FINANCE BILL

HL Deb 17 July 1961 vol 233 cc390-470

2.55 p.m.

Order of the Day for the Second Reading read.

THE MINISTER WITHOUT PORTFOLIO (THE EARL OF DUNDEE)

My Lords, I have been looking through the OFFICIAL REPORTS of our debates on the annual Finance Bill for the last few years. As a general rule, your Lordships prefer to have a short debate on the Second Reading. Last year we used it as an occassion for a two-day debate on the general economic situation. But this year we have had three fairly recent economic debates, the last of which was on May 17 when this Bill was going through its Committee stage in another place. I propose, with your Lordships' permission, first to summarise briefly the major changes but not the lesser changes in taxation which are proposed, and then to conclude with a few words about the economic situation to which the Bill is related.

My noble friend Lord Amory, in his Budget last year, took some modest steps in the direction of restraining expenditure by increasing taxation, because he anticipated that personal incomes were likely to rise more quickly than production, as indeed they did. The main theme, or the principal keynote, of this Finance Bill is the need to reduce excessive spending power. Except for a few minor adjustments in other branches of taxation, the only change in the Bill which will eventually reduce the revenue is the raising of the figure at which surtax begins for earned income from £2,000 to £4,000 plus the existing earned income allowance, which is two-ninths up to £4,005 and thereafter one-ninth up to a final figure of £9,945.

My Lords, £2,000 to-day is equal in value to somewhere between £600 and £700 between the wars when our present surtax structure was established, and it is equal to about £400 in 1909 when the first surtax was introduced by Mr. Lloyd George, incidentally with a higher starting point. British salary earners and professional men, business managers and executives who are earning incomes within the range of from £2,000 to £6,000 a year are at a considerable disadvantage compared with people earning similar incomes in Germany, the United States and other of our industrial competitors. The new starting point at £4,000 applies only to earned income, and the differentiation between earned and unearned income, which was first introduced into our tax system at the beginning of this century, has usually been justified by the argument that, whereas the owner of property can probably pass on at least some of his possessions to his children, the man who earns his living, other things being equal, normally needs to save a larger proportion of his income than the man who lives on the proceeds of past savings.

In order to compensate the Revenue for the loss which will eventually arise from this new surtax structure on earned incomes the Chancellor of the Exchequer proposes to increase the profits tax from 12½ to 15 per cent. It so happens that both these taxes, surtax and profits tax, are delayed in their action. They do not affect the revenue for the current year. Surtax on income which is now received becomes payable in January, 1963, and profits tax is payable either one year or two years after the profits to which it applies have been earned, depending on the time of the year at which the company closes its accounts. British salary earners who suffer from the present out-of-date surtax structure will not get any relief this year, but they may perhaps be encouraged by the knowledge that their position will be improved the year after next.

On the other hand, companies which know that they will have to pay a higher profits tax next year on their present profits may well be deterred by that knowledge from increasing their dividends now; and that is one of the purposes of this Bill, as it was of Lord Amory's Finance Bill least year. Lord Amory increased the profits tax from 10 to 12½ per cent. last year; the present Chancellor of the Exchequer has now increased it from 12½ to 15 per cent., so that it has increased by half as much again in two years, not because we object to anybody having more money, if that money represents an increase of real wealth, but because we think it right to restrain the inflationary increase of spending power at the present time.

The other principal changes in taxation proposed in the Bill are the 10 per cent. duty on television advertisements, which seems to have given considerable satisfaction to almost everybody except the people who are going to pay it—but it is not a very large amount, £7 million this year and £8½ million next year; the increase of 20 per cent. in Excise duty on motor vehicles, which is estimated to yield £25 million; and the duty of 2d. a gallon on hydro-carbon oils, which will produce £48 million this year and £50 million in a full year. These three taxes together will raise just over £80 million of new revenue. If you add that to the approximate figure of £425 million, which is the estimated above-the-line surplus on the existing basis of taxation, you will then get an estimated above-the-line surplus for the current year of £506 million, compared with Lord Amory's estimated surplus of £304 million last year.

When we subtract that estimated surplus above the line from the estimated deficit below the line arising from the Government's capital expenditure, then the estimated overall deficit for this year is only £69 million, compared with £318 million last year. What that boils down to is that the Government borrowing should be reduced by about £250 million, which is quite a substantial amount. But it is only a fraction of the inflationary increase in spending power which was created last year by the rapid rise in personal incomes, which seem to be rising even faster in 1961. Our present estimates are that if they go on increasing at the rate at which they increased in the first quarter of this year, spending power, personal incomes, in 1961 would be increased by somewhere between £1,100 million and £1,200 million. Although industrial production, I am glad to say, in the last month or two has begun to grow again, its growth is nothing like commensurate with this growth of monetary income, which has already caused the price level to rise by no fewer than three points in the last seven or eight months after two and a half years of stability.

My right honourable friend has therefore asked in this Bill for power to use what are called the two economic "regulators" which are taxes that may be applied optionally, at the discretion of the Chancellor of the Exchequer: number one being the variation of Customs, Excise and purchase tax together, within a limit of 10 per cent. either way; and the other, number two, the payroll tax. Both of these were fully discussed by your Lordships on May 17. I explained to your Lordships then that although my right honourable friend recognises that there are some imperfections in the payroll tax, which we must seek to remove if it is to be re-enacted in 1962, he Still wants power to use it, if need be, in 1961 since he considers that an imperfect instrument may be better than none at all. As for the number one regulator, variations in Customs, Excise and purchase tax, there was, I think, less criticism of that. Most of your Lordships appeared to regard it as a useful advance in the science of public finance.

My Lords, if these two regulators were both applied to their fullest extent for a full period of twelve months they would, between them, mop up another £400 million of spending power; but only eight months of the twelve would be in the present financial year, because four of them have already gone. After that, at the beginning of the next financial year, these regulators, if they are to be continued, will have to be renewed by receiving fresh authority from Parliament. I do not, of course, know at all what my right honourable friend's intentions are with regard to the use of these two economic regulators. But whether or not he decides to use them his Finance Bill is a major instrument in the economic policy of the Government.

I think, my Lords, that most Members of Parliament in both Houses and, what is perhaps more important, most trade union leaders and most employers have been educated in the last generation when we were all trying to solve the problems of unemployment and unnecessary poverty. Perhaps it is not surprising that in trying to deal with the problems of full employment and affluence, which are very different, their success has not always been remarkable, and that in many respects this country has been outstripped by countries whose old economies were destroyed in the war and who have had to start again from scratch, without the old inhibitions which still survive here. Although we have had a great deal of advice about it from all kinds of people, some of which has been very good advice, as a nation we have not really yet learnt how to cure the economic diseases which spring from the abundant prosperity which we now enjoy.

I always talk with great diffidence about any economic subject, because I am not at all well versed in political economy, but it seems to me that our fundamental economic difficulty is a very simple one, and I do not think it has really changed essentially in the last sixteen years; it is simply our disposition to spend more quickly than we earn. In the post-war sellers' market employers got into the habit of agreeing, not only to those wage claims which can be met by greater efficiency or economy of production and better salesmanship but also to those claims which can be met only by putting up prices, believing that they could easily sell at a higher price—which, of course, they usually can in the home market, because we are all giving ourselves more paper money with which to buy things. But, my Lords, you cannot build up a flourishing export trade, which is our eternal necessity in Great Britain, by yielding to the cost price inflation at home; partly because your prices will not be competitive, and partly because inflationary demand at home will lengthen your delivery dates, and your foreign customers will not buy from you on a twelve-month delivery basis if they can get what they want in six months from somebody else.

Of course, there are a great many other things in our economy which need improving, like restrictive practices. I myself believe that it is vital to our industrial future that we should abandon at least some of them. But even if we could get rid of all our restrictive practices to-morrow, if we insisted on paying ourselves a good deal more than the value of the increased production that we should expect to get, and a good long time before we got any of it, we should still have the same old difficulty of expanding our exports and of avoiding a foreign exchange deficit.

I think there are great improvements, too, which could be made internationally, in the international credit base, on which your Lordships had a debate two or three months ago, which would be to the great benefit of all the trading countries in the Free World. But however good and well-planned the credit arrangements to facilitate international exchange may be, if you consistently go on spending more than you earn the time will come when you will no longer be solvent. This problem of over spending, I think, is always essentially the same, whatever methods we may think right to use in trying to deal with it. We can use monetary methods, which means that you stop people borrowing money from the banks or from hire-purchase companies; we can use the fiscal methods, such as are contained in this Bill, which means that you stop people from spending their money by taking it away in taxation; or we can use physical controls, which means that you stop people from building offices or houses or flats, or something of that kind. It is always a question of stopping people from doing something, and it is sometimes very necessary.

As I think your Lordships know, in present circumstances we are not proposing to apply any physical controls; but I have often told your Lordships that we have no objection to them in principle, and we might think it right to use them in different circumstances. We are at present using a combination of monetary and fiscal controls. How much better it would be if there could be some voluntary agreement or convention among all sides in industry to stop cost inflation at the source by applying a reasonable wage policy, as was suggested not long ago in one of your Lordships' debates. That would be so much better far the country than first of all starting inflation and then the Government corning along with some of these remedies. But whether that is an impracticable dream or not, I do not know.

I think it is very misleading to talk about a foreign exchange crisis or an economic crisis, as we all sometimes do, because there has never been any crisis in the proper sense of the word, which means a decisive moment or a moment of change. What we have had are certain moments when, owing to some accidental development, the attention of the public has been sharply drawn to the existence of a continuing problem which is there all the time; and the problem is not just haw to stop cost inflation but how to stop it without, at the same time, retarding sound economic growth.

My Lords, we have had this much success: that our standard of living in Great Britain, according to one economist, has increased in the last ten years more than in the previous hundred years. I do not know what figures he was using for the previous hundred years, but the figures for the last ten years, based upon the real value of wages, show a rise of just over 30 per cent.—that is allowing, of course, for the decline in the value of money; and this in spite of cost inflation, which was in fact arrested for two and a half years from the spring of 1958 until the autumn of last year, and which we intend to fight again now.

At the same time, our exports continue to reach new records. I think an outside observer who began to study our economic problems in July, 1961, and who started off by looking at the record export figure of £331 million for June, at the unemployment figure of only 1.2 per cent. for June, and at the record level at which average wage earnings are running, would probably not be at all impressed by all the speeches which your Lordships are now preparing to make, and would probably be very puzzled to know what we thought was wrong and why we were worried about anything. Of course, the answer is that we are not doing enough in comparison with others, and that if we slide back into the position of a second-rate industrial Power we shall then become a second-class political country, too.

I think it was when we had our last economic debate that I pointed out to your Lordships that if we stopped giving anything at all in aid to underdeveloped countries, and stopped maintaining any defence forces abroad, if we could get rid of those two categories of unrequited exports, our trade deficit for last year would have been non-existent, and we might now even be adding to our reserves. But does anyone want to do that? I do not think any of your Lordships do, and I believe there will be very few people in the country who want to do it either. We have the resources, the skill and the brains to do very much better. All we need is common sense from all sides in industry, and I am sanguine enough to believe that we can get that, too. If we cannot, if we surrender to cost-inflation, and allow ourselves to slide downhill, we shall then receive very little consideration and no esteem at all either from Europe or from our own Commonwealth. One will regard us as a potential liability and not as an asset, while our own Commonwealth will look upon us as a broken reed which is of no further use to them. But if we can win the battle against our own weakness and against our own reluctance to move with the times, then we can still lead both in Europe and in the Commonwealth. I beg to move.

Moved, That the Bill be now read 2^a.—(The Earl of Dundee.)

3.23 p.m.

LORD PETHICK-LAWRENCE

My Lords, we have listened to the noble Earl give a lucid account of what is in the Budget, and some picture of the prospects which he foreshadows in the early future. Perhaps I might be allowed, in the course of my speech, to make reference to that early future, because we understand, first of all, that to-morrow in the other place there is to be a debate on the prospects of the economic outlook, and it is suggested that a week from to-morrow the Chancellor of the Exchequer will be making another statement bringing up to date his attitude toward the prospects for the year. Be that as it may, my Lords, I propose to turn backwards, in the first place, to see what has been the attitude of this House and the country to what has been going on under the auspices of this Government in the last eight to ten years.

