FINANCE BILL

HL Deb 27 July 1960 vol 225 cc820-57

3.58 p.m.

Debate on Second Reading resumed.

LORD BOOTHBY

My Lords, if I may bring your Lordships back to the economic problem confronting this country, I should like to begin by saying that I feel that the crux of the problem has been succinctly put by the noble Lord, Lord Brand. It is, in fact, the insufficiency of our liquid reserves. By and large, as the noble Lord, Lord Brand, pointed out, they have remained at under £1,000 million over the past decade, as against liabilities, in the form of overseas sterling holdings, of over £4,000 million—that is to say, our reserves are only 25 per cent. of our short-term liabilities. And the fate of all bankers who accept deposits with inadequate cash reserves is the constant nightmare of every Chancellor of the Exchequer and every Government. We met it in 1947, and we met it again in 1951.

The remedy is clear enough. It is, as the noble Lord, Lord Brand, said, to build up an excess of exports, both visible and invisible, not only over imports but also over what we find it desirable or necessary to lend abroad. And it is easier said than done. The Prime Minister has been exhorting industrialists to do just this: to export more. But I want to examine for a moment what the Government have been doing. So far as imports are concerned, they have dismantled all our defences. I protested vehemently against this in another place. I have no dogmatic views, one way or the other, on the subject of physical controls. Where they are unnecessary, as the noble Lord, Lord Fraser of Lonsdale, said, they are obviously undesirable; but I have always thought that they should be kept in reserve, to be used in case of necessity. And they are not now in reserve.

The Government have also failed to reduce expenditure above the line. I know that this is an old theme; but the fact remains that a certain part of our expenditure on the Welfare State is wasteful. I do not think that there has been nearly enough pruning in sheer administration; but, of course—and this is not going to be very popular—the real enemy here is defence. We are no longer a great world Power in the 19th century sense of the term; and ever since the war successive Governments, both Labour and Conservative, have tried to behave as if we were—for example by having what has been called hitherto an "independent deterrent". I want to ask the noble Viscount, Lord Hailsham, who I believe is going to reply, what we have spent on defence since the war, and what we have to show for it to-day. But I would beg of him not to look up the figures now, because I am anxious that he should reply to this debate; and I believe that, if he did look at the figures of what we have spent on defence since the war, and what we have now got to show for it, he would be rendered unconscious and therefore be unable to make any reply at all.

As a result of this tremendous expenditure, we have to-day a system of progressive taxation on earned income which has been described by the noble Lord, Lord Robbins, as a discrimination against enterprise and ability such as has never before existed for any long time in any large-scale civilised community. The noble Lord, Lord Lucas of Chilworth, spoke a great deal about incentives, and seemed to imply in one part of his speech that a reduction of direct taxation would be a good idea. He talked quite a lot about carrots, and taking away sticks. I should like to ask the noble Lord if this is the new Socialism; because if so, it will be hailed with considerable interest by large sections of the public. It might even lead to my own transfer to the other side of the House, if it is really sincerely believed; because, for my part, I am convinced that direct taxation, which obliterates most of the difference between success and failure in business and which makes it almost impossible for anyone in this country to-day to save out of earnings, is at least one of the primary causes of our present difficulty. It is really true to say that there is practically nobody, at any level of our society, who can save substantially out of his or her present earnings.

But that is not all. Despite repeated appeals, Her Majesty's Government insist on maintaining the 2 per cent. stamp duty on Stock Exchange transactions. It does not bring in all that amount of revenue, but it does discourage investment in productive enterprise by those with moderate incomes; and, worse still, it discourages investment in this country from abroad, and therefore has an adverse effect upon our invisible exports and on our balance of trade. It is not without significance that a great deal more foreign money is at the present moment being invested on the Continent of Europe than it is in this country. While I do not say that this stamp duty is the only reason for that, it certainly plays a part.

Finally, there is the bank rate. Here the underlying philosophy of the Treasury seems to me to be to knock the whole national economy about from time to time, in the hope that a reduction of imports will come as a by-product. I hope that the noble Lord, Lord Fraser of Lonsdale, will not take it amiss if I say that dear money is expensive. It is a truism; it is a platitude that dear money is expensive. I hope it will not startle your Lordships, but it remains a fact from which we cannot escape. It is expensive for the Government; it is expensive for local authorities; and it presses very hard on those who have entrusted their savings to the Government.

I will not comment on the present condition of the gilt-edged market, which the noble Lord, Lord Pethick-Lawrence, has already dealt with very well. I will content myself by saying that the two biggest swindles that have ever been perpetrated on the British public were the 3½ per cent. War Loan and what have since become known as "Daltons"—I am sorry the noble Lord has left the Chamber. As one of those swindles was perpetrated by a Conservative Government and the other by a Labour Government, your Lordships will observe that I am preserving the impartiality which becomes a member of the Cross Benches.

Dear money also directly hits the export trade, for the conduct of which industries—both large and small—require capital for the provision of credit to their purchasers overseas, and also for the purchase of stocks to ensure prompt delivery. I should like to suggest that the policy of attempting to increase exports by repressing industrial investment and development at home is, in the long run, a suicidal policy. Bank rate is the clumsiest of all methods of controlling monetary and credit policy; and that was brought out clearly in the Radcliffe Report. It hits the small man rather than the big; it acts as a restraint on productive investment which may be desirable and necessary; and at the same time it does not necessarily curb loan expenditure on those products which are neither desirable nor essential. It is, in effect, wholly non-discriminatory. It is a clumsy, blunt-edged weapon, as the noble Earl must know.

I was therefore horrified to hear him say yesterday—and I am referring to the noble Earl, Lord Dundee—that the Government intend to use the weapon of bank rate more frequently (I think that is a fair expression), as one of the main weapons of their economic policy. It reminds me of nothing so much as Alice and the mushroom. First a nibble one side, then a nibble the other side; and never the right size. How do they expect the business community to plan ahead against this kind of background of constant change?

This brings me to a brief consideration of the Treasury, a Department for which I have never had any very warm affection or enthusiasm. I have been in public life on and off for 35 years. I have always thought that the Treasury was much too powerful, and I have always been quite sure that it is seldom right. I will now give an account of its recent activities which may differ slightly from that given by the noble Lord, Lord Fraser of Lonsdale. I will spare your Lordships by drawing a veil over the conduct of the Treasury in the interwar period, when it managed to maintain a steady rate of unemployment at levels between one million and two million for nearly 20 years. But after the war, what happened? We got off to a bad start with the American Loan, which was used as a drug. Then we had premature convertibility, which got rid of what was left of the American Loan, and forced us to repudiate the terms on which we obtained it. Then we had Crippsian austerity. Then we had a devaluation of the pound sterling, which was not so hot. Then we had a 7 per cent. bank rate and a credit squeeze. And since then we have been alternately putting on the brakes so hard and taking them off again so completely that the business community is dizzy, if not absolutely crazy.

That is the view of many industrialists who at the moment are trying to plan ahead, and do not know the background against which they must plan. It in no way detracts from the regard and affection with which, as the noble Lord, Lord Fraser of Lonsdale, said, Mr. Derick Heathcoat Amory is universally held, or the regret felt by all at his departure from the Government. Like most of his predecessors, he was a prisoner of the Treasury; but there were moments when he saw the light, and struggled against them.

The noble and learned Lord, Lord Radcliffe, is one of my oldest friends and no one has ever questioned his great abilities. But he has also great failings: he is modest, the is reticent and he is discreet. For my part, I have never been able to see that these alleged virtues are anything but grave defects. He is, in fact, all these three things; and I wish that he were standing here in my place to-day and really setting about the Government and the Treasury.

A NOBLE LORD

He is sitting here.

