders and, on the other, to keep wages down to what was then a quite low level. Well, we got rid of all that, and to-day it is the policy of all political Parties, without any division, to accept full employment not merely as a desirable aim but also as a responsibility of the Government of the day.
If the Parties are agreed, where do the differences he when it comes to try-in analyse and deal with our econo- 762 mic problems? I believe they lie, frankly, in the difference of approach between those who sit on these Benches and those who sit opposite, in so far as the first believe that we cannot fundamentally solve our problems without a planned economy, though how far the planning has to be carried out is a matter of experience. We here believe that it is utterly impossible to solve this problem permanently without adequate and proper planning. The Government believe in what they are pleased to call "private enterprise"—though I sometimes wonder whether the enterprise is always as visible to others as it appears to be to supporters of the Government.
I believe that I well understand why Governments other than Labour Governments feel that they must interfere with, or intervene in, industry as little as possible. When I was a member of the Productivity Council, which, as your Lordships know, represents the Federation of British Industries, the British Employers' Confederation and the Trades Union Congress, I heard a President of the Board of Trade say that it was the duty of the Government to keep out of industry. I can imagine no more obscurantist view than that, because it is utterly impossible for them to do so; and I did not detect any such dogmatic note in the statement of the noble Earl this afternoon. The Government must guide and help, irrespective of what they may do in active participation in the affairs of industry.
I believe that the noble Earl differed from my own view in regard to the use of what I call "expedients"—for example, the use of the bank rate. I remember discussing this very question with a Conservative Chancellor of the Exchequer. He asked me whether I believed that the raising of the bank rate in itself would be really effective in dealing, with inflation. I told him that unless it was raised to very great heights it could not by itself be effective; and I believe that that has been borne out by subsequent experience. One of the things to be remembered in connection with the raising of the bank rate is that all nationalised industries, whose programmes have been approved step by step and stage by stage, in some detail by the Government of the day, have to pay a considerably higher rate for the 763 money they utilise when they have to borrow from banks to carry out those approved programmes. That is one of the rather unexpected and odd consequences of raising the bank rate. The credit squeeze, at best, can only be indiscriminate. How can the banker possibly know what is or is not desirable investment from the point of view of the country as a whole? I do not know that a banker would feel that he ought to apply that kind of test. He might regard the matter of security as the important factor.
What of hire purchase? I am very divided in my opinions upon that. I believe that hire purchase has brought with it a public demand for a higher standard of living, which is all to the good. But that has been done at the cost of mortgaging future earnings of millions of people in this country and creating a quite false conception of true prosperity. It has more than one side to it. I am not denouncing it out of hand, but it has its dangers, particularly when it soars to the heights it has done in the last year or two. Our prosperity has been mortgaged, and we cannot continue to mortgage the same assets.
The noble Earl seemed to demur at the thought that the expedients to which I have been referring were a kind of stopping-and-starting process. He felt that that was rather an unjust suggestion, and that in fact those procedures represented methods which, in his view, were worthy of consideration as planning. It cannot be denied by anybody who has had any experience of business undertakings that if at one period industry is stimulated by Government action, and money is being invested in enlarging works, and then orders which normally would have filled those works are in great measure closed down because of a financial squeeze, the results cannot be good for anybody. I am sure that this stopping-and-starting process would not commend itself to any businessman. He would prefer a long-term policy so that he can see ahead and know how his business is likely to fare.
Would any person—an economist or anybody else—deny that capital investment is the most useful form of expenditure, regarded from the point of view of being economically helpful to the 764 community? That is investing in tools, in the means by which owe can produce efficiently; and ultimately the standard of life of our people depends upon the efficiency of our industries. In my judgment we certainly require a greater measure of planning and greater use of physical controls. I hope that I did not mishear the noble Earl, Lord Dundee, this afternoon when he said that Her Majesty's Government did not reject physical planning in principle. I hope that I got that right.
§ LORD CITRINE
My Lords, the term "in principle" is an important qualification, but it is some advance, in my view, that we have heard that statement made with such authority. I recognise the difficulty of differentiating between kinds of investment. What may be regarded as socially good and necessary in one set of circumstances might be regarded as less so in others by different people with different ideas; and different conceptions would be reached. But sooner or later Governments will have to apply themselves to these questions: they cannot leave the economic life of the country to develop in a haphazard way.
It was for that reason that I was glad to read of the Conference which was held last week, I believe under the auspices of the right honourable gentleman the Prime Minister. Its purpose, as I understood, was to emphasise to industrialists the importance to our economy of an increase in our exports. It was shown that our competitors are forging ahead. I know perfectly well that, for a period, developments in such countries as France, Germany and Italy were bound to show a higher percentage increase year by year than ours. I realise that, because they were so badly damaged that they had to start at a later date and their rehabilitation was in that sense more rapid. But that argument has now gone out of the window, and what we find to-day is that we are not merely losing our proportion of the world's trade—for who would say that we are not in danger of some absolute loss in the amount of our overseas trade?
I was struck by one thing about this conference—it was the absence of the Trades Union Congress. For many years 765 I spent much effort, sometimes in the face of abuse and misrepresentation from trade unionists, in trying to establish in the minds of trade unionists their common interest in the affairs of industry and the necessary conditions whereby there would be a rising standard of life, because the cake would be bigger, efficiency would be promoted and disputes reduced to a minimum. The outcome was that we had regular meetings with the Federation of British Industries and with the British Employers' Confederation. We discussed with them almost every conceivable type of problem, commercial, financial, economic, or whatever it was. Similarly, the Government cordially welcomed discussions with the trade unions on almost every subject which came within their purview. I have already referred to the National Production Advisory Council on Industry. It saddens rue to think that, however unconsciously, what seems to me to be a retrograde step has been taken in this case. I hope that it is an inadvertency —it could be. It could be easily thought that at this stage, at least, only the interests of manufacturers, commercial people and the Government were involved. But I should be very sorry if it represented any conscious omission of getting the benefit of the help of the Trades Union Congress.