About a year ago, I remember making a speech in this House in which I painted a rather serious picture of the position of this country. During the debate I was taken to task by more than one speaker from the Government Benches on the ground that I was exaggerating the situation when I drew a comparison between the risk which faced us if we did not stand up together, man to man, in fighting the foreign foe, and the danger we faced if we did not stand up to the economic situation of this country. Looking at the situation which has developed during the last few months, and which is regarded as very grave in the opinion of a large proportion of the general public, and even by Her Majesty's Government, including the Chancellor of the Exchequer, I wonder how far noble Lords here would really differ to-day from the point I made a year or so ago when I drew attention to the grave economic danger and the grave peril with which this country was confronted in the economic sphere. It seems to me that the lesson of the intervening months, between the time I made my speech more than a year ago and to-day, and of the promised statements to be made by persons in authority on the Government Benches, is that my fear that unless we mended our ways we should economically cease to be a great Power in the world was not so preposterous as was thought at the time by certain noble Lords.

Now, my Lords, what is it that we take exception to in the policy of the Government? All along I have taken two things as matters of criticism of the Government. First of all, I have criticised, and I continue to criticise with confidence, their complete reliance upon a high bank rate and dear money in general as the main means of dealing with the economic situation. In the second place, I criticised a year ago, and I still criticise, the complacency in their policy which they have tried to put across to the country in coining the phrase—I do not care who used it, but it was not anybody on this side "You've never had it so good"; or, as a great many other people would put it, "I'm all right, Jack". Both those things are very dangerous shibboleths to describe the British people, because it places the advantage of apparent prosperity of private individuals as separate from, and even possibly at variance with, the prosperity of the nation as a whole, and the need we all have, to whatever part of society we belong, whether rich or poor, one class or another, to put the interests of the country as a whole before the interests of our individual selves. On both those indictments I arraign the Government for doing great damage to this country.

Now let me come to the question of the high bank rate and dear money in general. Two things are said in its defence. First of all, it is said that the Government at any rate succeeded in stopping the rise in prices of an inflationary kind. In the second place it is said that they were able to reinforce the amount of currency and exchange reserves in our vaults, so that we could face up to sudden gusts of ill-fortune in the international and national weather. I am quite prepared to admit that there is something in those claims, but personally I think that, when we come to look at them more closely, we shall find that they have not been nearly so successful as they may appear to have been.

Taking the second matter first, the extra strength of our reserves of currency and exchange, I must remind your Lordships that the result of the high bank rate was to bring to this country a fortuitous amount of hot money. Hot money is a bird that flies in and out at its leisure. It is quite true that the rate of interest of the bank rate brought into our Treasury quite a considerable amount of hot money. But it was frankly hot money, and we know to-day that there are strong signs of its going away again. It may well be, as I said with great thankfulness, that a number of international high financial authorities have not withdrawn their money as rapidly as they might have done, and that a certain amount of that so-called hot money is standing with us to-day. But it is a precarious hold we have on it. It can go at any moment, and that moment will come when the bank rate tends to come down. Therefore, I think that the advantages which are claimed for a high bank rate and dear money are not nearly so powerful as they appear to be to less informed persons, who are not aware of the real state of the facts.

In the second place, with regard to inflation, I have never denied the advantage of stopping inflation and stopping a rise in the price of commodities. But I would point out to members of the Government, who are flattering themselves with having succeeded in that respect, that there is another kind of rise of prices—I do not know whether it could strictly be called inflation or not—which is the exact result of a high bank rate and dear money. For instance, what is the effect of dear money? The first effect is to put up the rents of houses. A large number of people in this country are suffering from high rents, owing to the dearness of obtaining capital and covering the period of paying off the capital which has to be borrowed. Again, when it is a question of installing new machinery in a factory the rate of interest at which new capital has to be borrowed is a considerable factor, and a permanent factor, in the cost of the output of that factory.

I am not going to run through the large number of illustrations which I could give, but I would take as one more example the case of municipal rates. Owing to their public works, many municipalities have to borrow money, and it is well known that they have to borrow at a far greater rate of interest than prevailed in the old days. when the bank rate was low and they could borrow freely.

Finally, I think it is clear that the fall in the value of gilt-edged stocks, bringing a complete change in the whole outlook towards investment of that kind, is a very grave injury to the country. As I said to your Lordships not long ago, I was brought up to think of the importance of preserving the standard of the money represented by what we called the Funds in those days. I remember when 2½ per cent. Consuls were as high as 114, which is an unthinkable figure at the present time, when they have got down into the 30s—as low a figure as I have known in their history.

My Lords, all those factors are factors to set against what is alleged to be the wonderful achievement of the present Government in avoiding ordinary inflation. I myself would go so far as to say that, in a sense, dear money is in itself a form of inflation and, as such, can cause evils to the body politic and to the private citizen comparable to, if different in kind from, those of ordinary inflation. Those are the facts, as I see them, which make me very loth to do other than criticise the Government. I see grave dangers ahead.

I was reading the other day a well-known paper of high financial and economic standing. It stressed the importance of the Chancellor of the Exchequer using his powers, and using them speedily, to promote some change in the present situation. I thought that perhaps the writer was going to have some brilliant idea of a new method by which the dangers to which I have been referring would be overcome. But I found, to my horror, that the only things he was advocating was that the bank rate should go up at once to 7 per cent., that the Chancellor of the Exchequer should use all his powers to increase the tariffs on imports from abroad and to increase other taxes on the people. With all due respect to the editor of that paper, and the policy which it represents, that is trying to meet the difficulties of to-day with the old-fashioned, discredited methods that have done so much to produce stagnation in this country at the present time.

This stagnation, my Lords, is far greater than even the evils to which I have referred. I think that the most important criticism I have of the Govern- ment is that their policy has produced stagnation. It is beginning to bring inflation back again. From all the evidence available, it is quite clearly creating stagnation; and in the last resort it is that stagnation, more than anything else, that is bringing about our perilous position at the present time.

We in this country live on the favourable margin between our exports and imports, and if our imports exceed our exports, both visible and invisible, in volume and in value, we are in a parlous way indeed. Because we cannot live as a country, and no artificial aid which we get from abroad, for which we are grateful—people helping us to bolster up our reserves of currency and exchange—can really put us right unless we get our trade balance correct. I am happy to see that in the last few months there has been some recovery, but it is much too early to judge whether that recovery is of real significance or whether it is just a flash in the pan. Going back over a period of months, our position remains exceedingly serious. I cannot avoid criticising the Government for the part they have played in that, for both the reasons I have given hitherto. I have never denied that changes in the bank rate may at times be justified and, in times of crisis, inevitable; but I have maintained, and maintain more vigorously than ever, that changes in the bank rate should at most be one of several of other pieces of machinery which should bolster up our position.

I have said earlier in my speech that I dislike particularly the Government's pretence that all is well, because "I'm all right, Jack—and you need not worry about the nation." I see the noble Viscount, Lord Amory, quite properly, shaking his head. I never charged him with taking that view, but there are people who have taken it. I think that is a most dangerous position. I have known the people of this country all my life, with an increasing respect for them. If they are treated properly, if they are faced with the facts and told that the nation can succeed only if they are prepared to make sacrifices individually, they will play their part. What I complain about in the Government is that they have taken the opposite position. The people have been led to believe that they can be well off themselves even when their country is going downhill economically. They cannot. And when they wake up to find that they have been betrayed in that way, I think they will show their resentment.

But we have not yet got to that stage. We have reached the stage where the people must be told the facts and told that they must tighten their belts; and, above everything—and this is essential with the British mind—they must believe that they are getting "fair do's". The question that we on this side of the House ask is: in this Budget, which the noble Earl has so clearly laid before us, do the ordinary people think that they are getting "fair do's"? I emphatically state that they do not think so.

Let me just recall certain of the facts of the last few months. In the first place, we had the imposition of a special rate, a doubling of the tax on medicines which the bulk of the rank and file of the ordinary people of this country must have in order to preserve their health. We on this side of the House objected to that at the time. We said that we were quite prepared to consider imposts upon every section of the people, provided they were fair, but that, in fact, we regarded that as an unfair impost. What was the next thing? The next thing that happened was that the Chancellor of the Exchequer made certain alleviations on surtax. I said from these Benches that I thought it was perfectly reasonable and fair that he should allow surtax payers relief on earned income with other income tax payers. So far as that was concerned, I thought it a perfectly legitimate relief of taxation when people were improperly dealt with under the laws of the country. What I took exception to then, and take even stronger exception to now, is the enormous other concession made at the same time to the earned income tax payers through a very large increase on the basic amount from which their surtax begins. I think that the time when he was making the other concession was not the time when he should also make his gifts of largesse to these people and raise the money from other people.

In the course of the debates in another place a further concession came to light. I would not say for one moment that it was a trick of any kind; I think the words of the Chancellor of the Exchequer were not 'fully understood; but during the debates on the Committee stage in another place it became evident that, to a certain extent, unearned income was also going to gain advantage from the terms of the Bill. I do not want to argue the point here; it is a most complicated one and I do not think anyone in a speech could possibly make clear what the distinction is.

I only say that, first of all, we have had the relief to surtax payers allowing them to deduct two-ninths (I think it is) of their income for surtax purposes; secondly, we have had the very large concession to surtax payers who pay on earned income; and thirdly, we have had an explanation (I am not suggesting anything improper at all) of something which was not appreciated at the time, but by which, to a certain extent, what are called investment incomes gain a certain amount from the new law regarding surtax.

LORD HAWKE

My Lords, I hesitate to interrupt the noble Lord, but this point interests me. This is the first I have heard of it, and it is good news to me. Can the noble Lord tell me exactly how I shall benefit?

LORD PETHICK-LAWRENCE

It is so complicated a point that it would take a considerable time to explain. I would refer the noble Lord to a debate in another place towards the end of the Committee stage in which the Opposition moved an Amendment and it was resisted by Sir Edward Boyle. There was no charge of a breach of faith on either side, but it was found that the law as lit is now embodied in the Finance Act does provide in certain circumstances a relief to unearned income which was not appreciated at the time when the statement was originally put forward. As I say, it would take far too long to explain, but the noble Lord will find it on almost the last day of the Committee stage.

I think the result of those facts has been to produce in the minds of a large number of people a sense of unfairness; and one thing for which the British people as a whole will not stand is something that they regard 'as unfair. I regret, therefore, that these remarks of political persons or non-political persons against claims for higher wages for the working people fall upon deaf ears. They are bound to fall upon deaf ears so long as there is It sense of unfairness. There is that sense of unfairness throughout the country, particularly among the working people, in that so much has been given to persons of high position and wealth. If that is so, then they are going to claim whatever they can get from the body politic in the shape of a higher standard of living for themselves.

If you grant that I am right in thinking that these people regard the set-up at present as unfair and rigged unfairly against them, then you must admit that until you can convince them that the situation is not unfair, no amount of blaming them for trying to get a higher wage and inconviencing the community in so doing will get you anywhere at all.

Those, broadly, are the points I want to make. First of all, I claim that the Government have failed through their obsession in favour of monetary policy. I admit that the bank rate may have to be used in certain circumstances, but the reliance on it of the Government, in conjunction with certain people with financial minds, is a slightly mistaken one if it is going to take the prime place. Secondly, I think it is essential that what we do in the matter of relief taxation not only should be fair but should be realised to be fair by the bulk of the people. When it comes to the new regulators which the Chancellor of the Exchequer may be putting on, I think I am right in saying that the noble Viscount who is to follow me was himself very doubtful about the desirability of what is known as the payroll tax; but he was in favour of the other. For my part, I am not enamoured of either. I am not in favour of the payroll tax for the reasons which the noble Viscount, Lord Amory, gave; and I am not in favour of the other tax, which in itself is an unfair tax, because it is one which falls on the humbler people more than it does on the well-to-do, and it increases the price of all the necessary simple things of life. To my mind, those two things are enough to mean that the working class people of this country will not be guided by the views of people in high places in the Government, because they are not prepared to admit the fairness of the distribution that is being made.

Finally, I repeat once more my belief that the high bank rate and dear money policy is a form of inflation in itself which is quite as injurious to the produc- tivity of the nation as an inflation of the direct kind. Much as I hate it, and much as I would go a long way to stop inflation of the ordinary kind, such as rises in prices, I think the Government may easily tumble over backwards into a form of inflation which must be just as injurious as the inflation to which the noble Viscount and myself are strongly opposed.

3.50 p.m.

VISCOUNT AMORY

My Lords, once again I am sure your Lordships, having listened to the noble Lord, Lord Pethick-Lawrence, will feel, as I do, that the lucidity and the moderation with which he has addressed us this afternoon is a never-ending source of satisfaction to his friends. I do not think the noble Lord will expect me to agree with him on interest rates, because we have crossed swords on this matter before. I accept with alacrity his statement that he is prepared to accept them as one of a series of measures in appropriate circumstances, and that is the way I myself look at them. I cannot accept his view that high interest rates are in themselves evidence of inflation. They reflect, when they are necessary, the supply and demand situation for capital in real terms. I agree entirely with the noble Lord that the attitude, "I'm all right, Jack" is as despicable as the attitude we experienced after the war for some years of, "I couldn't care less". They are both absolutely unrelated to the needs of the nation. I think I am on record on a number of occasions when I was in office as saying that although the expression "We've never had it so good" is factually correct, it is a most dangerous basis for our future conduct and actions.