LORD BOOTHBY

He may have been sitting here, but I do not think he is now. Oh! I see that he is. If I had realised that the noble and learned Lord was here I do not think I should have said what I have said. Anyway, having started off, I may as well plunge on and say that he must be aghast at the manhandling of the Report of his Committee by the Treasury, who have clearly never read it.

I want to make one constructive proposal with regard to the new Chancellor of the Exchequer. I think that he ought to be given the Radcliffe Report as required reading; and I think he should also react a great part, if not perhaps all, of the evidence on Which it is based. Then I think he should sit for an examination, both written and oral, by Lord Radcliffe and his colleagues; and if he fails in that examination, he should be replaced.

I must also give one warning to the new Chancellor of the Exchequer. About half a century ago I was Parliamentary Private Secretary to the Chancellor of the Exchequer at the Treasury. One day a very high Treasury official came to me and said. "I want to tell you one thing. It will stand you in good stead, I think, as a promising young politician"— because that, incredible as it may seem, was what I then was. This high Treasury official continued: "There is only one man who has ever been able to make the Treasury do what it did not want to do, and that was Lloyd George. I can tell you something else—there will never be another." I think that that is true, certainly so far as my experience carries me."

In the last analysis it is the physical use of our available resources that matters—and I am now nearing an end. Look at what confronts us. In the Common Market they have set themselves a rate of expansion—that is to say, an increase of productivity—of between 4 and 5 per cent. per annum, and are now achieving it. In the United States, the Eisenhower policies have been jettisoned by both the Presidential candidates; and they now aim at an annual rate of economic growth of not less than 5 per cent., to be achieved by increasing both public and private investment. This is the measure of what we are up against, we who are doddering along at 2½ per cent. rate of increase at the present time. Do we aim to tag along like this for ever? Because we are up against two formidable, large and dynamic economies, as the noble Lord, Lord Lucas of Chilworth, rightly pointed out.

I certainly do not want to tread on ground I have already covered with regard to the Common Market. I know that there are strong feelings about this on both sides, but certain things have been put around which distort the issue and which, as Sir Winston Churchill, to use one of his favourite expressions, would say, "darken counsel." It has been said, for example, that over 50 per cent. of our trade is done with the Commonwealth. That is not true. It is less than 40 per cent., and, as the Financial Times pointed out a day or two ago, when exports to those areas of the Commonwealth which do not grant us preferences and the imports of raw materials which would in any case continue to enter the country duty-free are subtracted, the preferential element in Britain's foreign trade is not much greater than our trade with Europe as a whole. It will certainly diminish still further in the years that lie immediately ahead.

The second thing which is being whispered is that some people, and particularly M. Monnet, are bitterly anti-British and opposed to our entry into the Common Market. I can only say that I received a letter from M. Monnet, after my speech to your Lordships on the subject of the Common Market, telling me how much he agreed and approved of it. He sent me a copy, which I have here, of a declaration by the Action Committee for the United States of Europe, of which he is President, and from which I should like to quote one paragraph only which seems to me of the greatest importance. It says: The Action Committee, echoing the wishes of the vast majority of citizens in our countries, earnestly hopes that the United Kingdom and other European countries will simultaneously become members of the Coal and Steel Community, of Euratom and the Common Market, which are three facets of a single reality. This reality is the emerging European economic union, that is paving the way for a political unity, the exact nature of which cannot now be foreseen. That is quite clear. They are not committed to any particular form of political integration; and it seems to me an awful pity, if we are going to be so slow, that we ourselves shall be able to take no part in framing the political union which is inevitably coming to Western Europe. I will content myself with saying just this. If we keep out of the Common Market we shall not like it, and I think the noble Lord, Lord Lucas of Chilworth, will agree with that.

What is our aim? What is the aim of Her Majesty's Government? It does not clearly emerge from any Government statements—still less from the Opposition. I listened the day before yesterday in another place to the speech of Mr. Harold Wilson. He accused the Government of being inept of giving no leadership, and of having no policy. Then what did he do? He chased his own tail for nearly three-quarters of an hour. The whole of the second part of his speech flatly contradicted the first part. He put out for half an hour all the advantages of going into the European Market, and then all the disadvantages. At the end, he came as near as a toucher to saying—if your Lordships will forgive this expression—that he did not really know what the hell we ought to do. This is the final impression that was given to me by Mr. Harold Wilson's speech. The Government were a shade more comprehensible, but Mr. Wilson sat down in a state of complete mental chaos, to which he had also reduced the whole of another place.

As I see it, three broad alternatives confront us. We can have another attempt to go back to the laissez faire multilateral system of the nineteenth century; we can relax into the rigid national, economic autarchy so dear to the heart of Socialist purists who want nothing better than to go back to the utmost misery and austerity in order to be able to get the chance to impose upon us their true-blue Socialism. That was implicit in Mr. Crossman's pamphlet: we do not want prosperity; we want misery, and only then shall we have a chance of getting real Socialism.

VISCOUNT ALEXANDER OF HILLS-BOROUGH

My Lords, this speech, and many others made in the House during the last few years, forget that if a Tory Government had been returned in 1945 there would have been no recovery at all. We are living to-day upon the foundations that were laid then.

LORD BOOTHBY

We are living to-day, if the noble Viscount will forgive me, on the foundations which were laid by Marshall Aid. That is what brought about our recovery; and nothing else. We were just about sunk by the time that came along. We had lost the American Loan through our own folly, and Marshall Aid came in the nick of time to salvage us.

There is a third alternative, which I know is distasteful to the noble Viscount, and that is to build up regional, economic units capable of standing on their own feet in the modern world through effective economic co-operation within and between various groups of nations. That is what everybody is jibbing at at the present time on both sides, let me admit. I reject the first alternative, because it is quite impracticable. We cannot go back to 19th century laissez faire. I reject the second, because it would involve a drastic cut in our standard of living. But let us be under no illusion as to what is required by the third. It will demand greater surrender of national sovereignty, both in the political and economic fields, than either side in this country has yet been willing to contemplate. There is no doubt about that. There are the three choices, and which one we will take I do not know. I am quite sure in my own mind which one we ought to take.

Let me conclude with a quotation—a most remarkable quotation—from Barbara Ward's book, The West at Bay, which was published some years after the war, but which is still as up to date as ever. It is as follows: The British, the French, and the Low Countries, all assumed that the inter-war world"— that is, the world between 1918 and 1939— could be a recognisable version of the nineteenth century with a gold standard, with free trade, with national sovereignty (only slightly limited by the League of Nations), with liberal ideas and capitalist economics. The possibility that the first war had torn a gaping hole in the old fabric was not considered. Even the portent of the Russian revolution was tidied away behind explanations of the backwardness and barbarism of Russian society. Over these days the last light of the Victorian sun still streamed, the light of a safe world of order and progress, the light of great certainties and greater wealth. But the illusion cannot be re-created after this struggle. For this time, it seems, all the pillars have fallen. The last ray of the old sun has been extinguished, and if we of the Western world do nothing but look backwards, then 'we are for the dark'".

4.20 p.m.

LORD PAKENHAM

My Lords, if "we are for the dark", let it be in the company of the noble Lord, Lord Boothby, because I am sure he will cheer us all up and refuse to allow any of us for a moment to become unduly downhearted. There is no more delightful speaker in this House to listen to, and anybody who failed to enjoy a speech by Lord Boothby would, I think, be certifiable—and I hesitate to describe any noble Lord as being in that condition. I sympathise very much with the European ideas of the noble Lord, and perhaps he would allow me, as someone who shares those views, to express the ponderous hope that he will commend those ideas more persuasively to some of those on my Benches. He treats it so lightly and as so totally devoid of problems that some of those who are not converted find it difficult to take his arguments seriously. He speaks with an air of infallibility. I am all for infallibility, but coming from the noble Lord on these matters I am not sure that it is as telling as another form of argument may be.