There is a common interest here, just as there is a common interest in the work of the National Productivity Council, the Chairman of which this year is a trade unionist. In the realm of exports it is not merely, shall I say, the act of sending goods out of factories and that sort of thing that is involved; it is the production of those goods, too. If the workpeople are quite unconvinced of the need for some efforts to see that their company or their firm is efficiently carrying on its work, something will be lost. Many workers are completely oblivious to the importance of exports in their particular standard of life, and in their employment. I think that many people are living in the present and forgetting all about the future. I know that we cannot very well live in the future, but I hope that what I mean is understood. A little earlier the noble Lord, Lord Newton, referred to the phrase that we "never had it so good". Yes, my Lords, and what is the deduc- 766 tion drawn from that? We have "never had it so good" in a period of inflation, and many workpeople say, "If this is the results of inflation, let us have more of it". That is a completely false economic doctrine, I know, but it is a natural deduction and one which we must consider.
I believe that there is a most formidable task ahead in trying to promote the exports of this country. I do not think that it is going to be an easy road in the least, and neither, I gather from the Press reports, does the Prime Minister or the President of the Federation of British Industries. I believe it will take a good deal of organisation and something more than exhortation to achieve the result that is being sought. I know that the Board of Trade, over a period of years, have very greatly expanded their work and sources of information, both at home and abroad. I know that; but I believe that something more will have to be done. I know, too, that the Federation of British Industries, under the guidance of its director, Sir Norman Kipping, whom I know intimately, has expanded much of its work. But it needs a wider sweep, and I think that can be obtained in the full measure personally consider desirable only by properly bringing in the trade unions and the work-people through organised methods at national and regional and local levels. It is going to be a struggle and a hard struggle, and it is going to get more intense as time goes on. There is a need for a combined effort, and I hope that Government, employers and trade unionists will work together for the benefit of our country.
§ 6.17 p.m.
: My Lords, I do not want to follow the noble Lord, Lord Citrine, in the many excellent points he made, some of which I believe I could controvert. But I should just like to say that I share the view of so many of your Lordships on the grave situation of overseas exports, and I suggest that some reason for this may be the way West Germany is "cornering the chips" of international trade. If this balance which she is accumulating were lent out to the countries of the world, the demand would increase for our goods as well as everybody else's. She is behaving exactly 767 like the Americans did for a time, when they were the bad creditor nation, until we taught them better.
I am going to confine myself to suggesting four problems to which the new Chancellor of the Exchequer (if there is to be a new Chancellor of the Exchequer) might give some thought. I regret that Mr. Amory seems likely to leave us, because he will be long remembered for the results he achieved in stable prices and the strength of the pound, and his successor will have a lot to live up to in that way. But there are many very nasty headaches left in the sphere of national finance, and these are the four problems which I believe the new Chancellor of the Exchequer may have to think about.
First of all, there is the problem of the national debt. In that I include the local authorities' debt, because there is a general reluctance—and it is a worldwide reluctance—for investors to hold long-term fixed-interest securities. I say "long-term" because I believe that noble Lords opposite sometimes do not differentiate correctly between the short-term rates influenced by bank rate and the long-term rates which are influenced purely by people's willingness to buy and hold securities. The noble Lord, Lord Mackintosh of Halifax, wondered whether his new 5 per cent. bond would be good enough to hold its own. That is the tendency all the way along. There are three reasons for this. The first is the obvious one—and it is the one usually quoted: the fear of inflation. But the other two are equally important, I think—namely, the enormous size of the fixed interest debt in this country to-day, and the belief in the expansion of industry and the desire to invest in dynamic assets. The problem is: are these going to be long-term factors?
I believe that the fear of inflation arises, because any manager of investments distrusts the Conservative Government's ability to ward off inflation, and still more distrusts a Socialist Government. The size of the national debt is increasing, though not relative to the national product; and, of course, measured in market prices it is very much smaller than it was. In fact, society is sloughing off the debt it has incurred. As for the belief in expansion, I think it will be a bad day for this country if people 768 cease to believe in expansion. So I believe that those three factors which are working to-day are valid for the future as well. Of course, there are certain types of funds for which long-term fixed interest securities are very suitable investments—certain pension funds, insurance companies and the like. The question one has to ask is: will these be able to shoulder the entire burden of the renewal of these loans when they come up and the lending of additional money as it should be required, or will an increasing interest rate bring an increasing number of potential holders in the long term? I cannot answer that question, but it looks to me very much as if the alternative is going to have to hold the field; that is, borrowing short. In any case, if the long-term rates become prohibitive, shall we not as a nation be forced to borrow short? That is a nice problem for the Chancellor of the Exchequer to do some rethinking about—the morality and expediency of borrowing short for long-term products.
If, as the noble Lord, Lord Pethick-Lawrence, would like to happen, local authorities go back to the Public Works Loan Board, the Government will certainly have to borrow short to supply their needs. It certainly cannot borrow long. I believe that at the moment they themselves are to some extent borrowing slightly longer than the Government. But the whole of this field requires a great deal of very deep and earnest rethinking, because the real problem is how to stake a claim in the credit supplies of the community for the more basic services, such as houses, water, drainage, et cetera, and not allow them to go to the wall in favour of the more lucrative services, such as hire-purchase, personal loans and so on. That is problem number one.
Problem number two is the subject of credit control. We all agree that the Government have the responsibility for the creation and use of the credit, but it would be a great deal better if it could be done by agreement. The aims and objects of all financial institutions must be exactly the same: they all want to see our resources used to the utmost, and for there to be a steady expansion without inflation. If the banks were the sole source of credit an orderly expansion could be achieved by agreement 769 between the authorities and the banks: but the situation is complicated, as the Radcliffe Report recognised, by the borrowing, direct from the public, of hundreds of hire-purchase institutions. This drives an enormous breach in the control which the Treasury and the Bank of England can exercise over credit. The problem for the Chancellor of the Exchequer to think over is whether there is some method by which we can control this volume of hire-purchase credit: control it by volume, rather than have to rely on extremely complex and irksome regulations. If we can do, this, it would make the whole regulation of credit in the community a much easier and smoother process, less liable to jerks and starts.