The noble Lord, Lord Pethick-Lawrence, has said that the Budget and Finance Bill of my right honourable friend the Chancellor of the Exchequer is unfair. If I thought that, I should regard it as a very serious criticism indeed, because I agree with the noble Lord that our nation gives the best account of itself only when it feels that the treatment of everyone is as fair as can be achieved. But when we view this Budget against the background of recent Budgets, I cannot think for a moment that anyone can really conclude that it contains anything which is unfair. I should have thought that the reduction in surtax, against the background of other reliefs that have been made over recent years, was certainly not unfair; in fact, many people feel that it is overdue. I do not think that the reaction in the country generally has been a reaction which gives one to think that people generally—the man in the street—regard it as unfair. The noble Lord, of course, did not mention the increase in profits tax that has been made at the same time. Nor can I agree with the noble Lord that the specific increases in health charges justify the term "unfair", because what, in effect, has happened is that a proportion of the increased cost of the Service, equivalent to the proportion that has been paid hitherto since the scheme started, has been passed on to the user—just about the same proportion. Unless one takes the view that the original basis of that Act was unfair, I do not think that this action can justify that term.

Finally, if I may say so with respect, I do not think the noble Lord's allegation that there is criticism against the Government for having brought about a stagnant economy can be justified by the facts. Your Lordships have considered that question at length on other occasions, and I will not deal with it further now, except to remind your Lordships that, as my noble friend Lord Dundee has said, the level of our standard of living to-day is higher than ever it was; and, what is more important, the level of personal savings and investment is far higher than ever before.

During the past ten years, the internal wealth of this country, in real terms, has increased faster than at any other time in our history. As my noble friend Lord Dundee said, the problem here is that we must keep a perspective, and the danger is that the results which I have mentioned have been brought about at a cost, in one respect, which is very serious; that is that it has been brought about to the detriment of our balance of payments. I think—and I do not mind how often this is said from every quarter of this country—the lesson we must learn is that it is no good improving our standard of living, or our savings or investment, even in real terms, unless in our particular circumstances at the same time we accompany those things with a sound balance of payments.

Now may I turn to the Finance Bill and say that I believe my right honourable friend the Chancellor of the Exchequer is to be congratulated on the Finance Bill, because it gives effect to his Budget proposals with the added merit that he has produced a Bill very much shorter than I produced last year—I think about a quarter of an inch less in thickness, and perhaps about three-quarters of a pound less in weight. Generally, the proposals seem to me to be entirely in tune with the needs of the economy. One proposal I do not like—I make no secret of it—is the fuel tax. One I am doubtful about the efficacy of is the payroll tax. Otherwise I think it is a good Bill, and I am in agreement, if I may respectfully say so, with every word my noble friend Lord Dundee used in his observations this afternoon.

I am going to comment briefly on only one aspect, and I want to apologise to my noble friend the Leader of the House if, because of another public duty, I have to be absent during his winding-up speech. The aspect to which I should like to refer is the other regulator that my right honourable friend has introduced, which is the power to vary indirect taxes by order. The advantages of this device seem to me to be considerable. It is quick acting; it will influence mainly—if it is used—consumer spending power, and it will involve no new administrative machinery. In the short term I think it is an effective club for my right honourable friend to have in his bag, and I hope that he will not hesitate to use it. But like any other method of mopping up spending power through increased taxation, it is an antidote rather than a cure. It is a device for neutralising the consequences of damage which has been already caused. I am sure the Chancellor of the Exchequer will agree that what we must find at any cost is a method of avoiding that damage before it takes place.

There can be no question, when we look back over the past fifteen years, that the greatest single cause of our economic troubles has been the regularity with which, with the exception of two or three years, wages have more than absorbed the whole benefits earned through increased productivity. This factor has been a far more potent one than any other in landing us in trouble every year or two through rising costs and excessive demand. Of course, the years since the war have been utterly different from anything that was experienced before the war. There are no precedents on which we have been able to act, and that applies to Governments in every country. Even economists, so seldom in doubt, have been in very considerable doubt as to what consequences would flow from new circumstances and hitherto untried economic policies. Inevitably, therefore, it has been a period of trial and error. We must learn from our experiences and not repeat our mistakes. And here I am afraid, to date, in this business of the inflationary consequences that have followed from these excessive increases in monetary incomes, we do not seem yet to have learnt from our experience. I have ventured to say on a good many occasions over the past four years that the pace of expansion that we can safely undertake without certain damage to stability of prices and our balance of payments is directly related to our success in keeping this increase—both in wages and in profits—within the limits of the new resources that we can earn through increases in productivity.

My noble friend Lord Dundee told us that this year the increase in spending power, I understood him to say, which would arise from this increased money income would amount to £1,100 million to £1,200 million. I have always said that to the extent that we failed in the task of keeping the increase in money incomes within the new resources earned, the Government of the day would be forced to adopt unpleasant remedies to mitigate the damage caused. But really, to go on like this is not a sensible or efficient way of tackling the problem. Surely we ought as a nation to choose a better way of tackling the problem itself at its roots. I found myself in substantial agreement with a leading article in The Times recently to the effect that my right honourable friend the Chancellor of the Exchequer could not do this job alone; it must in the main be done by the nation; I am sure that is right. The Government's task is to give the right guidance and the right leadership, but whether results will follow or not will depend upon the conduct and reaction of the nation as a whole.

There is only one thing I want to do to-day and that is to suggest what I believe to be the most sensible way of tackling this problem. Let the leaders of the employers and the trade unions form a joint standing council for industry. Let this council set up a permanent joint intelligence, information, research and planning staff. The rôle of the organisation must be a positive one: the promotion of efficiency and co-operation in British industry, including planning for development and expansion at the maximum rate consistent with price stability and sound balance of payments. Then let the Government support and work with this Council in every way appropriate in its field of responsibilities and functions. I believe that a joint staff of persons drawn from both sides of industry, with some economists and some statisticians added, would be able to give a council of that kind objective information and advice and provide them at the very least with a solid basis of agreed factual information, and I hope more than that—increasingly with agreed advice and guidance. My Lords, we waste so much time and effort in quarrelling about factual information, on which there is no reason in the world why we could not agree if we really wished. Later, after getting the information, when 'we come to questions of policy it may well be that we shall find ourselves in disagreement.

In the late war many people foretold that the inter-Service staffs and inter-Allied staffs would not work because of differing attitudes and rivalries. Most of them, when favoured with good leadership, did function, with steadily increasing efficiency. I believe that if, as an act of faith in the future of our country, both sides of industry were to resolve to try this road, a new spirit of positive teamwork might well permeate the whole of industry, with consequences that would revolutionise the prospects of our national economy.

I know well that support for such a project would involve radically new thinking on the part of both trade union leaders and employers. I think that on the part of trade unions a new attitude, if I may respectfully say so, would be justified by two considerations. It would involve an appreciation by the unions that their functions and responsibilities to their members have changed with the vastly changing conditions over recent years, and in particular as a result of the acceptance by Governments of all Parties in this country of a responsibility for maintaining full employment. It would also involve ready acceptance by all concerned that the trade unions are an accepted national institution, with a continuing rôle of the utmost importance to play in industry, and that all employed workers ought to belong to a union or an association. I am sure many responsible and able trade union leaders know in their heart of hearts that short-term gains in monetary incomes are of no lasting benefit to their members if those increases are accompanied by consequences that damage the basic strength of British industry. Such gains, indeed, cut at the very roots of the standard of living and of the security of employment on which it rests.

VISCOUNT ALEXANDER OF HILLS-BOROUGH

My Lords, I think the noble Viscount is making a very important part of his speech on these things which I have listened to with very great interest in the last few minutes, but when he comes to speak of this joint council as a properly set up body, will he include in that someone to deal with purely financial and monetary staff, not merely some economist or other? I have not so much faith in some of the economists. And will he be able to explain to us how it is that the pound has lost its value to 14s. since 1951 and what those things are? Is it suggested that the trade union officials will be able to persuade their members that they cannot go on asking for more wages when their spending power is being continually reduced in this way.

VISCOUNT AMORY

Of course, in reply to the noble Viscount, the lost purchasing power of the pound has been due to the inflation from which we have suffered. In my opinion, the biggest single cause of the inflation from which we have suffered is the tendency for money increases to rise faster than productivity, and the purpose of my proposal here is to get those basic facts better understood and accepted; and I believe that this is the best way of doing it. The joint council would not be just a conference for consultation but a standing body employing permanent staff.

If I may, I will quote an instance where I have seen something of this kind happen, and that is in one of our national institutions now known as the Annual Price Review for Agriculture. I remember that some years ago, in our discussions with the National Farmers' Union, we used to spend a great deal of time quarrelling about factual information. Then the Ministry of Agriculture and the National Farmers' Union got together and appointed a joint working party (my noble friend Lord St. Aldwyn will remember it) whose function was to get all the facts and present the Ministry and the National Farmers' Union with agreed financial and economic data. That procedure has been highly successful as a basis for subsequent policy discussions, and I believe that the same thing could be applied in this far wider and more difficult field; that is, to a study of the whole intelligence and information and factual basis which must be the background of our industrial effort.

LORD CITRINE

My Lords, may I intervene to ask the noble Viscount a question? Is he not aware, as a member of the Government of the day in 1957, that the broad proposal he has just put forward is almost identical with the views which I gave the Government and Mr. Thorneycroft, as Chancellor of the Exchequer, in 1957, and that it was rejected by the Government in favour of the setting up of the Cohen Committee on Prices, Productivity and Incomes? Is the noble Viscount not aware of that fact?

VISCOUNT AMORY

I own that I was not aware, and I must apologise if I ought to have been, that the noble Lord made a suggestion of this kind; that there should be set up a Standing Council with a joint staff. But if he did then I give him the fullest credit for a degree of prescience which I admire to-day.

LORD CITRINE

There is a record of this in the Treasury proposal to set up this Council on Prices, Productivity and Incomes. I pointed out at the time that it was not merely the ascertaining of facts which was at stake but the application of any recommendations that were made; and I tried to make it clear at that time that it was what followed the report which was infinitely more important than what the report itself contained.

VISCOUNT AMORY

May I make a deal with the noble Lord? If he will support me this afternoon I will gladly call this the Citrine Plan.

I should like tremendously to feel that a project such as I have described, or something like it, would receive the earnest, urgent and objective study of the leaders of both sides of industry, because I sincerely believe that it points the only road suited to this nation of ours, towards real practical progress and sound expansion. Meantime, as I promised your Lordships to be brief, I should like only to add, as regards the rôle of my right honourable friend the Chancellor of the Exchequer in this matter, that I know him to be a man of outstanding ability and energy and courage, and I have no doubt whatever that he will follow up his Budget and Finance Bill with practical measures of a kind and on a scale adequate to the needs of the situation.

4.15 p.m.

LORD BROCKET

My Lords, I am very much reminded of thirty years ago, just after I was elected to the House of Commons in June, 1931. That autumn, your Lordships will remember, we had the formation of the National Government and what we called the Snowden Budget. The present Chancellor of the Exchequer prepared a small Budget on the last Budget day, but whether he will have to legislate in any other way than for the two regulators which he has provided is, of course, a matter to be seen. I feel this afternoon in a very interesting position following a former Chancellor of the Exchequer. I do not know what sort of cows the noble Viscount has, but he is dual-purpose himself; he is a sort of shorthorn, because he has been Minister of Agriculture—if I may say so, a very successful one—and also Chancellor of the Exchequer, and I think we are very fortunate in your Lordships' House in having such Members with such experience in another place.

Before, I come to the main theme of what I was going to say, may I, speaking as an industrialist, welcome very much Lord Amory's suggestion of the setting up of a joint council of some kind. It was very helpful, I think, that the noble Lord, Lord Citrine, should have thought of this even in 1957, and if the noble Lord, Lord Citrine, had had better atten tion from the Government of that day I am sure we should be in a much better position at the present time.

LORD CITRINE

I agree.