LORD BOOTHBY

My Lords, the noble Lord would not deny that if you have faith it is infallible; and I have faith.

LORD PAKENHAM

Perhaps faith is to supplement reason and not supplant it. But I hope he will commend those ideas more astutely to my colleagues. He was not fair to Mr. Harold Wilson and the noble Lord, Lord Dalton, and quite a number of others among us whom we value very greatly. The noble Lord, Lord Fraser of Lonsdale, has left us. I was rather sorry to hear him say that the noble Lord, Lord Dalton, was deflated—I think in that context he meant devalued, but whatever word he had in mind it clearly was not a kind thing to say. I would ask the noble Lord, Lord Fraser of Lonsdale, to go to the North East Coast, which he may know, and if he remembers it before the war he will find many thousands of people who bless the name of the noble Lord. Lord Dalton, for what he did as President of the Board of Trade and Chancellor of the Exchequer.

My Lords, we have had a most interesting debate, and perhaps I may be allowed, without taking any sort of credit whatever, to pay particular tribute to the speech of the noble Lord, Lord Newton, who did what no other noble Lord has ever done—described me as his tutor. I dare say there are other noble Lords I have tutored, but none of them has thought it prudent to mention it. The noble Lord recalled that we were colleagues in the old School of Philosophy, Politics and Economics at Oxford. I am not sure that I am capable of teaching any of those subjects to a Conservative Minister, or ex-Minister as he is now. Philosophy is a difficult subject for politicians. Some people think that in the Labour Party we have too much philosophy, and we should say that in the Conservative Party they have too little. To look for philosophy in the Conservative Party is like looking for a black cat in a dark room; it may or may not be there, but so far it has not disclosed itself. The noble Viscount who is going to reply is a philosopher of a more ancient school than mine and he may put that right later on. The noble Lord, Lord Newton, and I studied politics together. I think, looking back, it was rather impertinent of me; to try to teach politics to the Conservatives would seem very injudicious. Here they are, having won three Elections with an appalling economic record. If that is not politics I do not know what it is. Perhaps I should have been better employed trying to teach economics.

It is economics that is the subject of to-day's debate, and we are trying to discuss the Government's economic record. The noble Earl, Lord Dundee, made a charming speech and he does not need me to tell him that he is always very acceptable in this House. He made the kind of speech which I have no doubt I should have made, or tried to make, lacking the charm, in his place. Indeed, it is the kind of speech I did make in his place for about six years when I helped the noble Lord, Lord Pethick-Lawrence, to speak in your Lordships' House for the much-berated Treasury. I hope the noble Earl will obtain ever wider opportunities; in the phrase of someone who was then Prime Minister of a National Government, I hope in the redistribution he will "go on and on and up and up".

We are told that all sorts of high positions are being allocated to this House. Perhaps we shall see the Chancellor of the Exchequer coming here, or perhaps, if theEconomistis right, two Chancellors of the Exchequer. That is the latest idea; if you cannot find the right man, have a couple, and maybe the idea will be to have them both in the House of Lords. I only feel that the noble Earl is perhaps too sunny-natured for a Chancellor of the Exchequer. I think we need someone with more iron in his soul, ready to take occasionally a pessimistic view of things, or, should I say, an objective view of things.

If we look at column 715 of yesterday'sHansardwe get a picture of the situation of the country, given us by the noble Earl, which has, on the whole, not been echoed in this debate except by the noble Lord, Lord Fraser of Lonsdale, who was very effectively answered in advance, if I may put it that way, by the noble Lord, Lord Brand. I will not weary your Lordships with what was said, and said more gracefully than I should say it, by the noble Earl, Lord Dundee, yesterday, but he did begin a passage, which comes in column 715of Hansard, by saying: The country is enjoying greater prosperity that it has ever enjoyed before. And he goes on to call attention to record levels in wages, production, exports, capital investment and private savings. Well, I am not disputing, of course, any facts which the noble Earl offers to the House.

But the noble Lord, Lord Pethick-Lawrence, put the situation in a very different perspective. I think all of us, however jaundiced we may be about one another's views, would agree that the feat of the noble Lord, Lord Pethick-Lawrence, at the age of 88, in delivering a speech yesterday almost without looking at any notes, was a prodigy which we may not see equalled in our time—except by the noble Lord, for many years. I happened by chance to-day to share transport to the City with a gentleman of 86, and I said to this gentleman, "You look much younger than that". He replied, "I am about a lot with young people. You smile more often with kiddies." And it may be that years of work in the House of Lords has kept the noble Lord looking so young, being, if I may say so, in the presence of so many juvenile minds. Whatever his secret, it is something we all greatly envy him.

With the diagnosis, or at any rate the account of the situation, offered by the noble Lord, Lord Pethick-Lawrence, not only has there been a good deal of concurrence, not only among those on these Benches, such as the noble Lords, Lord Stonham, Lord Lucas of Chilworth, and Lord Alexander of Hillsborough; there has also been a good deal of support from what one might call the more reserved view from the noble Lord, Lord Brand, and the noble Viscount, Lord Massereene and Ferrard, and other noble Lords opposite, such as the noble Lord, Lord Hawke. I feel sure that the noble Earl, Lord Dundee, has been the first to note that there has been much more agreement, so to speak, with the noble Lord, Lord Pethick-Lawrence, than with him.

Is there any hope amidst all this argumentation of reaching an agreed account of our economic progress during the 1950s. When we in debates elsewhere—and we have taken part in plenty of debates here—criticise the Party opposite for their very moderate showing during this period, they retort, not unnaturally, that we should have done worse, and they argue from what they think was our performance when in office and our policies now. It becomes fine Party knockabout, and economic sense is rather difficult to come by under those conditions. We hope that the noble Lord, Lord Boothby, will gradually establish himself as the most dispassionate economic commentator in this House; and so long as he achieves that without depriving us of his humour, may that time come soon!

I should like to try to find a quotation from somebody who would not be regarded as a Party man, in so far as he had no leanings—certainly not Socialist leanings. I refer to Sir Oscar Hobson, the most distinguished of living financial journalists, who has written an article, as every month, in the current number of theBanker. This is the only passage I want to read to the House from these experts, but perhaps I could just set out Sir Oscar's views before I go on. He reckoned that it is only in the past year that the rate of growth of British industrial production has made a decent showing against that of other comparable countries. In the nine years 1950–1958 we were at the bottom of the ranking list with an annual increase of only 2.2 per cent. compared with—I spare my readers the mouth watering figures of Germany and Japan—4.3 per cent. for France, 4.5 per cent, for the Netherlands, 5.5 per cent. for Italy, Then he goes on to point out that this rate of growth during the 1950's—and my noble friends opposite have been in power for almost all that time—of 2.2 per cent. of increased production was well behind the comparable figure for the greater part of the despised 1920's and it is below the rate at which we have to progress if we are going to double our standard of life, as forecast by Mr. Butler, in 25 years.

Those are the facts, set out as dispassionately as we can ever hope to have them sec out, and certainly not set out by somebody favourable to our political point of view. I can only hope that the noble Earl, Lord Dundee, does not deny that in fact the record has been far from satisfactory during the 1950's. If he does deny that, and if that is the view of the Government, then it is very alarming indeed. If they really tell us that what they have clone is good, and that we must not expect anything better in the 1960's, then I think there is cause for despondency.

I do not myself think that we can find much to boast about in this period that ends in 1958; but we shall be told, not unnaturally—we were told by the noble Earl, Lord Dundee, and I think the noble Lord, Lord Fraser of Lonsdale, stressed the point—that there has been a big increase in production in 1959 and 1960. But the heartbreaking thing there is that as soon as we get under way with an increase in production, at once we find that we are going too fast and we have to be brought under control again. If your Lordships were to look at the Banking Supplement of theFinancial Timesas published this Monday, you would see that among the leading articles is one called "The Return to Restraint" by Professor Victor Morgan. Then one comes to an article headed "Once more the Squeeze" by Wilfred King, the editor of theBanker. In short, we are back again in the old difficulty that as soon as we try to run about with any reasonable degree of activity after our confined period of sedentary occupation we are threatened with a heart attack and we have once again to go slow.