The next two problems which I think the Chancellor has to think about are in the field of taxation. The present level of sur-tax is an anomalous relic of the war and of the Socialist Government, and it has been made more burdensome by the Pact that practically no adjustment has been made to allow for the changed value of money. It leads to extravagance of liming, and it encourages the attitude that income does not count that it is only capital gains and the like that matter. I think it leads to great losses of revenue, because, in avoiding this very onerous tax, the taxpayer too often avoids income tax as well, and so the money escapes all forms of taxation. To maintain standards even approximately equal to their counterparts in other countries, we have had to allow businessmen all sorts of perquisites, allowances and reliefs, so that to-day a rich man in the right sort of occupation has "never had it so good", but a man with precisely the same income in the wrong sort of occupation is bowed down 'heavily by taxation.
Now we always use two arguments against rationing and controls: first, that they 'put too mach power in the hands of officials; and, secondly, that they put the men who are clever at collecting permits and rations, very often by dubious means, on top of the world. The present rates of sur-tax are creating precisely the same situation. They are breeding collectors of expense allowances, land they are putting enormous power into the hands of tax inspectors.
770 I believe that the most expensive form of motor car, if depreciated properly and run for a good distance in the year, costs about £1,000 a year to run. In order to afford that £1,000, a man paying the top rate, of sur-tax will have Ito produce about £9,000 more of gross income. By going to the tax inspector and persuading him that that car is a necessity for his business, 'he can get the equivalent of that £9,000 added to his gross income by a stroke of the pen. That is the power which is put into the hands of comparatively junior Government officials.
In this Budget the Chancellor of the Exchequer has tackled some of the grosser forms of abuses, and the setting, off of losses against ordinary income and so on. He has perhaps saved a few millions—though no one really knows—but nobody cart ever estimate the amount of revenue he loses because of these farms and businesses where the owner does not make as much profit for tax as he could because it is so heavily taxed. It is more attractive to the owner of a prosperous private business to have charged to the company some amenity of benefit to himself rather than to draw an extra amount of money out of the business. Therefore I submit that, in tackling tax abuses, the Chancellor of the Exchequer made a mistake in not tackling the main source of abuses, which is the top rate sur-tax, People will not think twice about a financial decision which is of benefit to themselves where the Chancellor of the Exchequer stands 88¾ per cent. and they have to pay only 11¼ per cent. I do not believe that, on balance, a drastic review of sur-tax would cost much in the way of revenue; and it would lead to a finer and healthier form of society.
The other problem is a similar one. In death duties similar anomalies have arisen. The Conservative Party believe that it is not inherently wrong to inherit property, because it is a primitive instinct of man to pass on to his children what he has managed to accumulate. But the Conservative Party do believe in the widest distribution of property, and for that reason believe that at death property should pay a toll, even a substantial toll. But the toll which is levied at the moment has got to the point of being ridiculous. A fortune of just over £100,000 pays to-day 50 per cent. death duty. A similar 771 fortune in 1947 would have paid about half that rate. To-day a fortune of £500,000 pays 70 per cent, and, making the same adjustment, in 1947 it would have paid about 50 per cent. This heavy toll is levied regardless of whether the fortune passes to one man or to one hundred.
§ LORD PETHICK-LAWRENCE
My Lords, I do not follow the noble Lord's argument here. He said 1947, but he must have meant some earlier date than that. I do not think the figures are at all right.
My Lords, I am comparing the rate that exists to-day with the rate that existed between April 10, 1946, and June 29, 1949. The result is that a great deal of wealth avoids the tax completely. Rich men search the world, not for the safest and most lucrative investments but for the place where their money is likely to be safest from British death duty. Whereas at the Victorian deathbed the doctor and lawyer attended, to-day the estate agent is added, to see whether a further portion of the estate can be put into agricultural land before the testator expires, because we have had to allow a considerable relaxation of death duties on agricultural land, for the simple reason that to levy the full rate would be completely disruptive of the countryside.
I submit that the rate should be such as to encourage rich men to die in this country possessed of their wealth; it should be calculated so that the balance is even in the testator's mind between the hazards of the death duties he has to face against the uncertain risk of giving money away to possibly profligate sons and daughters while he is still alive and the possible advantage of the emigration of his capital. Both these taxation problems require thought. I do not believe that a substantial reform would involve much loss of revenue, but it would be quite impossible for any Treasury official to say what the possible loss would be, and we should be taking little risk in a total Budget of just over £5,000 million. However, I have kept your Lordships long enough and said enough, I think, to show that any Chancellor of the Exchequer has some pretty weighty problems about which he can think.
§ 6.37 p.m.
VISCOUNT ALEXANDER OF HILLS-BOROUGH
My Lords, I apologise for butting into this debate, because my name was not in the list, but my noble friend Lord Williams had a slight accident yesterday and I have had a message from him saying that his hand is bandaged and he is unable to come to the House, so I should like to take his place. The debate was opened by a remarkable speech by the noble Earl, Lord Dundee, and by an equally remarkable speech from my noble friend Lord Pethick-Lawrence, and ever since we have been debating important economic questions in relation to the Finance Bill. I should have liked to make some comment on the points so well put forward by the noble Lord. Lord Hawke, but I want to come down to a comparatively minor matter.
Clause 6 of the Bill deals with tobacco dealers' licences. There have been some alterations in the law and the occasion was taken in another place to raise the point, which has been considered from time to time by various Governments, of issuing tobacco licences for properly accredited mobile shops, having regard to the changing nature of retail sales and distribution. This was debated in another place on May 18, when the case was fully deployed. By giving justice to the mobile shop, the income of the Treasury would, in a small way, be increased through the provision of a larger number of outlets for the sale of tobacco.
The origin of the system of licensing goes back to the 1825 Act. To-day, an enormous revenue is collected by the Government on the sale of tobacco, cigarettes and cigars. But the tobacco dealer's licence was never intended for the purpose of revenue, but probably for the identification of traders, so that the State might follow up any possible offences in connection with the sale of this commodity—a commodity to which I personally am most devoted. What is the real purpose of the case raised in another place on May 18? It is this: that the older, hard-and-fast method of imposing the tobacco licence tax was to fix it to certain premises; therefore the place in which it was sold could be identified and checked, and the like. But in modern distribution there has been a revolution in the distribution of the 773 population into much wider areas and very often in places where few shopping facilities are afforded.