LORD BROCKET

I have spoken on several occasions in debates on the Finance Bill in your Lordships' House, and I always feel that on the whole we are hardly allowed enough time to debate it. We have had economic debates recently, but I welcome being able to express a few thoughts on the Finance Bill, although we have no power over finance except that of advice. I have on several occasions followed, either more nearly or a little further away, speeches by the noble Lord, Lord Pethick-Lawrence, and I should like to pay him this tribute: that he has made very wise, well-thought-out speeches on almost every Finance Bill since I have been in this House. I should also like to say that on the question of money rates I always agree with him. It may not be acceptable to Her Majesty's Government to say that I disagree very much with their views on rates of money and on bank rate. Whereas in the past the bank rate used to be looked after by a non-nationalised Bank of England, in the last few years I have always thought that the bank rate variations, up and down, must be an agreed policy between the Treasury and the Bank of England. I must admit that although, as the noble Lord, Lord Pethick-Lawrence said, a high bank rate may attract hot money from abroad, I feel that on the whole a high bank rate does far more harm than good and is in fact inflationary in itself.

The noble Lord, Lord Pethick-Lawrence, mentioned the question of rates—that is, rates with a big "R"—imposed by local authorities, which never seem to go down but keep on going up. I sympathise with the local authorities whose rates go up because they have to borrow money to build their council houses—and I have said this before. If they borrow money at 7 per cent. they will have to charge 30s. a week extra on the rent of a council house above what they would have to charge if they could borrow the money at 4 per cent. That is quite easy to work out. What happens? Of course, the person living in the council house wants more wages to pay the rent, and that is absolutely inflationary. I cannot regard anything as more inflationary than that.

We have lately had the raising of building society rates to 6½ per cent., and I am told by those who know that that was caused by the increase in profits tax imposed by the last Budget, which we are discussing to-day. Profits tax, as your Lordships know, was increased from 12½ per cent. to 15 per cent., and that increase. I believe, was the last straw which broke the camel's back, or the building societies' back, and they had to raise rates to 6½ per cent. I cannot imagine anything more inflationary than that for people who wish to own or build their houses, and it is just one more example of a high bank rate causing inflation. As an industrialist I would point out that when we want to build factories or put up further plant in order to export or to supply the home market, we now have to pay a very high rate, instead of a low rate to get the money. That must, in effect, cause higher prices either in the home market or the export market. In fact, speaking as one connected with various industries, I cannot imagine anything more inflationary than a high bank rate, except high taxation itself.

Now we have the two regulators proposed in the last Budget. What the Chancellor of the Exchequer is going to do, one has no idea, except that I do not imagine that he would have proposed the regulators if he had no thought of using them. I believe that part of the recent inflation since the Budget has been caused by the uncertainty of when and how these regulators will be used. In my opinion, there is nothing more damaging to industry than uncertainty; and the very fact that we have had these regulators hanging over our heads for the last three months has, I believe, caused a certain amount of inflation. As to this poll tax, or, as I have seen it expressed, this "up-the-pole" tax, I personally will not criticise it, because I know there are other Members of your Lordships' House who will do so. I merely say that I think it is a bad tax, and I only hope that at the last moment the Chancellor will not use it.

I now come to the other regulator, the power given to the Chancellor to impose an extra 10 per cent. on customs or excise or tariffs, or anything else. That, I believe to be an absolutely fatal tax. I think that if the Chancellor imposes it he will have round his head the biggest round of wage rises that he has ever had. It is quite useless for members of Her Majesty's Government, or for the Chancellor, to ask the trade unions not to ask for higher wages when the cost of living is going up. I do not call this tax a regulator; I call it an accelerator. When this is put on, if it is put on, I feel quite certain that the trade unions not only will ask for higher wages, as they have already, but will be justified in asking for them. I believe that nothing can be worse from the point of view of encouraging inflation than this accelerator, the power to impose which is allowed to the Chancellor in his last Budget.

There has also been 2d. per gallon put on fuel oil. I noticed that the noble Earl, Lord Dundee, said that this adds £48 million to the revenue. The way I look at it is that it adds £48 million to the cost of travel and heating, both in industry and in housing. Therefore, it is inflationary, because it is obvious that those who have to spend £48 million extra will want more wages to provide the £48 million. I feel that that was a most unwise thing to do, except, of course, that it may well be that it was done as a sop to solid fuel and perhaps may encourage the use of coal or other solid fuels which are produced here rather than abroad. So far as that is concerned, I can see the point; but I feel that it is a most damaging amount to put on to the cost of living or of manufacture.

The noble Earl, Lord Dundee, said that the regulator would "mop up" £400 million of spending power in a full year, if applied in full. That means that £400 million of spending power may be, to use his words, mopped up; but it also means that the wage earners of this country will require £400 million more in wages in order to pay these extra costs. Frankly, although we may dislike the words quoted by the noble Lord, Lord Pethick-Lawrence and by my noble friend Lord Amory, "Never had it so good", if this is all done I feel (to coin a phrase) we shall never have had it so mad, because I think it is a mad thing to do.

Now I should like to come to the question of exports. The other countries in Europe—particularly the defeated countries, such as Germany, and I think I might include Italy as a defeated country, because it had a bad time in the war—have really gone ahead more than we have. They have had to go ahead. Germany had to work harder. We in this country were on the winning side in the war, and we have not had to rebuild whole towns, like Cologne and other places in Germany. I was travelling in an aeroplane with a Pole the other day and he told me how marvellously Warsaw had been rebuilt. These countries have had to work. The countries hove had to be rebuilt. They have had to export. They work far harder than we do in this country.

I was most interested to hear that our standard of living here is 30 per cent. higher than it was a hundred years ago. I hate to say so, but is that not perhaps one of the reasons why we are not exporting as much as the other countries? If our standard is 30 per cent. higher, that means that our costs are higher and we cannot compete with other countries. I am not advocating that we should have a lower standard of living, because the fact is that once you have raised your standard of living you cannot very well put it down.

Except perhaps in 1931, when Mr. Snowden in the National Government had the courage to tell the nation what the position was and really economised in Government expenditure, no Government since has really economised in Government expenditure. From time to time we have pious statements that economy is going to be the order of the day. When I was in the House of Commons 30 years ago, the annual Budget was £700 million a year. It is now, I think, eight times that amount. I happen to know this figure because a pension scheme of the company of which I am chairman started in 1928, and the other day we wanted to find out how much the 1928 pound was worth now in order to consider whether we could raise pensions. We found it was worth 7s. 7d. To get back to the question of economy, in 1931 our Budget was in the neighbourhood of £700 million. It is now £5,600 million, or thereabouts, which is much more than three times the amount. The pound may be worth roughly one-third of what it was in 1928 but our expenditure has mounted and mounted.

There is one matter of which I disapprove greatly—namely, this surplus of £506 million over or above the line. I have a sneaking suspicion that Her Majesty's Government like to have this large surplus above the line, because if the nationalised industries went to the stock market to borrow money they would not get all of it. I do not think they are sufficiently credit-worthy, and, quite frankly, I do not think their behaviour makes them sufficiently creditworthy.

LORD BARNBY

Without Government guarantees.

LORD BROCKET

Without Government guarantees. I feel that this £506 million is, to use the expression which the noble Earl, Lord Dundee, used, mopping up the £400 million of expenditure, and that it loads another £506 million on to the backs of the taxpayers of the country. They have to get that from somewhere—in other words, from increased wages or from somewhere else. As a supporter of the Government I feel—I am sorry to have to say this—that in a year's time we may well look back and think that this Budget is not quite so good as some noble Lords and also some supporters of the Government in another place think it is. I personally feel that inflation, which is always with us, increases in strength from time to time, and at present there is certainly an increase in the strength of inflation. We are in an inflationary period. I am sorry to slay that I think this increased inflation will be looked at as partly due to the mistaken policies of the Government and of the Chancellor of the Exchequer.

4.30 p.m.

LORD WALSTON

My Lords, I find myself in agreement with a great deal that has been said by the noble Lord, Lord Brocket, Who has just sat down. In particular, I agree with his final remarks. After all, it is now ten years that we have had a Conservative Government, and we must, whatever side we may be on, give either credit or blame to the Government which has been in power for those ten years for the state of the country to-day. Admittedly, from time to time—the noble Viscount, Lord Amory, said he is sorry, and the noble Lord, Lord Bracket, also said he was sorry—they did not listen to the good advice given by my noble friend Lord Citrine in 1957. Possibly on reflection they will find many other pieces of advice given by my noble friends on this side and by my friends in another place which they are sorry they did not listen to. But they must take the responsibility for not having listened to those pieces of advice and they must, as I say, not only take the credit for what has gone well during the latter part of those past ten years, but also take the blame for what has gone badly.

There is no need for me or for any of my noble friends on this side to point out that to-day things are not going well. The Prime Minister and the Chancellor of the Exchequer and many other prominent members of the Government have made us only too well aware of the actual state of the country to-day. So that is not a point to be laboured at this stage. But I think it is only fair to say that, although we have had a Conservative Government in this country for ten years now, we have not had anything like full-blooded Toryism during that time. It is quite possible, I believe, that full-blooded Toryism might have worked, but it would have been a very drastic pill to administer to the country and would almost certainly have resulted in the Government which put it forward not being elected at the next Election there was—the intervening one between 1951 and to-day. It would, of course, have involved a fairly rapid dismantling of the Welfare State; it would have involved the abolition of exchange controls, the setting free not only of the people but also of the pound and letting it find its own level and letting the people find their own level. It would have involved lower taxes and also a higher cost of living, higher prices for food, higher rents, greater expenditure for people with less money on education and health services. In other words, it would have involved a far greater expenditure than there is to-day on the necessities of life.

The result of that might well have been—and I certainly should not wish to deny it—that people would have been forced to work harder simply in order to provide themselves and their families with those necessities. Furthermore, we might then, with full-blooded Toryism, have followed the example of the United States, where not only are the necessities of life expensive so that people have to work hard to get them, but the luxuries—television sets, motor cars, refrigerators, and all that—are relatively cheap, so the extra marginal effort needed just to work that little harder once you have the necessities is not so very great after all, and the incentive is there to do your bit of overtime in order to get those extra luxuries. My Lords, that is what, in my opinion, a really full-blooded Conservative Government with the courage of its convictions might have done, and it might have succeeded in achieving economic growth in this country.

Whether the Government did not do so because it did not have the courage to do so, or whether it did not do so—and I hope this is the reason—because it had an innate sense of justice which shrank from causing suffering among a large class of people who were not well able to protect themselves from what would have resulted from this, I do not know. But although I have said what I think they might have done. I am not for a moment saying that I wish they had done it, because not only do I believe that it would have been an extremely undesirable and extremely unjust thing to do, but I believe that it would have led to a very large amount of unrest and strife in this country which it would have taken us probably far longer than ten years to emerge from and to live down.

But, in spite of the fact that we have not had this full-blooded Conservative economic policy, we have year by year since 1959 had Budgets which by degrees have whittled away the Welfare State, so that year by year we find that the gap between the rich and the poor has grown ever wider. This has led to the situation which we have to-day. It has not, unfortunately, led to an economic recovery; it has not led to the recurrent crises becoming a thing of the past and to the economy of this country going ahead on full expansion, not only competing with but outstripping the economy of other European countries. It has, in fact, done just the reverse, and to-day we are passing through what is called a "crisis". But in my opinion that is a misleading term, because to most people a crisis means something which rises to a sudden rapid crescendo and then fails away again, very often without any action being taken.

My Lords, I do not believe that this is a crisis of that sort. This is not just a temporary difficulty of balance of payments because there happens to be a war in Korea, because the terms of trade turned against us or because of a mere external cause for which we cannot be held responsible and which, in the nature of things, will in a month or so disappear. It is something which is innate in our present economy and something which cannot be overcome—and here the noble Viscount, Lord Amory, said something with which I entirely agree. It is not something which can be overcome by short-term palliatives, whether in a Budget or as part of our general economic programme. It is a deep-seated cause which has brought this about, and simply raising the bank rate will have no effect in curing that deep-seated cause. Of course, I agree wholeheartedly with the remarks of my noble friend Lord Pethick-Lawrence about dear money. I think it is worth remembering that, although raising the bank rate may once more, as it did in the past, attract "hot" money into this country, "hot" money has "cold feet" and it can very easily take fright.

LORD BARNBY

Hear, hear!

LORD WALSTON

And it has and will run away. It has run away. So I hope that if 'we are forced into raising the bank rate as a temporary measure to overcome this immediate and very serious need of this country we shall not then sit back and say, "We have done our job. Let the industrialists, let the trade unions, get on with it." What in fact has been happening over the past ten years is very simple indeed. We have been consuming more than we should; not necessarily more than we have produced. We have been consuming more than we ought to, taking into account the investments which it is essential for us to make if we are to maintain our economic position in the world. In passing, I would say we have been encouraged in doing that by this frightening rise in hire purchase.