That is the story, so to speak. We can attribute praise and blame as we think fit, and offer all sorts of remedies; but that seems to be the story that is in front of us in this debate. The noble Earl, Lord Dundee, defended (though I do not think he used the word) what is sometimes called "flexibility of monetary rates". He talked, in column 719 of yesterday's OFFICIAL. REPORT, of Necessary movements in a direction of credit restraint or relaxation. I am afraid that most of us who have been in business during the last few years would agree with the noble Lord, Lord Citrine, who, at column 763, in his powerful speech spoke as follows: I am sure that this stopping and starting process would not commend itself to any businessman. The same point was made just as forcefully and eloquently by the noble Lord, Lord Boothby, to-day. My noble friend (and the noble Lord) said that the businessman would prefer a long-term policy, so that he could see ahead and know how his business is likely to fare. I am not arguing against all flexibility of interest rates; but the demand of the Government has gone much further than anything that could be called a reasonable flexibility, and I wondered whether I might call attention to some new figures, which have been available for some time but which have not been brought out up to now in this debate. I refer to the figures for hank advances made by the banks here since the war. Between 1946 and 1951 these hank advances roughly doubled. In 1951, they stood at £1,822 million. In 1954, they were still at about the same figure—in fact, they were rather lower, at £1,804 million. But, there having been fairly steady progress, there was this stabilisation for those years. In 1955, there was a jump of £215 million. I should not like my objective pretensions to be destroyed by pointing out that 1955 was an Election year. Be that as it may, they did jump in 1955. After then, and from 1955 to 1958 they were steady again. In fact, in 1958, they were slightly lower than they had been in 1955. So there was no progress, measured in this way, between 1951 and 1954, and then again from 1955 to 1958.

But in 1959, with the removal of the credit squeeze—in fact it was removed in 1958—the figures go hopping up very fast, and by the end of 1959 they were £2,617 million. That was an increase of more than one quarter in one year—in the year 1959, compared with 1958. I suppose I must point out that that year was an Election year, but it may be that that was just a coincidence. But still there was this large increase again in 1959. Since then they have gone merrily ahead, and the last figure published to-day is £3,560 million. That is an increase of 67 per cent. since 1958. I do not think that anybody could feel that that was a kind of well-regulated progress. I think that most people, in thinking about it, would conclude that there was something pretty seriously wrong somewhere.

I should not like it to be thought that this extraordinary stagnation in bank lending, followed by an equally pronounced expansion, had been due mainly to changes in the outlook of banks in their general readiness to lend. It is true that they have gone in for hire purchase, and there is something over £100 million in loans for hire purchase. I have not seen the latest figures, but in May the increase of loans for hire purchase was something of the order of £120 million; but the total increase is, of course, many times that. The revolutionary change since 1958 is simply a reflection of the fact that banks are extremely competitive businesses who would naturally have expanded much more, had they been allowed to do so, in the period 1955 to 1958, but who were artificially restrained during that period. Since then they have been making up for lost time. That is simply a fact, as noble Lords are well aware. At the present moment, the ratio of advances to deposits is 46.3 per cent., which is very high when compared with the 1958 figure of 30 per cent. But this figure of 46.3 per cent. is not necessarily too high. It is high by any standard, but some people would say that it was not necessarily too high, because just before the war, or rather earlier, there was a still higher ratio.

What I am saying—I am afraid I am saying it in a rather complicated manner and rather quickly—is that though the banking part of our story is only one part of the story, it is a part which affects all the rest. When one thinks over the figures and the working movement that I have indicated, I think one reaches the conclusion that, somehow or another, we have not yet found the right answer. Some years ago, soon after I myself went into banking, I was among the first, though certainly not the first—I am not sure that the noble Lord, Lord Bothby, was not the first—in recommending a fundamental inquiry into our financial affairs. I think the noble Lord, Lord Boothby, was among the very early ones.

LORD BOOTHBY

My Lords, I was ahead of the noble Lord.

LORD PAKENHAM

I always try to yield precedence and I do not usually find that in any way difficult. The Radcliffe Committee has come and gone. The noble Lord, Lord Radcliffe, has come and gone this afternoon; and in spite of the great collection of knowledge with which that Report presented us, it hardly seems to have affected policy by one iota.

LORD BOOTHBY

Hear, hear!

LORD PAKENHAM

My Lords, I am pleased that the noble Lord, Lord Boothby is with me there. Where are we now? After this tremendous inquiry that we have had, we may have seemed to have shot our bolt. We cannot start another Radcliffe Committee and we are no wiser, it seems, in practical policy.

LORD BOOTHBY

My Lords, if I may interrupt the noble Lord, it is possible that one day the Treasury may read it. That is the great hope.

LORD BRAND

My Lords, may I ask the noble Lord whether the answer is not to increase our central reserves, so that we need not go up and down—and how will he do that?

LORD PAKENHAM

My Lords, I was hoping not to detain the House very much longer, but I believe the answer, logically, is that which was propounded yesterday by the noble Earl: to increase our exports. That is obviously the practical answer, for unless we increase our exports we shall never be able to increase our central reserves. That is the short answer—and I am not trying now to give the complete answer.

LORD BRAND

My Lords, would the noble Lord agree that in their policies both Parties—Conservative and Labour—go up and down because our reserves are too small? They try to create prosperity and then find they have gone too far and have to come back—and all because we are not viable so far as reserves are concerned.

LORD PAKENHAM

My Lords, the noble Lord tempts me to go very wide of my immediate remarks, but I would say that, although I was not then in banking, there was nothing in the period of the Labour Government which corresponded to the credit squeeze. I believe the noble Lord will agree that this tremendous shut-down of the credit squeeze, followed by the tremendous free-for-all is something which, on the face of it, had no parallel during the period of the Labour Government. I could pursue that thought further.

LORD BRAND

My Lords, I believe the noble Lord was a banker and he will remember when our credit was on the basis of 2½per cent. I do not believe the noble Lord, Lord Dalton, is present, but it will be remembered that his famous "Daltons" were issued because, as he then said, our credit was so good that we could stand a 2½per cent. rate. In fact, we could not. We were bankrupt at that moment.

LORD PAKENHAM

My Lords, the noble Lord, Lord Brand, wishes me to broaden my front wider and wider. I would only say that most dispassionate people consider that this country made a very remarkable economic recovery during the first two years after the war. The noble Lord, Lord Dalton, was Chancellor of the Exchequer during that time; and had he not resigned on a point of extreme fidelity to honour I believe that he would have been Chancellor for many years.

LORD BRAND

My Lords, if I may interrupt the noble Lord, I do not think that what he has said would be supported by those who bought "Daltons" at the issue price.

LORD PAKENHAM

My Lords, there are plenty of people who have had a bad time in gilt-edged, without the noble Lord, Lord Dalton coming on to their horizon; and to pin that on one man is hardly in keeping with the tremendous spirit of generosity that I have always found in the noble Lord, Lord Brand. I rather deplore the idea that in some way the noble Lord, Lord Dalton, has been responsible for our troubles.

LORD BRAND

I was only pointing out that the argument of the noble Lord, Lord Pakenham had one flaw.