Even under the particular details of the plan adopted under the Town and Country Planning Acts the number of shops is limited, or sometimes their provision is long delayed. This fact has been in part recognised by the Treasury, so far as I can see, by allowing temporary licence to a shop selling tobacco on a growing housing estate; for example, where it would be likely to be followed thereafter by the building of a permanent shop. A temporary licence is granted in such circumstances, but then, if the local authority, who have complete power in the matter, decide that they are not going to award the tenancy of a shop which is authorised on a housing estate to the person who has had the temporary licence on the mobile shop, then immediately he is very much prejudiced in the business he has built up on that estate.
The extent to which this method of general retail distribution goes on now can be imagined by taking the figures of the movement in which I have been interested most of my life—namely, the Co-operative Movement. In a census of less than 600 of the societies in the country in August of last year there were then something like 4,500 mobile shops of the most modern type, specially prepared and designed as shops, hygienic, with every possible convenience of an ordinary shop, for the purpose of serving people in outlying places. Nor is the use of such mobile shops confined by any means to the co-operative societies; a good many enterprising retail firms indulge in the same use. In the very small urban district in which I live in Essex, for example, with a population of less than 4,000, the mobile shop that I see operating round the countryside comes from a private grocer's and tobacco seller's. I imagine that there are similar cases in many other parts of the country. So, while I take the mass figures of the co-operative societies to back my argument, I would point out to the Government that this is not a special plea for the Co-operative Movement but one for the expansion of this distributive service in the best sense and for all convenient purposes of the householder and the housewife.
774 I would point out that if the purpose of the original duty was identification at premises, then certainly, whilst you can in all circumstances identify the owner of the business to-day, nevertheless it is perfectly true that you can buy from a moving trolley on a railway station platform cigaretttes, tobacco and many other things you may require, simply because the whole station is licensed as a tobacco selling place. Or you can travel in a railway train and buy in the restaurant car any tobacco or cigarettes that you require, although the fixed licensed premises are at times 50, 100 or 200 miles away from the point of sale. I suppose that the intention of Clause 6 of this Bill is to amend the law again, for the convenience of passengers in aircraft, and so on. We feel that it is a great mistake for the Government to turn down the opportunity of at least a small addition to their revenue income, and of adding to the convenience of the members of the public who are living in these scattered places without adequate shopping facilities, and especially of seeing that no injustice is done to the private traders concerned.
I was interested to look at some part (I do not want to trouble the House with very much of it) of the reply given by the Economic Secretary to the Treasury, Mr. Barber, on May 18. He really accepts the point that I have been making, and he says with regard to the duty [OFFICIAL REPORT, Commons, Vol. 623 (No. 115), col. 1411]:It is therefore obviously advantageous to have a register of legitimate retail outlets, and therefore the licensing system remains an essential part of the system of control.Very well! Mobile shops of the kind I am describing are practically all radiating from premises which are fixed premises and are licensed, but because they are carrying, in general, other goods for sale, it is highly convenient for them to be able to sell at the same time, if the customer asks for it, tobacco and cigarettes. But you can tie the licence. Although you license the mobile shop separately as a shop, you tie the licence to the owner of fixed premises who ready has a licence. Therefore it does not seem to me to be very difficult for the Treasury and the Government to adjust themselves to this necessary change.
775 In the course of his reply, the Economic Secretary to the Treasury said [col. 1411]:…the arguments against the request"—of the honourable Member in the other place who raised the matter—are certainly not overwhelming and I realise that circumstances change. I assure him that I will be ready to look at it again. But I ought to point out that it was only recently… that a decision was taken in this matter. It would therefore be wrong and misleading—although I will look into it again—to hold out any great hope of the possibility of anything being done in this Finance Bill.Why, then, do I raise it to-day? I raise it because I want to make quite sure that it is on record, not only in the other place but in this House, that there is a need for revision. With the coming of the Finance Bill next year we hope that the Government will have seen to it that this matter has then been thoroughly and properly examined, so that the injustice which operates now against so many traders, co-operative and otherwise, will be wiped out and the convenience of the citizen purchaser be greatly increased.
§ 6.49 p.m.
§ VISCOUNT MASSEREENE AND FERRARD
My Lords, I propose to talk on Clause 20 of this Bill, which takes away the tax relief given on trade losses; but I wish to talk about it as it refers to agriculture. First of all, I should like to say that I feel that the Budget has been rather disappointing. It is probably satisfactory to orthodox economists, and I agree that it may have enabled us to do our balancing act on the economic tightrope between stagnation and inflation for probably another twelve months. But, as I have pointed out in this House before, it requires only twelve months of adverse trading with the rest of the world to topple us off that tightrope. Unfortunately, we have no substantial safety net of gold reserves to fall into. I understand that our gold reserves are even less than those of Italy. Also, of course, we now have to compete with the economic barriers being raised against us in the Common Market.
I should have hoped that, with the large majority Her Majesty's Government have, we could have made a start on trying to cure some of the basic economic ills from which this country 776 suffers. Personally, I should have liked to see a start made in overhauling the whole tax system, and also in trying to reform (I personally do not know how, but I am sure it can be reformed) the methods by which the Government raise money; because we now have a National Debt of £27,000 million. Can we really allow that debt to go up and up? At the same time, we are embarking on vast schemes, as the noble Lord, Lord Brocket, pointed out, and £160 million on the former L.M.S. is only one of them. But the whole time we appear to be spending a vast amount of money we also have to uphold the most comprehensive and expensive social services in the whole world. If I were a Treasury official—which it is probably extremely fortunate for the country I am not—I should have the most terrible nightmares, because there appears to be a sea of debt mounting up and up. Perhaps the Treasury feel like King Canute—that they can hold back the tide.
I feel that these basic ills will have to be faced one day. We have heard the Premier appeal, quite rightly, for more exports. I presume that the Budget intends to assist that by reducing home demand. But I wonder if that is the right thing to do? I have a small factory, and I have some slight experience in marketing goods for export. The first thing you have to do is to have the goods at the right prices. As has been pointed out in this House to-day, we no longer have a sellers' market, and if we do not have a strong home market—and I fear that the high bank rate and other restrictions will reduce the home market—it is difficult to export goods at the right price. If you do not have a strong home market it is not easy to find the money to buy the most up-to-date machinery, and everybody knows that as your output grows greater, so you can decrease prices. As I have said, if we have a weak home market it is not going to be easy.