Not only have we seen spending more than we should, but we have been living on credit before we have produced the goods. That (is an additional factor which is now catching up on us and is aggravating (this present state of affairs. In all that, of course, we have been encouraged by this doctrine of "free-for-all"—not sufficiently free, as I said, to be true Conservatism, but sufficiently free—

THE LORD PRESIDENT OF THE COUNCIL AND MINISTER FOR SCIENCE (VISCOUNT HAILSHAM)

The noble Lord keeps on talking about "full-blooded Tories" and "true Conservatism". This is all very well, but I would ask him, when using his descriptions of other people's theories, to define them a little better. No Conservative has ever believed any of the things which he has described as "true Conservatism", and I think I know as much about Conservative thought as most people. I would therefore suggest that he uses another word as his Aunt Sally. He is quite entitled 'to knock it down if he wants to, but he should use a word of his own devising, and not a word which belongs Ito other people.

LORD WALSTON

I apologise to the noble and learned Viscount and to his Party. I certainly do not wish to set up the Conservative Party as an Aunt Sally. I have far too great a respect both for Aunt Sally and for the Conservative Party. I can only say that, from some of my reading in certain papers, and from remarks by same people who are normally supporters of the Conservative Party, this has been the extreme—the logical extreme, I would say—of the policies which have been suggested. But I wish to make it perfectly clear in what I am saying—and I am sorry if I did not—that this is not the policy which the Conservative Party have been pursuing, although I do think it is a policy which logically they might well have pursued.

Leaving aside Aunt Sallies, and the Conservative Party at the same time, what is more important now is what can be done in this country to cure this procedure which has been going on for many years—and out of deference to the noble and learned Viscount I will not say "for ten years". We must, in the first place, produce more; and we must export more, which probably means that we must consume less at home. Those are the two very simple facts which many people throughout the country have been stressing for a long time. It is in the light of that, I think, that we should examine the present Budget and see how far it is likely to achieve those two ends. Obviously, it would take far too long to go through the whole of the Budget proposals, and many noble Lords have already mentioned several of them. I would agree entirely with the noble Lord, Lord Brocket, in his condemnation of the fuel tax. To put on a tax which is going to raise production costs by £48 million or £50 million at the present time seems to me the most direct contradiction of the principle of lowering costs that one could possibly conceive. So I would suggest to your Lordships that the fuel tax cannot be supported on that test.

The same goes for the poll or wages tax. One can imagine economists, sitting in the seclusion of their common rooms and their lecture halls, saying, "We want to make better use of labour. The way to make better use of any commodity is to make it more expensive, so that the consumer of that commodity will be more careful with it". That is a sound theoretical argument. But suppose you take the next step and say: "Therefore, let us make labour more expensive; and let us make labour more expensive, not by putting up wages, because that is inflationary, and there will then be more money to spend, but by putting a tax on labour so that the employer will be more careful of his labour, and the worker himself will not have any more money to spend". That, again, sounds very well in theory, but any of us who have practical experience know that it will not work: and in the columns of The Times to-day, I think it was (it was one of the papers) there was an example of the effect that this poll tax is likely to have on an individual firm. We all know that it is not in any way going to make employers economise on labour. We all know, too, that it is an open invitation to unions to say, "If this extra tax can be afforded, then pay it to us", and up will go wages again.

Then we have the increase of purchase tax and Excise duties. Again I do not want to repeat the arguments of the noble Lord, Lord Brocket, but although there is something to be said for it, if properly administered—and I would not wholeheartedly condemn it—it will, in fact, put up the cost of living; and unless other steps are taken it will undoubtedly increase the pressure for higher wages. Furthermore, of course, it is a tax which is going to fall heaviest on the people with the smallest incomes—the old-age pensioners and the lower-paid workers; the farm workers and so on. It will leave the people who are better off relatively unaffected, and will fail to diminish their spending or the inflationary pressure which comes from them.

Finally, we come to the surtax concession—and that, I believe, my Lords, is the crux of the whole problem. Here I would take up the theme which my noble friend Lord Pethick-Lawrence so ably started to develop. What is essential in this whole situation is that there must be a feeling of justice and a feeling of fair play throughout the whole country. My Lords, some of you, or many of you—probably all of you to one extent or another—are employers of labour. How would you, individually, like to go along to the men who work in your factories, to the men who work in your offices, to the men who work on your farms, and say to them, "It is true that we have given the management more money to spend; more to the three or four people at the top; but because things are so bad in this enterprise we ask you to tighten your belts and to take less and have a lower standard of living"? You could not do it. You know that it would not work, and it would go against the grain of every one of you. Yet that is precisely what the Chancellor of the Exchequer is doing in this Budget.

Had he said, "The country is booming; we are in a strong financial position; we believe that the surtax payers have waited for a long time for a little benefit; we shall give it to them now and, in due course, we shall pass it down the line", he might have got away with it. But he is not saying that. I will not repeat what he is saying, but we know the position of the country and we know that it cannot afford any increase anywhere. We are talking of cutting down; and to talk of restrictions and belt-tightening and at the same time to give away £60 million to people with an income of £3,000 or £4,000 a year, simply is not going to make it possible to get the co-operation that one must have in this country if we are to come out of our present situation.

Now, my Lords, I should like just to give you two short examples of the way that individuals actually work when it comes to material well-being and money. These are two personal examples that I have come across in the last few years. Fairly recently there was a rise in building workers' wages, and I employ a certain number of builders on my estate. Among them are two brothers, one a craftsman and the other a labourer. They work together. Their differential before this rise took place was 10s. a week. When the rise took place, because it was a proportionate rise, the differential became 12s. 6d. The brother who was the labourer, not the craftsman, came to me and said, "This is not fair. I am perfectly happy to work with Bill, but although I am 10s. a week less good than he is I am not 12s. 6d. a week less good than he is". He was very unhappy about it; and so was his brother. Eventually, I finished up by saying to them, "I suppose, really, you would have been happier if there had not been any rise at all?", and they said, "Yes, I think we should have been".

We could call that a sense of justice, or we could call it jealousy—I do not know; but it is a very real factor in dealing with human beings. It is not a factor which is on only one side, only on the weekly wage earners' side. I remember on one occasion canvassing in a country village when I was a Parliamentary candidate. A woman came up to me and said, "You can't expect me to vote for your Party. You are putting up council houses now which have two lavatories. I do not have two lavatories in my house one is quite enough for me. Surely, for the working class one lavatory is ample. Do you expect me to vote for a Party that puts two lavatories into council houses?" That is exactly the same attitude. It is the refusal to allow other people to come up closer to you, and the desire to retain what you may say is a just division, or what you may say is the status quo—I do not know what it is. However, as a practical politician trying to get the country to work together, that is a very important factor which must be taken into account.

I am quite convinced that so long as we have the present Budget, which is giving away this £60 million to the surtax payers, it is going to be absolutely impossible to get this working together, this co-operation between employer and employee, which is so essential.

VISCOUNT HAILSHAM

My Lords, the noble Lord keeps on saying that something is being "given away" Would he not think it more creditable to him to say that they are allowing the surtax payers to retain a little more of what they have earned for themselves?

LORD WALSTON

My Lords, that is a perfectly fair way of putting it. All I can say is that I hope the noble and learned Viscount will use his very well-known forensic skill to persuade the people of this country that it is so.

VISCOUNT HAILSHAM

Perhaps it would come better from the noble Lord by his not putting it in an inaccurate way.

LORD WALSTON

My Lords, all I am saying is that hitherto he and his colleagues have failed to do that, and I certainly cannot see them doing it. But I am no lawyer; I am not learned. I very much doubt whether any member of the present Government can do it.

My Lords, in all seriousness, if we are going to have one nation and not two, those are factors which must be taken into account. And if we are going to make appeals to-day to the country, as we must make appeals, to work together for the good of the country, it must be made abundantly clear that the people who are running the affairs of this country share the same ideas and ideals of justice as the ordinary man in the street shares. I do not believe that any clever arguments or even, in certain cases, logical arguments are going to win the day. It is something which is felt at the heart, not understood by the brain. That is where I believe the Government have failed to-day.

I do not know, any more than probably any of your Lordships knows, what is going to happen next week when the Chancellor of the Exchequer announces his new proposals to save the country. But I suggest to your Lordships that unless, at the same time as he does that, the concession of allowing people to keep a greater proportion of what they have earned than they have kept in the past is postponed till the country has come out of its difficulties, all of the appeals for self restraint, belt-tightening and cooperation will fall on hostile ears, and it will require a very much greater effort on the part of all of us on both sides of the House to put it across to the people, as put it across we must. I do ask noble Lords opposite and their friends in another place to consider this matter very seriously, and to believe that we, and the workers and the unions also, I am sure, want to work with them for the country; but their actions at the present time and under the present Budget make that working together a very uphill struggle indeed.

4.55 p.m.

LORD BALFOUR OF INCHRYE

My Lords, in moving the Second Reading of the Finance Bill my noble friend Lord Dundee used, understandably, what I would term a narrow focus on the economic situation. He reminded your Lordships that we have had various economic debates. He had knowledge, as we all have, that the Chancellor of the Exchequer is shortly going to make a statement on the financial economic position, and therefore his speech was very naturally on a somewhat narrow front. I am so glad that my noble friend Lord Amory, and others, have widened the basis of this debate, because, after all, this is an opportunity—probably the last opportunity before we rise for the summer, somewhat unique by fortuitous circumstances, in that there is to be an economic debate apparently in another place; and there is also to be a statement next week by the Chancellor of the Exchequer—for your Lordships to make contributions to the wider picture of the economic field.

I think the gravity of the present position is admitted by all who have any knowledge of political economic fields. My noble friend Lord Dundee did not like the use of the word "crisis". He preferred the expression "a moment when the attention of the public is sharply drawn to a difficulty that has been with us for a long time". That is to me another way—a rather longer way—of saying "crisis". Of course, the talk of "touching the brake" or "pressing the accelerator" has gone. We are in the midst of a grave economic emergency which has justified much preparation and publicity for an important statement by the Chancellor of the Exchequer in another place this week and, also, if the newspaper reports are correct, for the Prime Minister to broadcast to the nation. So, my Lords, I think we are justified in saying (and I would use the word) that we are in something of an economic crisis.

I think the question which all of us ask ourselves is whether the steps Her Majesty's Government are about to take will temporarily lift our difficulties, or whether they are going to be steps which are going to set us on the path of soundly-based progress. The holidays are nearly upon us. Our people are, quite rightly, packing up and planning to go off to the seaside or to go abroad for a well-earned rest. We have at home a very full employment, and high demand—everything is apparently prosperous. But I would hazard a guess that, unless the Chancellor's proposals are seen by the world to be effective for something more than the immediate, the Parliamentary Recess is likely to be interrupted for discussion of a more serious position than we have to-day.

The facts of the position have been stated so often that there is no need to repeat them, except to say that the import—export gap yawns. We are glad that there is some slight improvement, but the gap still remains serious. Our invisible earnings are running down at an alarming rate, and our gold and dollar reserves are inadequate. Against that background we have arms expenditure which is rising, production growth which we all admit is inadequate and, most serious of all, a new round of wage claims completely unrelated to productivity. And all this with the nation divided within itself, politically and economically, on many great issues and the treatment of those issues. The result is that we are a nation facing a crisis without an inspiration or any single great purpose.

I do not believe that this is the fault of this Government. I do not believe that it is the fault of any one Government, or of Parliament. I believe that it is the result of something like sixteen years of what I would term softness in some directions and often acceptance of indecision under the label of compromise, of hesitation under the label of consideration and of complacency under the label of confidence. Let me give one example, our economic policy. I do not want to elaborate it in any degree, but only to us it as an illustration of my point about indecision.

Our economic policy has been based on world liberalisation of trade, the willingness of British industry to accept all competition and an aim towards universal free trade. If you back that policy, which I personally do not (though that is beside the point), you must be consistent. If you back that policy, is it right to deny the steel industry the cheapest coal from America? If you back that policy, is it right to tax the raw material of industry, oil, 2d, a gallon. If you believe in that policy, is it right to allow State transport monopolies and sheltered industries to have wages leap-frogging unrelated to productivity? If you believe in that policy, is it right to resist the free import of Hong Kong textiles? I do not agree with that policy, but if you do pursue it, you should have the courage to take it to its ultimate and not compromise. Because if you compromise, you fail all round.

If we have not been thorough in the past, now, in time of crisis, we must be ready not to be doctrinaire, either to Left or Right, either free trade or protectionist. It may be that the Government may have to come to some compromise with the rigidity of theory and possibly follow Sir Roy Harrod's ideas on some control of unnecessary imports and of investment, whether physical or monetary, and on some check on the building boom. It may well be that if the State takes 43 per cent. of the gross national product, we should have some scheme to see that the balance of 57 per cent. is used to the greatest national advantage.