LORD PAKENHAM

An argument usually has some flaw, but the flaw here has not yet been pointed out to me. I was pointing out that there had been a very irregular and extraordinary progression in the bank rate during the period I was discussing—the last nine years. The noble Lord asks about 1946 and 1947, and about the 2½per cent. rate—and we could go very wide here. But I have to reply generally that I feel that the noble Lord, Lord Dalton, did a first-class job under the leadership of my noble friend Lord Attlee. Returning to the last nine years that we are now discussing—

VISCOUNT HAILSHAM

We are discussing the Finance Bill.

LORD HAWKE

Is the noble Lord, Lord Pakenham, leaving the question of bank loans? It would be interesting 'to hear his views, as a banker, on the influence of this new form of very profitable lending—personal loans, which bring in about 10 per cent.—on the increase of bank lending. Previously bank overdrafts were much less profitable.

LORD PAKENHAM

My Lords, I have no intention of leaving bank loans until released by the noble Lord, Lord Brand. I will stay as long as I am questioned on them; but so far as personal loans are concerned, although I have not the figures, I do not think the total amount of personal loans would make much difference here. I think the noble Earl, Lord Woolton, would agree that that is not a really significant factor on the scale of things we are discussing. Hire purchase would be a larger factor, for there there has been an increase of more than £100 million; but here we are discussing an increase of about £1,300 million in eighteen months. That is not due to a change of policy of individual banks but to the fact that up to that time they were told not to lend more money than they had been lending. Then they were allowed to go ahead. There is no parallel with that in the period of the Labour Government. I am not coming forward as someone with a miraculous answer. Here is a problem which has not yet been solved, and I hope Her Majesty's Government are aware that it has not, for it would be a pity if they thought that in some way, and without anybody noticing it, it had solved itself. I am sorry to detain your Lordships a little longer but I believe you will understand.

Where were we before the Radcliffe Committee? Changes in the bank rate was regarded as the traditional method of regulating our credit. The bank rate is rather frowned upon these days for that purpose. My noble friend Lord Pethick-Lawrence has many times pointed out the weakness in that system. I am not sure that I go as far as he sometimes goes in his destruction of the bank rate method. I think that we are all agreed, since the Radcliffe Committee's Report was published, that the bank rate method, by itself, is not going to solve our problems; and it is not a method which can be over-exploited.

Then there is the method which was tried by the Government. Quite a number of Chancellors of the Exchequer in the past—no more than one at a time, but serving in quick succession—tried the method of political directives. Bankers dislike political directives in banking, and I believe that most people would agree that political directives should not be used unless they have to be. Bankers themselvs are anxious to pursue their own business and to make a success of it, and I personally favour free competition in banking. I believe that they should be allowed to compete freely one with another. Somebody has said that it is not a bad thing occasionally to rub in a platitude, so may I rub in one now? May I say that money is a peculiar commodity and that the amount of money provided in the community has social implications which do not arise in the case of motor cars or soap, for example.

Some method of regulation there must be if we are to keep the economy healthy and to see money and lending expanding in proportion to our powers of production. I am not criticising any individual, and certainly not the Governor of the Bank of England—a most distinguished man in every way. But I am bound to point out that the responsibility for finding the answer rests upon our rulers. Our present rulers have been presiding over our affairs for nine years, and look as though they have a long period ahead of them. They have the heavy responsibility of finding the answer which has not yet been found.

Some years ago in this House I ventured to suggest a system of variable liquidity ratios. The Government spokesman on that occasion, the noble and learned Viscount, treated that as something too complicated for your Lordships or, at any rate, for him; and with charming modesty he dismissed that topic as rather outside our range. But in fact something of that kind, or very close to it, has been introduced, through the system of special deposits, and I regard that, on the whole, as a step in the right direction.

LORD HAWKE

Hear, hear!

LORD PAKENHAM

I am glad that the noble Lord, Lord Hawke, agrees with me, and I am certainly not criticising the introduction of that system. It is not likely to be popular with bankers, because bankers, like other human beings, do not want to be interfered with more than is necessary. But taking it all in all, and comparing it with the use of the bank rate, which can be very deadly or very ineffective, and with political directives, which no one adopts unless he has to, it seems to be a process towards the right system.

LORD HAWKE

My Lords, does the noble Lord not think that these valuable liquidity ratios could be achieved by agreement rather than by the Bank of England's apparently having to wave a stick?

LORD PAKENHAM

My Lords, I noted very carefully and listened with special attention when the noble Lord was arguing along that line last night. With that in mind I drafted some conditions this morning of what would seem to me to be a satisfactory system. It seems to me that for success in this field there have to be conditions, three of which are essential. First, any system of regulation should leave room for effective competition between the banks. We must not go back to the period of a self-denying ordinance which operated during the credit squeeze.

Then there is a point which is made only by bankers—and it was made by the noble Lord, Lord Hawke, last night: that any system must impose on the finance houses, the outside sources of credit, regulations which are at least as strict as those imposed on the banks. I entirely agree with the noble Lord, Lord Hawke, and I am rather surprised with our authorities that something has not been done along those lines. I certainly agree that it must be. Thirdly—and here f go as far as I can with Lord Hawke—such a system must be thoroughly understood and, so far as possible, should be acceptable to the leaders of banks. I say "so far as possible" because I am afraid that bankers are not going to like very much any system that interferes with them. But it should be made acceptable so far as possible. So far as day-to-day operation is concerned, however, I think the decisions must be left to the authorities. You cannot consult the leaders of the banking world every time you want to make some alteration in special deposits and liquidity ratios and all the rest of them. So I go a long way with the noble Lord, Lord Hawke, if not the whole way.

I have said nothing about exports, not because they are not the most important of all, but because my noble friend Lord Lucas of Chilworth, and other noble Lords have already dealt with that so much more effectively than I could. The two deepest notes struck in the debate can be illustrated, it seems to me, by quoting a sentence from the noble Lord, Lord Citrine, who is not with us, and, later, one by my noble friend Lord Pethick-Lawrence. My noble friend, Lord Citrine, said this—arid I think he focused the discussion exactly [OFFICIAL REPORT, Vol. 225 (No. 110), col. 762]: We here believe"— he meant those on our side of the House— 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 '. I agree with my noble friend Lord Citrine that here there is a fundamental distinction of principle which would divide those of us who, so to speak, agree with the noble Lord, Lord Brand, and with many points in a further movement in Lord Brand's direction. I agree with my noble friend Lord Citrine—and I think that all who are on these Benches do—that here is a fundamental distinction of principle, though agree with what Lord Citrine said also: that how far the planning is to be carried is a matter of experience.

No-one outside a very heated Election is going to suggest that because we favour planning in certain vital respects, we favour it in all respects. The difference between us and noble Lords opposite is wide enough to be called a difference of principle. But I agree with the clear implication of the speech of my noble friend Lord Citrine, as I think others on this side of the House do; that in this way we shall continue to have a large sector of private business, and we must all, whatever our political Parties, make that sector successful.

As noble Lords opposite are aware, there have been many strenuous discussions in our Party during recent months about the place that public ownership should occupy in our ultimate policy. There is something called "Clause 4", which noble Lords opposite probably had not heard about until lately.

VISCOUNT HAILSHAM

I invented it.

LORD PAKENHAM

My Lords, the noble Viscount does make the most extravagant claims. I thought it was Sidney Webb who invented it—but they may have done it together. Perhaps what the noble Viscount means is that he popularised it. Nevertheless, there have been these strenuous discussions, and I should like just to offer two comments which, I suppose, could be discribed as personal, but certainly I think they would express the point of view of many members of my Party. I believe that in our Party, the Labour Party, we must make it plainer than hitherto (this point was made in the speech of my noble friend Lord Lucas of Chilworth as well) to the business community that we are not there to stick pins into them. We do regard them, apart from a few scallywags—and there are scallywags in all professions and Parties—as doing a patriotic job. They are earning a living for themselves and their families, and that is not a crime, so far as I am aware. We consider that while we allow or agree to a certain sector being a public sector, it is up to us to make them realise that we regard them as helping the country as much as anyone else. And I think we should make that plainer in the future than we have made it in the past.