Of course, it is essential to have competent executives, and the high rate of taxation means, I am afraid, that a great number of our young men are going abroad. I do not appeal for any reduction in taxation on dividends or so-called unearned income"—if there is such a thing to-day—but I think that it would be a great thing if taxation on earned income could be reduced. As I have 777 often said before, if we could have fewer strikes and fewer tea breaks it would be far easier for us to compete in world markets. I therefore think it is dangerous to discourage the home market.
I quite appreciate the dilemma of the Chancellor of the Exchequer. He is between the Devil and the deep blue sea. If he cut down home demands too much, he makes it difficult for manufacturers; on the other hand, if he does not cut clown home demand we are liable to have inflation. But on the surmise that the external trading position of this country is the most important, I should have preferred him to take a chance on inflation and to encourage productivity by every means. The Chancellor's troubles would all be over if only wage rises would correspond with an equal rise in productivity. But unfortunately—it is human nature; I am the same, and I am sure we all are—if you pay people more it does not necessarily mean that they are going to work any harder.
§ VISCOUNT MASSEREENE AND FERRARD
But I am talking about this year. If we compare our productivity with Western Europe, it really lags behind—pitifully behind. I understand that the rise in productivity in Western Germany over the last few years has been 10 per cent., which is more than three times the rise in Britain. But I will leave the economists to the nightmares, or the nightmares I think they should be having, and I will say a few words about Clause 20, regarding the restriction of claims for tax on farming losses.
I have to declare an interest here, because I farm, I suppose one can say, quite considerably in Scotland, and to a smaller extent in England. Whether I am a "hobby farmer" or not I have no idea. I can find no definition in the Bill to define a "hobby farmer". The Finance Bill in Clause 20 says that any activity—which refers to companies, and agriculture, I presume—must be carried onon a commercial basis and with a view to a realisation of profits.On that basis the Ministry of Agriculture are often a hobby farmer; they fre- 778 quently carry on farming operations which are far removed from any commercial basis or realisation of profits. I agree that many of those operations are in the interests of research. But are private farmers now to be debarred from research—because, if so, agriculture will be all the poorer and any future "Turnip Townsends" cannot exist. I personally find this wording, "realisation of profits", ambiguous. The Bill lays down no period for the realisation of profits. For instance, has the profit to be realised in one year, ten years, or twenty years?
Again, the realisation of profits does not necessarily produce the best husbandry. For instance, one farmer might make a profit for a year or two by extracting everything out of the land—in other words by flogging the land. He could when sell the farm. His successor would have to pour back money into the land, in fertilisers and all those other means of improvement, and the local tax inspector could say to him, "But the former man made profits you have not made a profit. I am sorry but I cannot allow you your reliefs". I think it is dangerous if the local tax inspectors are to be the only arbiters of the commercial basis of agriculture. The agricultural land of England, or certain parts of it, will suffer, I think, if this clause is not interpreted extremely liberally by the Inland Revenue.
For instance, I can foresee the reclamation of moorland, marsh land and general marginal farming being extremely retarded by this clause. If, in future, I have to repair a fence, I shall be tempted to skimp it. Instead of putting up a sound fence I shall probably try to do it on the cheap. Up in Scotland I know one man who bought 10,000 acres of heather and bracken and then spent five times the value of the land on that estate. By so doing he now employs over 40 people. Previously this barren estate used to employ only about four or five people. If that man could not have improved that estate out of his other income by way of tax reliefs, those people could not have been employed. It is extremely doubtful whether he will ever make a profit. But the point is that he is employing in a depressed area over 40 people.
I should like to ask Her Majesty's Government which is the more important 779 in a depressed area, the realisation of profits or the employment of local labour? What about that greatest "hobby man" of all, the National Coal Board? When dealing with coal, the Government appears to think that realisation of profit is of secondary importance to employment of labour. I am told—I have not checked it—that in the Kent coalfields for every ton of coal that is mined the National Coal Board loses £1. Why should there be one law for the farmer, or the so-called "hobby farmer", and another law for the "hobby coal owner"? It seems inconsistent to me. Of course I quite agree as regards the "hobby farmer" that there are instances that should be stopped. There have been, I think, instances of business men who have bought small farms and used them for amenity purposes and, I think, for tax evasion. I think one sometimes finds a case where a landgirl is used as an indoor domestic servant. Of course that is dishonest and should be stopped. What I am frightened of is that under this clause the innocent will suffer with the guilty. Rather than leave it to the discretion of local tax inspectors, should not every county have a tribunal whose members would include tenant farmers and owner farmers to decide whether a farm was being farmed on a commercial basis and with an attempted realisation of profits?
From the point of view of extra revenue to the Exchequer, this clause will bring in hardly anything at all, because I understand that in the last year for which figures are available the total losses out of tax paid back to the farmers was £13 million. On the assumption that only 5 per cent. are "hobby farmers" the revenue will obtain only a very small amount. Even the Royal Commission on Taxation said, in paragraph 496 of their Report:It will appear from what we have said above that we should not expect our recommendation to bring about any considerable change in the present position, or markedly to reduce the volume of loss claims in respect of farming.It is, of course, really a storm in a teacup from the revenue point of view. But, in conclusion, I can only say that I am interested to see that Her Majesty's Government put an emphasis on profits 780 from agriculture, which is our greatest industry, and I can only hope that they will also apply the same principle to the nationalised industries.
§ 7.11 p.m.
§ LORD TEVIOT
My Lords, I was sorry that I had to go away during the afternoon and was therefore unable to hear some of the most able speeches which were made. But, like many of your Lordships, in the last few days I have been discussing the Finance Bill and economics with those men who are heavily involved in the subject of finance. The chief question that I have been asked to deal with is in regard to getting some better drafting of what are most important clauses.
The clause that I have had particularly drawn to my attention is Clause 28. That clause consists of five pages and one paragraph, which is to be found at the top of page 31. I have on one or two occasions read the whole of those five pages and I have tried to make head or tail of them. My friends, who represent large business in this country, say that it is essential that these most important clauses, such as Clause 28, should be made clear. The rubric refers toCancellation of tax advantages from certain transaction in securities.It is no use my trying to read any part of the clause. I feel quite certain that your Lordships will not make head or tail of it.