That is in the material field; but I believe that there is a far greater task for Her Majesty's Government in the field of what I would term morale. The restoring of the national purpose and the national morale is the Government's greatest task and greatest responsibility to-day. And to do this, exhortation and declaration are not enough. Alarming by fact exposure is not enough. Impos- ing remedies and sacrifices on other people is not enough. It is by their example and by their actions that the Government must lead in the revival of national inspiration. I believe that the first thing to accept is what has been said in the debate by your Lordships to-day—that no Government to-day, of any particular complexion, can really do anything big in the way of leadership without carrying with them the trade unions, both the trade union leaders and the trade union rank and file. To-day we have trade union leaders, fine, good citizens, queueing up to repudiate the Chancellor's appeal for wage restraint. Any idea of direct conflict with the trade unions on a major scale is unthinkable and would lead to national disaster.

Faced with this basic fact, I should like to pursue a little further (because my mind has been running on much the same lines, and it is the duty of us all to speak out) the ideas put forward by my noble friend Lord Amory. The noble Earl, Lord Dundee, wondered whether it was not an impracticable dream (I think those were his words) that there should be a period of co-operation and peace between the trade unions, employers and Government in this country. I believe that the Government should say to the people, "A halt to our differences and arguments!" They should say to the nation, "We will tell you what we face, and now let us lift a year of time above the years of the past and of the years to come and make it a year of national effort." Let the Government say, "For the next twelve months we accept something like an economic Battle of Britain." If your Lordships remember, in those days all were for all and none for one; and no one had any idea of unofficial stoppages or wild-cat strikes. All worked for Britain.

To-day, the trade unions are suspicious and resentful. I think that there has been far too much play on the surtax question. I am not going to re-argue the matter, but I disagree profoundly with the speech of the noble Lord, Lord Walston, on that point and agree entirely with what my noble friend Lord Amory said. But never mind that. Though the trade unions are suspicious and resentful, they must respond to the appeal to leave out of the arena of controversy for this year of effort our current differences. I should like to see from the trade unions a halt to wage claims unrelated to productivity and to calls for shorter hours; a lifting of restrictive practices in a big way, and only those wage rises asked for and accepted which are related to any rise in the cost of living. That would take a lot, and it asks a lot from the trade unions; but I know that the trade union leaders are patriotic men who can give a lot if they feel it is right to do so. Then I would say to the employers that it is important that they make a big and radical contribution. Let it be agreed that profit margins are not to be raised; that any profit rise is ploughed back for the benefit of industry, and that dividend distribution will be stabilised for this one year of effort.

I think that the biggest contribution would have to come from Her Majesty's Government. I would suggest to the Government and to the Chancellor of the Exchequer that he gives a Budget pledge that next year his Budget shall be a Budget of no remissions and advantages for any one section over another, of no increases in personal benefits for any one section over another. The Government would have to set an example of restraint in their own expenditure, without any attack on the Welfare State. We must also see, so far as we can, in spirit and in act, whether we can call a halt to Party strife and provocation, going for what we agree on and agree to do, rather than playing with differences. That would need machinery, and my noble friend Lord Amory has suggested some machinery.

I believe that the only people who could make this year of effort a year lifted out of the passage of time would be the Government, led by the Prime Minister. I should like to see something beyond what my noble friend Lord Amory suggested—namely, a national recovery council of the Government, trade unions, employers and, I would hope, the Opposition as well. If at the end of the year of effort we so wished, we could dismantle the council and revert to the freedom and luxury of controversy. But meanwhile, we might have lifted from the passage of time one year of national greatness, during which I believe we might have helped to save ourselves and, in doing so, save countless others who look to Britain's spirit for guidance and a material support for their progress. I hope the Government will not turn away from the concept that imaginative bigness is needed to revive and direct our people's spirit, without which we can do nothing.

5.12 p.m.

LORD BARNBY

My Lords, I am glad to find myself following my noble friend Lord Balfour of Inchrye because he has just made an inspiring appeal on a very lofty plain as to what is needed to unite the nation in accepting what we are warned will have to be great sacrifices. I am also glad that my noble friend gave good reasons why we should regard this as an opportunity for wider reference to economic subjects; and, indeed, the noble Earl, in moving the Second Reading of the Bill, embraced this himself. We recognise that we have no powers to modify the Bill that we are now discussing, but we have the privilege, as my noble friend, Lord Brocket, said, at least once a year of expressing our thoughts.

The noble Earl, Lord Dundee, reminded us that the Bill includes references to two new types of regulators. Other speakers have already pointed out how it seems likely that both of these will add to the cost of living; and doubtless that has occurred to the Chancellor of the Exchequer in proposing them. As a simple industrialist, it seems to me obvious that they will increase costs. If it results in damping down industrial production which will not find its way into export, then we shall have lost a great deal of potential production and lower activity must inescapably mean that a point will be reached when costs will increase, profits will fall, and revenue will decrease.

It is going to require great courage by the Government to see this through. Quite simply, to some extent employment will be disturbed. But we have had assurances by the Government that they will resist wage advances in the nationalised industries. These set the pattern. If it is that the Government are going to see this through, then we can face the situation with more confidence. The Chancellor of the Exchequer is reported in the Press on Saturday last to have said: We cannot afford the restrictive practices, whether of management or labour, that are too readily accepted now. We cannot afford the easy complacancy with which increases in costs derived from these and similar inefficiencies are added to prices". Whatever may be the effect in the home market, there is a general hope that exports may be increased. But in all these exhortations to export which we have had, it is inescapable that people say or think to themselves: "Are exhortations really enough? To be practical, do we need some incentives?" Incentives are required in everything in life to get results; our whole industrial structure is based on the idea that you must give incentives to production. We are always urged in this country that conscious incentives must be foregone and we must not give a naughty lead to other countries. Only two weeks ago we read in the Press (I will not take the time of your Lordships to quote details) of specific concessions to export industry being given by Italy. I do not know whether the noble Viscount, when he comes to reply, will be able to give us some interpretation in the terminology of difference between incentives and concessions; but the Board of Trade have consistently adopted the attitude of resistance to incentives.

Frankly, there are an enormous number of people in industry who just do not believe in this resistance to incentives and feel that we should adopt the attitude of other countries and use them. Take G.A.T.T. as an illustration. The shackles of G.A.T.T. are accepted by us, but others disregard them. Only to-day reference was made in this House by Question to barter transactions. There has been an attitude by the Government that they disapprove of strict barter transactions. I suggest that this purity of orthodoxy which we have so consistently attempted to urge on others, and have loyally adopted ourselves, is perhaps something which of necessity we shall be compelled to review.

My noble friend Lord Amory made a contribution to the debate for which we are all grateful and which to-morrow we shall all read with the greatest care. After many points of most important analysis there was one which will receive particular attention. It stirs my memory to revert, for the purposes of record, to a partially similar experiment which was tried in the middle 'twenties. Sir Alfred Mond, that great statesman who subsequently became the first Lord Melchett, was seized with the dangers and difficulties (and they were real, as others will remember; I was a Member of another place at the time) of the discord in relations between employers and workers. He worked out that we should have seven representatives of industry, and seven of organised labour. I was privileged to be one of the seven employers.

I can remember the massive characters who constituted those representatives of organised labour. It was called the Mond-Turner Conference. The representatives were Ben Turner, Jimmy Thomas, Will Thorne, Ernie Bevin, Ted Richards, and I cannot remember the others. Particularly do I remember it because the noble Lord, Lord Citrine, then a young Assistant Secretary of the Trades Union Council, was Secretary of the Mond-Turner Conference. We sat for months. They produced a Report which I am confident had a great bearing on industrial relations at that time. One thing is certain; these seven employers came into intimate personal friendship with those seven great personalities in organised labour, and I think that contributed a great deal to the result.

VISCOUNT AMORY

My Lords, may I interrupt my noble friend to say that I agree with him very, much about the Mond-Turner Conference? That Conference may well have been before its day, but I think it would be timely that we should be thinking along the same lines to-day.

LORD BARNBY

My Lords, I entirely agree it should be tried. I presumed to introduce that only because it seemed to be in support of the most valuable contribution which my noble friend made, and which I hope will be studied nationally with great care.

There is currently a great national debate over the Common Market. There is one thing in that connection which seems to me obvious. If we are going to substitute a bigger volume of trade with Europe for a lesser volume with the distant Commonwealth, then invisible earnings from shipping will make a smaller contribution to the balance of payments. My noble friend Lord Balfour of Inchrye gave in his opinion what seems to be in the minds of a good many to-day: that entry into the Common Market can produce some shock to the nation; and that after the softening years of a Welfare State, also trade union rigidities and restrictions, low work loads and shorter hours, we need this shake-up. This is going to include free entry of 'workers from Treaty countries. Surely that must cause some thinking by organised labour. But whatever it is, let us hope, as my noble friend Lord Balfour of Inchrye has emphasised, that we can achieve this without wide-scale industrial disturbance.

I suggest that shorter hours are not a solution, and yet that practice is being extended every year. Shorter hours mean less productivity, a higher break-even point, higher costs and less competitive power. It is inescapable. We certainly want higher earnings, based on productivity, a very different thing from higher wages. I mention P.A.Y.E. However it is going to be done, there must be more incentive to workers to work overtime. How the Government can work it out is a matter for them, but overtime must be paid well, and there must be some remission incentive in taxation.

The Chancellor of the Exchequer has emphasised that our payments overseas are too great. The noble Earl emphasised that contributions to underdeveloped countries should not be cut. Quite frankly, I differ from him. I believe that if these payments are made outside the Commonwealth, it is a question of whether we can afford it. There should certainly not be, as was stated in this House recently, 50-year interest-free loans. Such largesse we cannot afford; we are not rich enough. We are told that the individual must not spend more quickly than he earns. Surely the Government likewise should spend less, cut back Government expenditure. We all know how easy it is to use such a flippant phrase, and how difficult it is to achieve it. However, the Government are the ones holding the tiller.

In conclusion, inspired by what my noble friend Lord Balfour of Inchrye said when he referred to these questions of starts and stops, palliatives, patching, trimming, plastering and constantly unsettling industry, I cannot find a better way to express the thoughts I have than to quote from a recent letter in The Times from a large industrialist banker, Mr. Lionel Fraser. He said: The present situation shows again that there is no alternative to a coherent long-term economic policy, a design for the future, and true success will only attend it if it is understood and supported by the man in the street. My Lords, as a supporter of the Government, I support the Bill which we are discussing.

5.27 p.m.

LORD POLWARTH

My Lords, it always seems a little hard that, though we are all taxpayers, we cannot discuss this Bill in detail. But we can console ourselves with the reflection that we can perhaps discuss it a little more dispassionately and also in the wider context of the economic field. There is an added consolation for amateurs in economics like myself in that we can have the privilege, as we have come to expect, of hearing such admirably lucid contributions as we have had from the noble Lord, Lord Pethick-Lawrence, and the noble Viscount, Lord Amory. For that alone it has been worth my while coming here to-day from Scotland. No doubt at this moment the Chancellor of the Exchequer looks upon us here as a sort of tiresome old nannie who is preventing him from starting to play with the toys which he has been given on Christmas morning. One thing seems probable, which is that, having been given two very exciting new toys, he is going to want to play with them as soon as possible and not leave them in the cupboard.

I will be as brief as I can and confine myself to only two aspects. I hope your Lordships will forgive me if I relate them both rather specially to our viewpoint in Scotland. We are no less aware of the need for strong measures at this time than are any of the rest of your Lordships, but our domestic economy is in some respects different from that of the rest of the country. Our views may therefore differ as to the nature of the remedies required and the means of putting them into effect. May I take this opportunity of apologising in advance to the noble Viscount who is to reply because I may be discourteous enough to leave before the end of the debate? It is all a question of the time of departure of the plane to Scotland.

My first point relates to the field of exports, about which I should have thought we might have heard rather more in this debate to-day. We all agree that an increase is vital and we are all making a great effort. We have these great Export Councils, the Western Hemisphere Export Council, the Export Council for Europe, and many other bodies which are putting in stalwart work in this field. In Scotland, we have constituted an Export Committee on which are represented all the leading bodies with interests in export. They are making great progress and are encouraged under the leadership of that champion of overseas trade, Sir Robert Maclean.