But as regards the public sector and the question of how far it could be properly extended, it seems to me that there is an economic issue and also a moral issue. From the purely economic point of view, it seems to me that each industry should be considered on its merits; and that has, in fact, been the point of view of our Party for a number of years. I would suggest—and I speak here without any authority whatever, except a personal conviction—that if there is any view strongly held in our own Labour Party that some particular industry ought to be nationalised, we should have a public inquiry, even while we are in Opposition, and clear up the matter once and for all. That is a purely personal view, but I offer it as a view which I think would be shared by a number of members of my Party. But noble Lords opposite will never understand us on these Benches if they do not realise that in any matter of nationalisation, or planned economy or the public sector, and all the rest of it, we are not animated only by economics: there is also this moral issue.

The House responded unanimously and without distinction of Party yesterday to what was said by my noble friend Lord Pethick-Lawrence. He warned us of this scramble in this country at the present time for personal prosperity and wealth. Each of us, according to his different political views, will try to follow up that thought which the noble Lord placed before us so tellingly during the debate; and certainly the noble Viscount, Lord Hailsham, needs no instruction from me on how to apply moral ideas. It may be that some years from now this painful process of self-criticism which has been going on through our Party, and which I believe will be for the good of our Party in the end, will throw up novel ideas. But there is one thing which I am sure will always remain permanent in the Labour Party: we shall seek to give effect throughout all our policies—social and political policies—to a certain moral conviction about the infinite worth of every human being. That is our fundamental stand, and nothing will alter that, although it might come to be applied in different ways as the years pass. I would say to noble Lords opposite that we wish them all good fortune; that we shall assist by constructive criticism and, where necessary, correction in the heavy responsibilities that lie ahead. We know that they are, like ourselves, very anxious to serve the country, and we hope that they will be successful in that endeavour.

4.58 p.m.

VISCOUNT HAILSHAM

My Lords, this is the fourth consecutive Finance Bill in which I have played a part. I speak last in this debate only because I think it was thought more seemly that in a debate in which so many of your Lordships had spoken there should be a second Government voice, in place of that of my noble friend simply exercising his right of reply. At any rate, it affords me two very great pleasures. One is to say how much we on this side of the House appreciate the way in which my noble friend Lord Dundee opened the debate and handled the debate on behalf of the Treasury, having taken on the task which I have previously performed; and indeed, political differences apart, I think he commended himself to all parts of the House.

SEVERAL NOBLE LORDS

Hear, hear!

VISCOUNT HAILSHAM

The second is to congratulate my noble friend Lord Newton on his maiden speech yesterday. My noble friend referred to himself as "a bottle corked up ". He certainly opened an admirable vintage. I do not think lie was quite right in describing it as effervescent. I thought—not champagne; a red wine, possibly: mature, full-bodied, full of fragrance and bouquet. And I hope that he will in due course let us have a pipe of the same stuff. At all events, I rejoiced, and I think all of us rejoiced, at the great success that he made with his first speech. I feel that he is a great acquisition to our numbers in debating strength. If I may venture a compliment of my own, it is a great pleasure to hear the real style of English Parliamentary oratory in its simplicity and perfection of diction and delivery from time to time. I think that both the way in which it was pronounced and the language which he selected, in its precision and delicacy of touch, are things which we should all do well to emulate.

My Lords, the debate to-day has, I think, been a little untidier than yesterday's, and a little more difficult to reply to. We have had many subjects. There was the Common Market; there was the contribution of the noble Lord, Lord Pakenham, to the labours of the Labour Party, into which I will not intrude; and the noble Lord, Lord Boothby, delighted us by breaking the solemn promise which he made on the last occasion en which he spoke about the Radcliffe Report, which was on November 11. He said then. when he came to hills peroration on the Radcliffe Report [OFFICIAL REPORT, Vol. 219, col. 532]: I promise that I have nearly finished, and will never, never mention the subject again so long as am alive. In fact, I can tell your Lordships that the Radcliffe Report and every document connected with it is now in my wastepaper basket. This is my swan-song: it is not a subject one can return to at frequent intervals and keep sane". I was delighted, and I am sure your your Lordships were delighted, that the terrible menace of silence which he had levelled at our heads was withdrawn, and we hope we shall hear many more such onslaughts.

The debate has resolved itself very largely into a question whether my noble friend who proposed the Second Reading was right in the relatively optimistic picture which he painted of the prosperity of the country, or whether a slightly gloomier picture was right. The noble Lord, Lord Pethick-Lawrence, described it as something near crisis and, in language which, I agree with my noble friend Lord Fraser of Lonsdale, was perhaps a little rhetorical, as a crisis corn-parable even to that of a war. Making allowance for oratory—and nobody's oratory is more vigorous than that of the noble Lord, Lord Pethick-Lawrence—I would say that while my noble friend was right in his optimism the noble Lord, Lord Pethick-Lawrence, was right in his concern. There are features which give rise to concern in the present situation. In one of the earlier debates which we had, I described our condition as being "prosperity on a knife-edge"; and although, again, allowance must be made for the rhetorical, in such an expression I am not sure that I was not trying to express something which is perpetually with us.

My Lords, I should, however, like to start at the point at which the noble Lord, Lord Pakenham, stopped: that is, with a reference to the peroration of the noble Lord, Lord Pethick-Lawrence. Like the noble Lord, Lord Pakenham, I was moved by that peroration. It reflected the noble Lord's great sense of public spirit, statesmanship and patriotism. I happen to disagree with it, and I want to tell the noble Lord why I disagree with it—or, rather, why I disagree with his conclusion, although I accept his premises; because I think this is very near the kernel of the economic subject which we are talking about this afternoon. My Lords, the noble Lord said this [OFFICIAL REPORT, VOI. 225 (No. 110), col. 730]: I am terribly afraid"— and he said, quite rightly, that he was speaking as near as possible to a non-Party point of view as a person speaking from the Front. Opposition Bench could (and I say, in parenthesis, that I am speaking as near as possible to a non Party point of view as a person speaking from the Government Front Bench can)— 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"— and he went on to remind us that we would all remember— the great speech of Mr. Winston Churchill when he did not offer to the nation 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'. My Lords, I, and, I think, the whole House, was moved by these words though not in the sense that the noble Lord, Lord Pakenham, meant—that is, to agreement; and I think it is well to state quite clearly why I did not agree with them.

I absolutely agree with the noble Lord in his underlying conviction; that what makes this country great—and, perhaps, much greater than its size, its numbers or its wealth would otherwise entitle it to be—is its sense of public spirit. This is something which pervades the whole of British life. It can be seen in the country magistrate discharging justice for nothing; it can be seen in the scientist working, at the great research councils; and perhaps it can be seen in us, speaking in Parliament—practically the only unpaid Legislature in the world, the House of Lords. It can be seen in a number of different ways. People in this country are genuinely anxious to live a life of service and patriotism, rather than one of mere profit; and I think there is a great deal more in that to explain the greatness of Britain than in all the wealth and ingenuity which we are able to assemble.

Moreover, I would also agree with the noble Lord that in a bounding economy—and, despite the Jeremiad of the noble Lord, Lord Pakenham, his colleague on the Front Bench, Lord Lucas of Chilworth, described this country as "bursting with prosperity", in striking contrast to the gloomy picture which the noble Lord, Lord Pakenham, was seeking to paint and lay at the Government's door—here are, of course, some superficial signs of a flashy materialism; and this, if it reflected the general mood or the ultimate purposes of the nation, would be a thoroughly dangerous and corrupt influence. I think I would agree entirely with the noble Lord, Lord Pethick-Lawrence, about that, but I am quite certain that it does not represent the view of either the Government or the people at the present time. And that brings me right into the centre of the economic subject which we are discussing this afternoon.