This takes me back a few years. I do not know that there are many in your Lordships' House who will remember the occasion when Lord Jowitt, who was dealing with a Bill in his capacity as Lord Chancellor, suddenly stopped at a clause, looked round the House, and said, "I have been trying to understand this clause. Is there any noble Lord in the House who can help me about it?" Nobody could. That is not a good thing to have in a Finance Bill. It seems to me that we must try to convey in the simplest language to those who are affected by the Finance Bill something that they can really understand and deal with in connection with big business. Of course, your Lordships know that there are a great many people engaged in big business.
This clause, Clause 28, covers five pages, and comprises 36 subsections and 781 paragraphs. How one is to get any sense out of all that, I cannot conceive; nor do I believe it is possible. So I would ask that those responsible for the drafting of Clause 28 in particular should think again, to see whether they can get something that will convey what is really meant, so that we shall be in a position to obey the law on the subject without any doubt. I have the greatest sympathy with those who have to draft these complicated and difficult Bills. It is some time ago since I was in the other place and put clown an Amendment to the Finance Bill. Sir John Simon, as he then was, was Chancellor of the Exchequer, and my Amendment was ruled out of order. I did not think any more about it. But in the following year, when I was still there and Sir John was still Chancellor, my Amendment was embodied in the Finance Sir John said that in the previous year my Amendment had not been understood by the learned people who had to draft the Bill, and so they ruled it out of order. Subsequently, however, they discovered what it really meant and put it in the Bill in the next year.
I am afraid that a great deal of the drafting of this Finance Bill is very poor indeed. I do not want to blame those fellows, because I think they have an extremely difficult job. But this is important, and it means a great deal in the business world: that big corporations should really know what the Finance Bill means in relation to their operations. I hope that the Government will see to it that there is some simplification in the Finance Bill in regard to what is required of them. It is most important. It is an extremely difficult point, but my friends begged me to say something about it, and I said that I would do what I could. I think we should try to make this Bill more easily understood, not only by individuals but by corporations. I was interested in the answer just given by the noble Lord, Lord Stonham. I was under the impression that the percentage increase in wages last year was higher than the profits, and I believe I could quite readily find a paper lately issued on that subject. The noble Lord, Lord Stonham, seemed to think that that was not so, but we can no doubt settle that in black and white quite easily. That is really all I have to say. I was most impressed 782 with the speech of my noble friend Lord Dundee. I think he made a very good job of the difficult speech he had to make. I was unfortunate not to be here for the whole of the speech of the noble Lord, Lord Pethick-Lawrence, but, as always, I was very interested in what he said while I was here. I have spoken about the need for simplicity in the clauses in the Finance Bill, and I hope that something may be done to enable not only individuals but corporations and great business organisations to understand more easily what they are supposed to do.
§ 7.22 p.m.
§ LORD STONHAM
My Lords, on the point raised by the noble Lord, Lord Teviot, I believe that the actual figures for last year are as follows. Basic wages increased by1½ per cent.; actual earnings increased by about 4 per cent., and production increased by about 10 per cent. So it was a year when production rose considerably more than either earnings or basic wage rates. I am quite sure we all hope that we shall get elucidation of Clause 28, because it would be a sad fault if, innocently, the noble Lord fell into error and was hereafter called to account.
Since many noble Lords who have spoken have, for one reason or another, had to depart, I hope I shall be forgiven if I do not comment on their speeches, but I should like, on behalf of Opposition Peers, to say a warm and sincere word of congratulation to the noble Lord. Lord Newton, on what we certainly all thought was an extremely able, well-informed, and, in many respects, wise and expertly and attractively delivere4 speech. As I sat listening to the noble Lord I could not understand how it was that I had not learned of his quality when we were both colleagues in another place. But at the very end of his speech he gave the reason. He was in one of those jobs of honour where one is not allowed to speak and, as he put it, his wine was therefore corked up in a most frustrating manner. I am delighted to have been here to hear it pour forth in these surroundings, and I hope that we shall hear it on many more occasions, when perhaps we shall be able to interrupt and reply to points with which we do not quite agree.
783 I was particularly encouraged by the noble Lord's remark that it pays to repeat the obvious, because I have always thought that; indeed, I am humble enough to believe that anything I think is right must be obvious. It always astonishes me when I find that other people do not agree with me. In fact, during the debate last April on the economic situation I ventured a few forecasts and observations which appeared to me as obvious as the features on my face. But the noble Lord, Lord Mills, who represented Her Majesty's Government on that occasion, and who, he told me, had hoped to be here this evening, disagreed; in fact, he disagreed so strongly as to describe me as the "most wonderful exponent of overselling" he had ever heard. Such is my respect for the noble Lord, Lord Mills, that I have read that speech several times to see where I had been "painting the lily." Unfortunately I am convinced that in April as events have proved—I was not "painting the lily". For example, I said in April [OFFICIAL REPORT. Volume 223 (No. 71), column 65]: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… 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.I think those things have happened. Again, I said:… this year, if present trends continue, there will be a deficit.With a £91 million deficit in June alone, that does not now seem to have been a very extravagant forecast. As for my suggestion that we were resigned to government by exhortation, that is virtually the only kind of government we have, except for the credit squeeze.
I mention these matters, not in any spirit of "I told you so", but in the hope that what I am now going to say will be recognised as obvious, and that, if only by repeating the obvious, I may therefore be believed. In this, of course, I am reinforced by the virtual unanimity of the Press. The Times, for example, said:The necessity of resorting to these monetary measures.… is disturbing and unsatisfactory 784 and a serious reflection on the Government's economic policy.The Daily Express, far more forthright, says:The Government's trade policy is nonexistent.Even the Daily Telegraph wondered whether the monetary weapons being used are:anywhere near refined enough to hit at the right target.That is what I called a blunt instrument. To me, the most significant comment was that of Sir William McFadzean, Chairman of the Federation of British Industries, who told Mr. Macmillan at a recent meeting that:Exports were a challenge that would not be most successfully dealt with by exhortation and short-term measures.He added:It is a problem that must be tackled by an intensification of all our efforts under the most stable, long-term policies possible.My Lords, those were the words of a man who knows what he is talking about; and he was speaking for every business, large and small, throughout the country. He was plainly telling the Government that continuance of the policy of stop-and-go—taking off the brakes before an Election and whipping them on again immediately after—is not only dishonest but disastrous. Like my noble friend Lord Pethick-Lawrence, I have the highest personal regard, and, so far as I am concerned, affection, for Mr. Derick Amory. But he is utterly wrong when he suggests that we should control economic affairs by frequent up-and-down changes in the bank rate and other abrupt changes in the terms of trade and, of course, by this high rate of interest.