Scottish companies are going out actively and aggressively selling abroad. One consequence of that has been the number of inquiries about export business which are going through the offices of the Scottish Council (Development and Industry) who are handling some 200 inquiries a month from firms, an increase of same 40 per cent. over the equivalent for last year. That, I think, is a very heartening indication of the increased interest that is being taken by industry in export, not only in the traditional field, but in many new industries such as aero engines, rail freighting equipment and electronics. Even shipbuilding, despite its difficulties, is making a come-back, and I think we can take a pride in that only a fortnight ago one of the Clyde shipyards secured an order for a 54,000-ton tanker from Norway, the first Norwegian ship order placed in Britain this year. That was due to efforts made to increase their efficiency in building and also—if I may declare a slight interest—to the readiness of our financial institutions to take perhaps a rather more liberal view of financing this kind of business than they used to in the past.

All this is fine; but the Government have a big part to play as well. Their responsibility is high. Last week I asked two different industrialists what they ought to do and what they thought the Government ought to do. Each of them said, in more or less similar terms, though one was somewhat more polite in language than the other, "Not, on any account, to mess up the home market". I think there is a lot of truth in this. The home market is bound to be the basis of our trade. Without the home market, export trade cannot flourish. The Government seem to think the way to encourage exports is to damp down the home market by increased duties and taxes and so on. That, I think, is a mistake, because overseas markets are uncertain now.

There are some changes from uncontrollable causes: to take only one example, one recently announced closure of a factory in Scotland, I understand unofficially, was due entirely to the tariff policy of one of their principal customer countries. These companies must have a reasonable degree of certainty with the home market if they are to pursue an export trade aggressively; and I say "certainty", that word already used by other speakers. The worst thing of all is frequent changes of rates or tax and fiscal policy, because that causes uncertainty. And this power to regulate and alter rates and duties works both ways. Take one industry, the refrigerator industry. In 1958 hire purchase restriction was swept away. Everybody went into the market. Capacity was increased far beyond what in fact has turned out to be an economic level; and then when restrictions were replaced later on in 1960 the industry found itself, and still finds itself, in a difficult situation. In that case the sudden removal of restrictions was just as damaging as their imposition. Far from helping the export market, that sort of thing damages it.

If a general in war finds his headquarters is threatened he does not just say, "Right, we will not worry about it; we will reinforce our outposts." Not a bit. He devotes all his troops first to maintaining his base, and that is what the industrialist quite naturally and rightly thinks. If he is in difficulty in the home market he is going to have to throw his energies into putting that right and will not be able to concentrate on his exports. What is wanted is not a stick to beat him out of the home market but a nice juicy carrot to lead him into the export field. It must be quite obvious that the grass is greener on the other side of the fence. The problem is how to make that obvious; and while it has generally been turned down, I find myself more and more turning to the thought, the serious thought, that there must be financial incentive to exports. It is given by other countries, although they may not say so, and I cannot help feeling that some kind of system could be devised, say by remitting profits tax on that portion of turnover related to export. I believe it would go a long way to securing results.

Then I come to my second point, which is this. It is agreed, I think, that much of our troubles stem from an overloaded economy, a point on the standard of living which we are now earning by our own efforts. I ask the Government, in contemplating the measures that they have in mind, to remember that not all of the United Kingdom is in quite such a bloated condition. We still have a high rate of unemployment in some areas; Northern Ireland has the highest rate of all, some 7 per cent. unemployed, compared with some 1½2 per cent. for Great Britain and Northern Ireland combined. Scotland has 2½8 per cent. It is unevenly spread; it is quite a lot in some areas but is better in others. Still the fact that there are 60,000 out of work in Scotland is not a cause for complacency, because it represents a waste of productive assets.

Now I recognise that successive Governments, by their legislation and in other ways, have taken the view that this situation should be put right. We have had the Local Employment Act, now nearly two years old, and we have had continuous efforts by the Government and by other bodies to improve the position. The aim is to keep unemployment down to the national average—that must be our immediate target—and to staunch the migration of workers away from Scotland. We are very grateful in Scotland for the remarkable and inspiring efforts that have been put into this matter by the present Secretary of State and by his assistants, including the noble Lord, Lord Craigton, who is with us here to-day. Few people in Scotland realise entirely the detailed and persistent effort that the Secretary of State has devoted to this field of industry, while at the same time hiding his light under a bushel. I think we owe a lot too to him and his Department, although I think there are many improvements which could be made in the working of the local employment machinery. But that is a subject for another day.

There are also a great many people in Scotland who have been working hard on this problem and with a fine measure of success. Of course, we have our troubles. We are still too dependent on our basic industries. The coalmines are obviously going to employ fewer men because of increased efficiency, and shipbuilding and its associated industries are making sterling efforts in the face of the much smaller market for ships. But some of these industries have had setbacks in the near past and we have had a number of closures of companies announced recently.

In spite of that, I think we have a great many reasons for encouragement. The range of our production has been greatly increased now. There is a much wider range of industries, and now we have the motor industry and all that I hope it will bring in its trail. But here again is an industry particularly affected by upsets caused by changing rates, taxes, hire-purchase restrictions and other things Quite a lot of our industrial field, it is fair to say, is in a state of increased new growth. That is due to the cultivation of the ground, selection of the seed, planting, fertilising and sowing both by Government and by private enterprise. It is in this new growth that our hopes lie for the future, and it is a growth remarkably free from the weeds of over-employment and inflation which have appeared so much in other parts of the country.

The noble Earl who opened the debate said that in applying these measures the difficulty was to avoid restriction of industrial growth. I agree that this is desperately important, so it is with some apprehension that we watch the Chancellor of the Exchequer approaching with his two new weed-killers (if I may continue the metaphor), and no doubt others also, which are still on the secret list until Tuesday week. As your Lordships who are gardeners know, one of the characteristics of weed-killers is that they are most effective on young and vigorous growth, and these particular ones which he has in mind seem to me to be very far from being selective in their operation. These two new taxes look like killing not only the weeds but a good deal of the healthy growth at the same time.

In this field of new development, as in the field of exports, we must have this reasonable certainty and continuity if industry is to flourish. Look at what happened in the previous crisis of 1957. There was already an upsurge of new industrial development at the time, particularly in Scotland, greatly encouraged by the availability of new factories to rent. Along came the credit squeeze and, I think, a virtual cessation of all building of new factories. That freeze cost Scotland and other parts of the country dear in terms of new industry and expansion of existing industry. Those companies expanded elsewhere, either in the South or overseas.

As a side line, though I am not concerned with that to-day, the Government will remember that the consequences in terms of employment or unemployment also cost the Government something in the way of votes in Scotland at the 1959 Election. So I hope that the Chancellor will remember both 1957 and 1959 when he thinks about his two new toys and, in particular, this possible payroll tax. I make no bones about it, my Lords; I think that in its present form it is a thoroughly bad tax. At the level at which it is proposed, the maximum level, I do not believe that it will discourage companies from keeping on labour. I think it will bear hardly on those companies which are labour intensive and, by their nature, cannot cut down on labour. It will, in fact, merely add to the costs of production and, therefore, to inflation.

I congratulate the Government of Northern Ireland upon having already secured in advance exemption from this tax. I think the Chancellor of the Exchequer might go a bit further, and I would make the concrete suggestion that, if it is found necessary to apply it at all, it should not be applied to employers of labour situated in the development districts; in other words, the districts where the Government are trying to encourage new industrial growth. It would be criminal to discourage growth in these areas by unnecessary imposts and by uncertainty.

My Lords, having said this, and having spoken in particular about Scotland, may I make it quite clear that we are all in this together? We are all ready to play our part in putting the situation in order, and in agreeing to any measures that are really necessary to do so. The only thing that I do beseech the Government, and the Chancellor of the Exchequer, in particular, is: do not, in the course of those measures, frustrate our efforts to expand our industry and increase its productivity, because those are the real keys to our future wellbeing.

5.45 p.m.

LORD HAWKE

My Lords, I welcome the Finance Bill as being more original in thought than any I have met for many years. I should welcome still more radical changes, and I have the feeling that perhaps the Chancellor of the Exchequer is feeling his way. The country has undoubtedly prepared for a drastic overhaul of the whole taxation system, and my feeling is that the Chancellor was not entirely unsympathetic. But, though the spirit was willing, I have no doubt that the flesh was weak, in that I doubt whether the Inland Revenue would have been able to cope with a vast amount of new work; because—and there is no doubt about it, my Lords—our taxation system has got into the most awful mess.

Monetary receipts which can be classified as income are very heavily taxed; on the other hand, monetary receipts which can be classified as capital get off scot-free. The result is that some of the best brains of the country are employed in switching natural income into unnatural capital. Such is the weight of tax on the higher incomes—and the Chancellor has given relief only in a limited field—that an insidious system of business expense allowances has had to spring up. Like so many things starting legitimately and harmlessly, it is now a subject of grave abuse, and in many quarters it has created a great sense of injustice. It is greatly exercising the minds of the professional middle classes of this country, who are the backbone of the brains and the conscience of the country. President Kennedy seems to be of the same mind. He has gone to his Congress with precisely the same problems, to seek changes to end the widespread abuse of business expense accounts. He has not got all he asked, but apparently the Committee in question have agreed to make it much more difficult for American businessmen in future to claim tax deductions for entertainment, yachts and hunting lodges; and tax deductions for club dues and fees will be prohibited completely. Note that, my Lords.

I suggest that, if the Chancellor of the Exchequer were to insert the word "necessarily" as applying to expenses charged against both Schedule D and Schedule E, probably the whole situation would immediately come under control. Chancellors of the Exchequer in the last two years have aimed a mild blow at one or two of these things, first at the super-tax farms and now at the more expensive motor cars. It would be unfair to deny business men the opportunity of charging transportation expenses, because they do need transportation to carry on their business; but it should be transportation, and not necessarily luxury. One can buy excellent transportation for £1,000—transportation 'that will go at 80 Miles an hour, and keep up 60 m.p.h. all day, so I do not quite see the logic of the Chancellor's limit of £2,000. Perhaps next time he will think better.

I am glad that he has got his regulators, though I agree With my noble friend Lord Polwarth that it is difficult to see a situation in which the payroll surcharge could possibly serve any useful purpose. But I believe that the others definitely could. The surcharge on import duties 'would seem particularly relevant to our needs, were it not for the fact that I believe we have so hedged ourselves round with restrictions and undertakings to G.A.T.T. and the like that I do not know whether, in fact, that can be used.

I hope that next year we shall see a radical revision of the taxes on higher incomes, perhaps with the quid pro quo of a tax on realised capital gains. It is argued that this would bring in nothing, because one would have to set off capital losses; but I have never seen the moral necessity for having that, although there should certainly be a set-off for immediately reinvestment. In other words, the object of the exercise would be to tax capital gains spent as income, and not capital gains made in the switch from one investment to another. The grand strategy would be to try to bring the country back to the old Victorian conception whereby the better-off citizens lived and saved out of their genuine income. The Chancellor of the Exchequer might look at death duties from the same angle. If the made the rates reasonable I believe that he would be perfectly justified in rounding up properties in the Bahamas, and so on. As it is, the Chancellor is merely encouraging rich men to die poor after disposing of all their assets among their various relatives, who possibly live a life of extravagance upon them. The traditional friend of the Chancellor, the miserly millionaire, has no encouragement in our fiscal system to-day.

However, it is the balance-of-payments situation that is worrying us today much more than our fiscal system, and what is a disquieting situation is terribly complicated by this ever-increasing volume of mobile money in the world, able to move at will between various money markets and stock exchanges of the world. It is nervous money; it is timid money, some of it aiming at safety in Government bonds and banks, some of it at gain on stock exchanges. But it is directed by skilled professionals who are sensitive to every slight puff of wind of change in the world—in fact probably rather too sensitive. And this is in a world where the monetary reserves are quite inadequate to provide a means of settlement for the existing volume of this mobile money. Moreover, the mobile money is probably coming into being at a faster rate than the reserves are increasing.

The central bankers of the world know this problem perfectly well, but they cannot agree on a worthwhile solution. The recent solution they thought up was obviously only stop-gap; that is, to take in each other's currencies; for the moment any currency becomes under some suspicion, naturally the operation tends to break down. They unanimously reject, however, the solution which I believe is the only feasible and simple one, which is to increase the price of gold in terms of all currencies. Meanwhile, currencies are under suspicion in turn: the United States dollar, the Canadian dollar, now the pound. When will it be the turn of a European currency? If we see a Berlin crisis in the autumn we shall see a tremendous flight of money from somewhere to somewhere else; I cannot pretend to predict where, but it will certainly flit.