It is said that we are in some kind of trouble economically and financially. Personally, I should not like to put it like that. I should prefer the attitude of my noble friend, that we are seeking to avoid trouble which will certainly hap- pen if we do not take avoiding action. But this is very largely a debating point from the point of view of the underlying analysis of the situation. Whether or not we are in trouble now, the underlying difficulty which faces us as a nation is this. On current account, we are in credit; and we have been in credit for every year during the last eleven years, except, I think, for one or two bad years. On capital account, we are in deficit, and very heavily in deficit, and have been for every one of the last eleven years except for one or two very good years. I could give the precise figures, but they really do not matter. This is a true statement of our position.

Our overall deficit would be utterly different from what it now is if we were not spending, on current account about £62 million a year—no more, but still a substantial sum—in Europe on our troops there, and in the Far East a similar sum on our presence there. Our position would be altogether different if we were not spending on our capital account something like £100 million a year of Government money in aid of undeveloped countries, apart from the services we provide, and if we were not investing about £300 million a year across the exchanges in private money. These are the underlying facts of our situation. If we are in trouble, it is because of them. If those facts were not true, this debate would not be being held in these terms at all.

If I may come back to the noble Lord, Lord Pethick-Lawrence, and the point where I differ from him, respect, as I do, his sentiments and agree, as I do, with two of his premises, I still think that it is a remarkably odd comment upon the current situation, upon the Government and people of this country, who, if they are in trouble, are in trouble precisely because of the public service they are doing to the world, to talk of "feathering one's own nest" and a "scramble for profit" as being abiding characteristics of this people. It is a libel on British politics, a complete misconcepton, if that kind of notion gets abroad. I mention it not because I want to differ from the noble Lord in his notion (I hang on to his lips as one of the great purveyors of wisdom in this House) but because I think that this misconception is widely believed among the people of this country. I think that it is a wholly false picture both of the nature of the problem which we have to face and of the nature of the motives which underlie the policy of this country.

The trouble we are in is the trouble that, being a relatively small country, with a currency which is one of the great reserve currencies of the world, only a small portion of which is in the hands of this Government, but which forms the common currency of over half the trade of the world and of half-a-dozen or more of the major Governments of the world, with that handicap this country has to provide services for the world which are quite out of proportion to the sort of strength many other Powers, who could provide those services and do not do so, have got. I do not suggest for a moment that this is a wrong policy on our part. On the contrary, my own view, for what it is worth, is that if we did not perform these services, if we did not make some show as a defence Power by our presence in different parts of the world, if we did not finance underdeveloped countries and invest in their future and prosperity, we should be faced, even internally, with a much worse fate than we now have to face, because one thing that is certain about our prosperity (or reverse) is that a disastrous world is a disastrous Britain.

Other countries are perhaps not so vulnerable. America is not nearly so vulnerable. Though spending generously an even higher percentage of their national income on defence and foreign aid, the vast protected market they possess and the fact that the dollar is not an international currency in the same sense as ours is and that they can control it, render their economy far less vulnerable than ours. If we were to allow chaos and disorder to overtake the world, as they would surely overtake it if we did not play the part we are playing, then I think we should be pursuing a policy of folly, as well as of cowardice and weakness. If we are going to criticise our financial policy, let us remember that it is not the mad scramble after wealth which is causing us anxiety. It is our long tradition of public service in the international field, the burden of which is almost too heavy for us to bear and which, by one means or another, we are seeking to bear despite our weakness. It is not an ignoble and inglorious thing that we are discussing.

I turn from the criticism of the noble Lord, Lord Pethick-Lawrence to the noble Lord, Lord Grantchester. The noble Lord is another speaker, if he will allow me to say so, for whom I have both affection and respect. He, too, has taken a considerable part in the four Finance Bills that we have discussed, but I find myself in some ways more in disagreement with him than with the noble Lord, Lord Pethick-Lawrence. His criticism, of course, is fundamentally the opposite. He said that this is a bad Finance Bill and enumerated the reasons. It is because he ultimately believes in laissez-faire, in which certainly I and most of us in our generation were brought up. So much does he do so that he criticises the modest proposals attacking two classes of device for tax evasion—dividend stripping and bond washing—and does so apparently on the ground that to attack tax evasion of this kind is to "create a nation of imbeciles". That was the phrase he actually used.

LORD GRANTCHESTER

My Lords, that is not true. I wonder whether the noble Lord would quote what I said.

VISCOUNT HAILSHAM

My Lords, I will read what the noble Lord said, because it struck me at the time as excessive. He said [OFFICIAL REPORT, Vol. 225 (No. 110), col. 732]: 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?

LORD GRANTCHESTER

My Lords, that is perfectly correct.

VISCOUNT HAILSHAM

My Lords, that is what the OFFICIAL REPORT has, and it accords with my own recollection. It is true that for many years interference in economic life by what is called the "credit squeeze" and the bank rate and by other economic actions taken by all post-war Governments, were anathema, because it was thought, for reasons which are perfectly familiar, that we could not interfere with economic laws and, if we tried to do so, all we should do would be to damage, without improving, the underlying situation. For various reasons, this not only is incorrect but also bears no relation to the post-war world at all. When the noble Lord equates the ordinary action of the conscientious taxpayer in trying to avoid a greater incidence of tax with the elaborate, ingenious and professional devices for avoiding the spirit of the taxation law comprised within the two phrases, "dividend stripping" and "brain"—no, not "brain", but "bond washing", I can only say that I think that in a certain area he is almost morally purblind.

LORD GRANTCHESTER

My Lords, I must really protest at the noble Viscount's inference in this matter. What I suggested was that, if the Government want to take any action upon this, they must define it strictly and submit the case to the jurisdiction of the courts. It is because they are departing from that principle, not because they are not entitled to make any action illegal, that I criticise their action. That you can do. But they must define it, and they must not give discretionary powers to the authorities to interpret the motives of the person who does it.

VISCOUNT HAILSHAM

In the first place, I should say that nobody has made anything an offence under the relevant clause of this Bill. All they have said is that if a particular type of tax avoidance device is employed, although it is neither ineffective nor an offence, the particular tax advantage which it would otherwise have had shall not accrue to it. I must say quite frankly to the noble Lord—and I think the noble Lord, Lord Pethick-Lawrence is perfectly right here —that I think the great majority of taxpayers in this country, whilst they do not wish to attract an unnecessary large burden of tax (this would be to carry patriotism to the point of quixotry), at the same time wish to shoulder a fair share of the burden laid upon them by law. We all know that there are people who indulge in quite different kinds of practices. If the noble Lord, Lord Grantchester, were to tell me that there is great difficulty in providing an objective legal distinction between the two classes, I should agree. Therein lies the whole problem. But if he says that there is no moral difference, then I am bound to say that he is saying something which I utterly fail to understand.

LORD GRANTCHESTER

My Lords, it is difficult to interpret anyone's motives. That is why I think it is serious when a Government departs from law.

VISCOUNT HAILSHAM

I should hope to persuade the noble Lord that in fact the Government have pursued a nice balance. It is not always impossible to divine the motives of a dividend stripper or a bond washer. Most of us can hazard a reasonable guess as to what they intend. It may well be—and I think it was conceded to be the case—that in the form originally drafted my right honourable friend's Bill cast its net too wide, because in a desire to take away advantage from, to my mind, a wholly morally reprehensible class of practice, he did in fact propose a law which could have been used to harry perfectly respectable taxpayers. But in the form in which it has reached your Lordships, the thing is very closely defined—although in language which I regret my noble friend Lord Teviot did not understand. Nor do I understand it, if by that is meant: could I give the House an absolutely judicial, watertight account of what it means? But I can tell the House what it means. It means that dividend strippers and bond washers will not get the advantage they expect if they do it this year. This, it seems to me, is an object which is thoroughly praiseworthy.