The point was put very eloquently and convincingly by the noble Lord, Lord Brocket, that one just cannot run a successful business in that way. Development cannot be turned on and off like a tap. It takes months, and in some cases a year or two years, to start increasing production once it has been shut down. I know that, even in my comparatively small business. Quite a number of industries have only just begun to re-implement their expansion plans which were stopped by the last credit squeeze; and now we have the next credit squeeze again intervening 785 Slower, more gradual improvements are far preferable to "all or nothing."
Conditions of reasonable stability are the greatest help the Government can give to industry and exports. Moreover, the financial weapon—the high bank rate, credit restriction and the suddenness of change—is not the only weapon that the Government have used. Just consider their use of hire purchase. I am one of those who, for social reasons, believe that we should retain an initial deposit on all hire-purchase transactions. I believe that it is quite wrong to have no-deposit trading. I am not dealing with that point, and I am not grumbling at the Government for having a 10 per cent. deposit now. What am saying—and I hope that the noble Earl will take this point, because I have had a good deal to do with this matter—is that frequent changes of this sort are undesirable.
Consider what has happened in one industry, the furniture industry, with regard to hire purchase changes. In the six post-war years, under a Labour Government, the initial deposit was l2½ per cent. and people were allowed not more than two years to pay. That went on for the whole of the six years without any change. During that period there was a steady increase in production and a steady increase in employment, and efficiency increased. In December, 1952, under a Conservative Government, for the first time after the war hire purchase control was abolished —there was no deposit; the sky was the limit. At that time there were 2,700 firms in the industry and 142,000 employees. There followed a somewhat unhealthy expansion of the industry under those conditions until February, 1955, when restrictions were reimposed with a 15 per cent. initial deposit. In the following year, February, 1956, the initial deposit was increased to 20 per cent; and the demand for furniture fell disastrously; so disastrously that by1957—not long after—there were only 2,000 firms left in the industry against 2,700 a year or so earlier, and 122,000 employees compared with 142,000 two or three years earlier. And 40 per cent., nearly half, of those 122,000 men were on short time.
Then, three and a half years later, in September, 1958, the restrictions were 786 completely removed again; there was no limit; and they stayed that way until April this year, when the 10 per cent. deposit was reimposed. That is five changes in seven years, including nearly four years with no deposit. There were periods of somewhat unhealthy expansion alternating with periods of savage restriction. It is impossible to plan, impossible to avoid heavy losses and impossible to prevent violent fluctuations in the level of employment under those conditions. If the Government were coldly determined to destroy the industry they could scarcely have chosen a more efficient way of doing it than this.
The motor-car, the television and the washing-machine industries have been even worse treated. In February, 1955, when the 15 per cent. initial deposit was introduced, I led a Parliamentary delegation to Mr. Peter Thorneycroft, the then Chancellor of the Exchequer, and adduced arguments as to why this initial deposit should be reduced. We did not get it reduced, but the arguments apparently were so convincing that a few months later in the same year, in July, 1955, when the deposit on motor-cars and such articles was increased to 33⅓per cent., the furniture figure still stayed at 15 per cent. In July 1955, the deposit on motor-cars became 33⅓ per cent.: in February, 1956, it was increased to 50 per cent. Ten months later it was down to 20 per cent.; five months later than that it was up again to 33⅓ per cent., and then in September, 1958, it came off altogether. This is in an industry with vast machinery and vast plants which must have stability to enable it to plan ahead effectively. It is an industry which has done wonders in the export trade, yet it had eight sudden, arbitrary changes in its terms of trade, three of them within the space of fifteen months. In my view, I say quite bluntly that this is almost criminal stupidity and irresponsibility. Those responsible for such a policy, one would imagine, either are completely devoid of knowledge of the needs of industry or just do not care.
A reasonable initial deposit is, of course, a good thing. But it must be kept steady, and not played about with and used as an instrument of financial policy, because in so doing you completely frustrate industries' efforts to plan. The real cause of the imposition 787 of these new, crippling financial restrictions on our manufacturers is, beyond question, last year's liberalisation of trade, which was done without adequate thought and without adequate research, and it has resulted in a flood of imports of manufactured goods. In the first five months of last year we had a surplus with the United States of America of £15 million. In the first five months of this year we had a deficit with the United States of America of £49 million. That is a quite tragic difference. Here are some examples. In the first five months of this year we imported 30,000 cars, five times as many as in the same period last year. And Mr. Macmillan now exhorts our car manufacturers to export more cars in order to pay for the larger number of cars we were importing; and, just to help them, the bank rate has been put up and, through purchase tax changes, we have disorganised the whole market to such an extent that some dealers have to cut car prices by 20 per cent. in order to clear stocks.
At a time when firms like Hoover's are sacking hundreds of men because of hire purchase restrictions, our imports of washing machines and refrigerators are up 50 per cent. on last year; and, of course, they are among the very firms the Prime Minister gathered together in order to exhort them to increase their exports of washing machines so that we can import more washing machines from abroad. I do not know whether it is true, but I was once told that the Polynesian Islanders used to make a living by taking in each other's washing. Apparently, under the present Government, we are supposed to make a living by taking in each other's washing machines. When we look at it, Alice in Wonderland is no longer fantastic. It becomes sober thinking compared with the kind of crazy economics imposed on our business people.
But even if the Government accept the need for stable conditions, and promises, as it were, to sin no more, that would be a promise for the future. It still would not get us out of the mess which the Government have created. For this there are only two remedies: more exports and less imports, I fully support the Government's plea for greater export efforts by smaller manufacturers, because their 788 efforts could be decisive, but we must not ignore their difficulties, which have been well ventilated in The Times correspondence. But I would, as a small manufacturer and small exporter myself, say that many of those alleged difficulties just do not exist—such as the wail about the difficulty of filling up forms. Any business worthy of the name can get over difficulties like that; it is absolute nonsense.
Again, we should not ignore the real and very valuable help which is given by the Board of Trade here and by the commercial attaches of our Embassies abroad. It is a real and very considerable help although the noble Earl might inquire whether the Government are satisfied that these excellent facilities are as fully known to industry as they should be and are thereby fully used. Even acknowledging the excellence of those services, there remain two major difficulties for the small, would-be exporter: credit and the relatively high cost and difficulty of obtaining orders. On the question of credit, as one correspondent in The Times put it, it is humbug for the Government to ask small firms to export in the present tight credit situation unless they are prepared to grant special credit facilities. If the Government really mean business, they must help to finance these transactions.
With regard to getting orders, I should like to urge the Board of Trade to consider the types of products where export can be expanded and, where necessary, to undertake market research. They should then call into consultation the trade associations—not individual traders but the trade associations whose members produce those particular products—to discuss where export markets can be created or expanded. If they were to call in those associations for consultation, then I am quite sure that, with financial support, it should prove possible for a number of quite small firms to co-operate in producing goods for export.
Having acknowledged the obvious need to increase exports and make up some of the leeway we have lost, I now want to know why the Government have completely ignored the other major weapon in dealing with our currency problems—reduction in unnecessary imports. Indeed, my Lords, I have been astonished that this aspect has not been seriously 789 mentioned during this debate. All along we have concentrated on the need, which is a very real need, to increase our exports; but it is of almost equal importance to reduce needless imports. I think that this silence is due to a sort of doctrinaire attitude in this matter on the part of the Government. For example, to mention just two cases, there is, first of all, the refusal to give priority to coal as a source of power. The noble Viscount. Lord Massereene and Ferrard, spoke about the Coal Board in Kent as being the equivalent of "hobby farmers" of coal. May I remind the noble Viscount that it is only a very few years ago that the Coal Board, on the instructions of Her Majesty's Government, were importing United States coal, and losing anything from £5 to £7 a ton on it. That was not very much of a hobby. At the same time, there were coalfields in South Wales producing anthracite coal, which we were buying and on which we were losing £7 a ton, but there it was in the national interest to do so.
§ VISCOUNT MASSEREENE AND FERRARD
I was not objecting to the Coal Board employing miners and losing money, because there you have the human element, and you have to keep the mines going until such time as people retire or die or fade away. I was merely pointing out that you cannot have one law for the farmers and another for the coal producers. As I said, if a man farms out of his tax to a certain extent, but by so doing employs a great deal of labour, it comes to the same thing as the Coal Board mining out of the taxpayer in order to employ labour. It comes to the same thing. I am also employing labour.
§ LORD STONHAM
I am very glad to know that the noble Viscount is all for the employment of miners, and I hope that to-morrow, when he reads what he said and my brief comment on it, he will realise twat my comment was a fair one. There is a vast difference between mining coal in the interests of the nation as a whole and the individual efforts of someone doing a job which may or may not be of importance to the nation.
What I want to deal with, however, is the virtual refusal of the Government to give priority to coal as a source of power. The result of that refusal means 790 that to a large extent we have thrown away the value of our only major mineral. Instead of using fuel which is ours for the digging, we are importing fuel oil which we have to sweat and produce exports to pay for, in the meantime, we close down pits and put miners on the dole. There is, of course, a case for importing crude oil, refining it and using the resultant products; but there can be no case for relieving other countries of their surplus fuel oil and thereby creating both internal and external financial difficulties. So far as I am aware, there is no other coal producing country in Europe which is pursuing such an utterly stupid policy.
My second example is the Government's suicidal agricultural policy, by which, at vast cost to the taxpayers and consumers, we are virtually compelling farmers either to restrict their food production to its present level or to reduce production at home so that we can import more food from abroad. We thus put a further burden on our export industries to pay for unnecessary food imports. For years we have been showing farmers how to produce more food—more pigs per sow, more milk per cow, more wheat per acre. The farmers, baying done all these things, are now being told that their efficiency is a disaster. They are told that they must now produce less food but at lower cost. As I am sure the noble Viscount, Lord Massereene and Ferrard, will agree, that is a contradiction in terms. If you increase production, you reduce your costs: if you produce smaller quantities, you cannot reduce your prices. Imagine telling the car manufacturers to cut production with the object of selling fewer vehicles at lower prices!
My Lords, the result of those two things means that when, because of increased output, farmers' prices go down, the subsidy goes up, and the Government's only remedy is to restrict home production. That means increased food imports, for which we have to pay with exports. We cannot find the extra exports, so the Government slap on a credit squeeze, which makes things more difficult all round. Then, all that can be done is to exhort the manufacturers, whom the Government have done their best to cripple, to export more. Surely, if we have a visible trade gap of hundreds of millions a year, it would be a 791 sensible thing to increase home production of the things we import heavily. If we did that, we should see that those hundreds of millions are lying beneath our feet, ready to be picked up, in the shape of greater food production and more coal production. We could achieve both, if only the Government would alter their policies.
If the nation's housekeeping has run into difficulties through buying and owing too much abroad, it is basic common sense to curtail imports by the better use of native resources. It would then be much easier for our export industries to earn the money for the import of essential things which we cannot produce. I am not pleading for high tariff walls, or for any general restriction on imports, but for precisely the policy followed in similar circumstances by most countries in the world—selective restriction on the import of those things which we are producing, or should be able to produce, at home, instead of this policy of making credit dear so as to have an overall blanket policy which restricts imports through the inability of people to buy. That is quite a disastrous and cruel thing.
My Lords, we are all in this together, because, whether we like it or not, we shall have the present Government for another four years; and I know that noble Lords opposite are not less anxious for a progressively prosperous Britain than we are. I urge them, therefore, to use their present power to take positive steps to reduce imports of those things which we can well produce at home, and to provide the finance and the stable conditions which will enable our industries to increase their production and their exports. If they will take these steps, free from political prejudice, it will not be long before Britain is enjoying a greater and more soundly-based prosperity.
§ LORD BROCKET
My Lords, on behalf of my noble friend Lord Fraser of Lonsdale, I beg to move that this 792 debate be now adjourned until to-morrow.
§ Moved, That the debate be now adjourned until to-morrow.—(Lord Brocket.)
§ On Question, Motion agreed to, and debate adjourned accordingly.