However, the noble Lord, Lord Grantchester, then went on (I take him as an example, although there were several of my noble friends who took the same line) to attack the Budget fundamentally on the opposite line to that of the noble Lord, Lord Pethick-Lawrence, on the hypothesis that there were vast sums of money to be saved to the public revenue if only the Government spending Departments would not be so profligate in their expenditure. This is something which the noble Lord, Lord Grantchester, has said before, and the answer, I am bound to say, I have given before. If these vast, undesirable expenditures exist, where are they? Hitherto, the noble Lord, Lord Grantchester, has said: "It is not my business to tell you where they are; but it is the Government's business to economise." But where are they?

LORD GRANTCHESTER

My Lords, the noble Viscount, if I may say so without offence, is again misrepresenting me. It is not a question of expenditure being undesirable but of choosing what is most desirable and limiting your expenditure to what you can afford. That is what we all have to do. There are many things which each of us would like to buy if we could afford them. It is all desirable expenditure, but we have to limit it by our income. That is what the Government should do.

VISCOUNT HAILSHAM

Again, I rather feel that the noble Lord is confusing the issue with which, he is presented. Of course, this is exactly what we try to do in the Government; this is exactly what is sought to be done in the Budget. But the noble Lord says it is a bad Budget; he says it is a bad Finance Bill, and a bad point on which the judgment has been taken. He says that too much is being spent. Which items would be hack off in this present situation? This seems to me to be a fair demand from any member of a Government under criticism. The noble Lord, so far, has never vouchsafed one.

LORD GRANTCHESTER

As the noble Viscount insists, I will give one. I would suggest the advances to, for instance, the steel industry, which I say they should have been allowed to raise in the market. That is the sort of expenditure which I think was totally unnecessary.

VISCOUNT HAILSHAM

This is a form of Government loan which would not save the taxpayer a single pound of money, because it is a loan and is not raised by taxes; and its main purpose is to do the very thing which, in the main, I think, has been demanded from all quarters of the House—namely, to increase the productivity of industry. I realise that as between those who belong to my Party and those who belong to the Party opposite there is criticism as to whether the ownership of that industry should be in one set of bands or another; but that the money should be forthcoming for The making of a strip mill in Newport and another one in Lanarkshire is something, I should have thought, which all public opinion in this country could conscientiously support.

The fact of the matter is this. There are, I believe, no significant economies which could be made. I should be more than pleased if anyone pointed them out to me, because there is nobody more anxious than my right honourable friend the Chancellor of the Exchequer to find out unnecessary sources of expenditure, if they can be discovered. Of course it can be said—and it is said every year, both inside and outside the Government —that in an expenditure of £5,000 million you can prune off certain items and yield £4 million, £5 million, £10 or perhaps even £20 million. That is worth having if you prune off unnecessary items; but you do quite a disproportionate amount of damage if you choose the wrong ones.

But the big money is not to be had there. The big money is to be had only by changes of policy, and changes of policy will involve one or more of the following sort of things. You can refuse to build roads; you can refuse to build hospitals; you can refuse to build schools; you can refuse to recruit teachers; you can disband your Army; you can close down Singapore, Malta and the British Army in Germany—any one of those things would yield very big money indeed. But I should be a very surprised man if any one of these things were done—at any rate, if they were done without careful consideration—and the result was not infinitely wore to this country and to the world than if we had kept on with them. I would venture to say to your Lordships, whose contributions to this debate I think have been remarkable, that it does not follow that because a Budget is hard and sometimes unpleasant it is necessarily the wrong way of tackling a financial situation.

LORD BOOTHBY

My Lords, the noble Viscount was careful to omit Blue Streak. That was a pretty formidable commitment.

VISCOUNT HAILSHAM

I think the noble Lord will give me credit for having answered fully on Blue Streak when Blue Streak was the subject of discussion. I do not think I can be said to have avoided that particular topic. All I say is that we must assume that this country is compelled by its tradition, its sense of duty and it sense of self-preservation to do more at the present time than a prudent country would in ordinary times be asked to afford. It is not necessarily a criticism of the Government that they are seeking to do it.

There is just one more word I should like to say about the main line of criticism which has followed from that point. Laissez-faire produces, in our experience, a rapid alternation of booms and slumps and a very high general rate of unemployment. Like the noble Lord, Lord Boothby, I do not claim to be a dogmatist on this point, but on the whole physical controls were the philosophy underlying the practice of the immediate post-war years, and on the whole I think the country does not want them. The country does not want them because, if anything is crude, blunt and unpleasant, physical controls, even where they are necessary, are crude, blunt and unpleasant.

We have, in fact, used this instrument of control, the bank rate and the credit squeeze. My noble friend Lord Dundee was taken to task because he had supported the view that there should be changes frequently. Of course, it all depends upon what you mean by "frequently". Looking back again on the four Finance Bills in a row in which I have taken part, I would point out that in 1957 we were dealing with inflation, and a chorus of criticisms was directed towards this Bench, saying that we must not try to deal with it in this way because it would not succeed, as it was not enough. It did succeed in dealing with inflation. The following year we had to deal with the world recession, which had the temporary effect of improving conditions of trade in our favour, but also deprived our customers of the means of purchasing from us. We had therefore to stimulate the economy. Were we wrong? The only criticism I heard at the time was that we acted too late, but not that we were wrong. Now all the omens point to a period of time in which demand is again threatening us with inflation, and again threatening our balance of payments. Are we wrong to apply the remedy, unpleasant as it undoubtedly is, which succeeded last time? If so, let us have an alternative. But I have not heard an alternative.

LORD BOOTHBY

The Common Market.

VISCOUNT HAILSHAM

The Common Market is another very interesting subject which I shall be glad to debate with the noble Lord. Lord Boothby.

LORD PETHICK-LAWRENCE

My Lords, I hesitate to interrupt the noble Viscount, because he is giving a good, interesting speech, which I am enjoying very much. I think I am right in saying that it was not the words of the noble Earl who opened the debate, but the words of the Chancellor of the Exchequer himself. I understood him to say that the economy of this country must be prepared for more frequent ups and downs than it has had in the past. I may be wrong in the use of the word "more". It was against that that I made a protest. I think we have had sufficient ups and downs, and I was much alarmed when he proposed to increase their frequency.

VISCOUNT HAILSHAM

My noble friend, who is perhaps better informed about this, says that the particular reference was to special deposits rather than to the bank rate. However that may be, I would wholly agree with the noble Lord that these changes are to be deplored. We do not like them; we do not want to apply them, except where we regard them as necessary. But I am driven back to the point from which my noble friend started: that we have, after all, four different objectives of policy. We have full employment, stable prices, expansion and a favourable balance of payments. Of course, it is true that the policies which produce any one of these do not necessarily produce the other three. The noble Lord, Lord Lucas of Chilworth, twitted the Treasury with always restricting. But I think it is also true that Government interference in economic affairs is more likely to take the form of restriction in some way than anything else. Indeed, it would be open to criticism if it were not. The truth is that all these economic evils which we collectively deplore are, in the last analysis, nothing more than slight deviations of conduct in the individual, multiplied by 50 million or by a large proportion of 50 million. Occasionally they have to be restricted. If they were not, there would be no case for Government interference.

We have had a fine debate, and I must apologise for having answered it at rather greater length than I had intended. I was deeply moved by many of the speeches made, and particularly by the spirit of public feeling which I think has animated all your Lordships from beginning to end.

On Question, Bill read 2^a; Committee negatived.

Then, Standing Order No. 41 having been suspended (pursuant to the Resolution of July 14), Bill read 3^a, and passed.