Our own position appears rather bad, but I do not think we should exaggerate. As a nation we simply love to exaggerate our difficulties. We are never happier than when our backs are to the wall: when the Australians are about 500 for two, and we can wallow in our miseries; and there is a very grave danger of that happening to-day, I believe. Then we get on to the stage of wanting to cut down everything. Some of my noble friends wanted to do that this afternoon. I cannot imagine a more disastrous policy for the Commonwealth, for ourselves and for the world at large. Yet I thought we had learned our lessons from the disastrous mistakes we made in the days of Mr. Snowden.

At the same time, my Lords, we must not minimise our difficulties. What is the cause of them? Some of our traditional markets are undoubtedly rather fiat. Who in Africa is going to invest confidently at the moment in British capital goods? Commodity prices, on the whole, are rather low, probably because America has been very slow to get out of its depression; and the same is true of Canada. But the United States and Canada are coming again, and if that is the case they will once more start using commodities on a big scale. Then, of course, we have had the resurgence of Japan and the Continent, and anybody who, like me, has had to sell goods against the Japanese in pre-war days, knows that is a pretty impossible business. In fact, there is a bigger manufacturing capacity at the moment than there is consuming power in the markets of the world. In some cases our prices are alleged to be too high, and perhaps in shipbuilding they are. But we are exporting at a high level, and the figures look like going up. As I say, we must not exaggerate.

Our invisibles, on the other hand, are doing badly and we are importing a lot more than we did a year or two ago—more than we can afford—and most of the excess imports are coming from the non-sterling area, particularly from North America and, to some extent, from the Continent. Some people have suggested that this is because British industry is not competitive. I do not think that at all. I think that people are buying American and Continental goods in the shops for psychological reasons. An affluent society likes American gadgets, and so many people have travelled abroad that they have a taste for Continental artistry, in apparel, in foodstuffs and the like, and they will go on buying more of those imported goods if they can. That is all very well if we can export enough to pay for them. But with many of our best export markets rather in the doldrums we cannot afford to indulge ourselves quite so freely as we have been doing.

The Chancellor of the Exchequer is in a most terrible dilemma. We are so completely bound up by trade treaties and the like that it is uncommonly difficult for him to reduce imports without calling in some emergency operation, as so many other countries do, and possibly inviting unpleasantness. One must remember in these matters that there always appears to be one law for the foreigner and one for the British. If other nations get into a jam of this sort the first thing they do is put on quotas and licences on British goods. This course apparently is closed to us because we are British. The only other course the Chancellor can take is to take so much purchasing power out of the market that our citizens cannot afford to buy either British goods or foreign goods. Both of those courses are very unsatisfactory. I believe that the proper remedy is for a little of everything, to aim at keeping our export costs down and encouraging our manufacturers to get business overseas, and particularly to improve their selling organisations and employ salesmen who talk the languages and so on. At the same time, I suggest that he should explore every possible method of doing what every other country does in balance-of-payments difficulties; that is, to cut down some of the imports, particularly the dollar imports, which it has been importing too freely. If we find that we cannot afford to buy deutschmarks to keep our troops in Germany it will look rather silly if our shops are full of hock and German cameras.

The Chancellor will undoubtedly have to take steam out of some portion of the home market. I suggest that the building and construction industry is particularly overloaded at the moment. I have been one of the few Conservatives who have consistently maintained that there should always have been some small measure of building control kept on. I was led to that conclusion by seeing what went on in South America, where there was nothing of the kind and essential construction was never done at all because the private sector was too attractive. In previous difficulties we have always had to cut down Government construction because there was no method of cutting down private construction, except by rather clumsy monetary means. To-day, I suggest the priorities are quite clear: they are homes, roads and various Government work such as prisons and hospitals which we know we need so badly. Shops and office buildings and administrative buildings are not nearly so urgent, and I hope that the Chancellor of the Exchequer will take steps to give expression to priorities of that sort.

It is platitudinous to say that we cannot go on increasing personal incomes at the present rate unless we can produce more for export. But it is extremely difficult to stop any wage claims. There are subversive elements in industry which are bent on the downfall of Britain, and if the unions will not back wage claims the Communists and the Syndicalists undoubtedly will. So the unions too are going to be in a grave dilemma. My noble friend Lord Amory suggested a grand council of industry. I must say that I was always much more attracted by Lord Chandos's plan, which was that there should be a bargain with the trade union side of industry for a regular wage increase of 2 per cent., or whatever it was, per annum, for five years. I would qualify that by saying that it should either be an increase of monetary wages or a corresponding decrease of taxation, which I believe would be the right way of increasing purchasing power at a steady rate per annum.

The Chancellor of the Exchequer cannot do much more than create an atmosphere in which employers will resist unreasonable demands and in which strikes to enforce those demands would not get any public support. But it is the Prime Minister who must put the issue before the nation. That is not at all an easy task when the margin of austerity required is not a large one. The British people will always respond to an appeal to tighten their belts by six holes, but it is much more difficult to put over the idea of tightening a belt by one or two holes. At any rate, the Prime Minister would have to show that we believe in Britain and that, in the past, it has always proved unprofitable to sell Britain short.

6.4 p.m.

VISCOUNT ALEXANDER OF HILLS-BOROUGH

My Lords, to-day we have not had quite the attendance in your Lordships' House that some of us would have expected at such a stage in our country's economic history as has been revealed in the course of the speeches by the Chancellor of the Exchequer, both in the House and in the country. I must say that I find it a little difficult to get very excited (shall I say?) about the main features of the debate that we have listened to so far, except that I must at the outset pay a tribute to my noble friend Lord Pethick-Lawrence for having once again given such a calm, deliberate and completely reliable analysis of the situation as he has given us this afternoon. I personally am most grateful to him.

The noble Earl, Lord Dundee, who introduced this debate upon the Second Reading of the Finance Bill, obviously seemed to speak from a sense of responsibility, not being quite so free in speech, as he so often is when speaking without notes. We all like to hear him when he speaks freely, but he seemed to have a burden upon him this afternoon. No doubt, as the noble Lord, Lord Balfour of Inchrye, said, there is enough in the situation to be able to prove, in spite of the gentle words of the noble Earl, that we are in a crisis. It seemed to me that the noble Earl did his best to try to reassure us that everything was going to be all right so long as the workers and perhaps, in a lesser degree, the employers might be got together to do something about it.

It really is not quite so easy as that. The noble Earl said something which was not out of accord with the spirit of what the noble Viscount, Lord Amory, said later in the debate. I took down the phrase he used—namely: How much better to have agreed control of wages! That is what the noble Earl said. I wonder whether he would go so far as to say: How much better it would be to have agreed control of profits! You have nothing like the kind of general principle in what is being recommended on the one side as on the other. Whilst of course you check profits by means of increasing from time to time your excess profits duty overall, you have been giving a fair measure of largesse in relief to the surtax payer which is not in accordance with that principle.

The other particular point in the speech of the noble Earl to which I wished to draw attention was that he said that one of the troubles, at any rate, that we have to deal with is that we have been spending more quickly than we earn. That is true of many fields—certainly of the home market. I am not sure that in one part of their career the Government have not helped in making that operative. Having read the comments in the Sunday Press of yesterday and in The Times and the Guardian this morning, for example, on the publication of the feature by Professor Wilson on Independent Television, I should say that one of the reasons for that statement made by the noble Earl about spending more quickly than we earn is the extraordinary increase in what I call pressure salesmanship by the introduction of the entirely new system, from 1953 onwards, of Independent Television and its extraordinary spate of advertising.

It is perhaps a happy thought in the mind of the noble and learned Viscount the Leader of the House that he foresaw this. He made good speeches against the Bill which gave the authority for this. But I am quite sure that he did not anticipate that there would be quite the result in the home market that has supervened. I do not see why we should not come back to a further study of this question before Parliament is much older. Then the noble Earl said just a word or two on the main points in the Finance Bill.

There it is. You have a serious position with regard to the balance of payments. The Chancellor of the Exchequer wants to cut down spending power. The noble Earl says to us this afternoon that the Bill seeks to do just that in all its provisions except one, and that the one in which it does not seek to do it is that which deals with the relief to the surtax payers—and that is perfectly true.

This afternoon Conservative Peers have been pretty well in accord in trying to show that it is necessary, in order to deal with the economic position, to have much more co-operation between the two great powers of industry, the workers and the employers yet they say there is nothing unsocial or unfair in the Chancellor's introduction of this relief to surtax payers. I was 100 per cent. with my noble friend Lord Pethick-Lawrence in the way in which he put the matter this afternoon. He was seeking to show that when the country may be up against it at any time, especially in an economic difficulty, it is astounding how the people get together in the general cause if they can be shown that they are not themselves going to be treated unfairly. It is a question of fairness. So it has been the intention of many speakers since to show that there is no unfairness in this extraordinary relief which is to be given to surtax payers in this Budget.

My Lords, is that so? We on this side of politics have got out for ourselves a little table of comparison in this matter. The relief to the surtax payers, in the first year in which it is fully operative, will amount to a larger total sum than, for example, the increased charges in National Health Insurance. Really, there was no need to have what I might call the special, emergency Budget of the spring of this year, raising the National Health charges, unless you were going to give the relief to the surtax payers. You are giving more to surtax payers in this Budget than you will get under the additional charges for National Health Insurance. When we look at the actual comparison of the effect on different classes of income in the community over the last five years of Conservative Budgets, including the present one, we have a few figures which are extraordinarily interesting. All these figures can be obtained, I think, by putting them together from the Financial Statements which were issued in those years.

In the first year, for a man with an income up to £600 a year, you have tax at the rate of about ld. in the pound for a married couple with two children under the age of eleven. By 1961–62, there has been a reduction in the total tax of 13s. 4d., but with the increase in insurance contributions, operative from the emergency Budgeting position of last spring, instead of being that much better off, 13s. 4d. a year, the income of that group will now be minus £12 18s. 3d. a year. Now let us take the other extreme.

LORD HAWKE

Would the noble Viscount repeat the years he is comparing?

VISCOUNT ALEXANDER OF HILLS-BOROUGH

I am comparing 1961–62 with 1956–57.

LORD HAWKE

The 1956–57 income ought to be adjusted upwards, naturally, for the fall in the value of money, so the noble Viscount ought to compare it with a man with an income of, roughly, £750.

VISCOUNT ALEXANDER OF HILLS-BOROUGH

I do not think so. I am taking the figures on the actual incomes as they are subject to payment of tax to the tax collector.

LORD HAWKE

We are dealing with two different pounds of income. The noble Viscount is comparing 1957 pounds with 1961 pounds. They do not compare.

VISCOUNT ALEXANDER OF HILLS BOROUGH

These figures are taken from the Financial Statements issued by the Government, and I do not think I can be accused of unfairness in quoting the Government's figures. Now I take it at the other end, the larger surtax payers. If you take a family of a man with two children who had an income of £2,000 a year, his net rate, after all his allowances in the 1956–57 Budget, was 4s. lid. Under this Budget, in the year in which the surtax relief becomes fully operative, if the income tax rates do not change, and after allowing for the reduction of income tax in between, the married man with two children earning £2,000 a year will be £23 15s. Od. a year better off. At £3,000 he will be £257 10s. Od. better off; at £5,000 he will be £861 17s. 8d. better off; at £10,000 he will be £2,101 10s. Od. better off; and a £20,000-a-year man will be £3,049 15s. Od. better off.

Compare that with a net loss in benefit to the man earning £600 a year who has two children and a wife. He will make a net loss on the whole of those five Budgets combined, compared with what the Government are now proposing to do for surtax payers. Is that the basis for getting that recognition of fairness between the main classes for which the noble Viscount, Lord Amory, and others, are now pressing in their appeal to the workers for co-operation? Of course it is not. That is why I think my noble friend was right to point out that if you want to get together like that you must have circumstances and facts which will make the working people themselves recognise that there is no unfairness. And it seems to me that at present such circumstances do not exist.

If you read the leading article in The Times of last Thursday, you will see that there is a pretty genuine concern in other places than, say, the leadership of the Labour Party about this matter. The article says that the surtax reductions have aggravated the Government's problem. The dilemma is not stated merely to deplore it. It is the heart of the whole matter. In spite of the virtual abolition of poverty, in spite of the rise there has been in the rewards of labour, in spite of the fact that one of the disadvantages the Labour Party has to contend with is that the great bulk of the nation now regards itself as middle class, Britain is still a jealous and divided nation. I have not seen anything very much in the Government's action in the last nine and a half years that would be likely to remove that. The Times goes on to say: For this it is not enough to blame the contumacy of the workers. Short-sighted and unduly suspicious they may be.… An effective answer to those who say all that is wrong is that wages are too high would be to publish the menu of one of those luxury hotels that cater for expense accounts. I think the noble Lord, Lord Hawke, was quite correct when he referred to business expenses in the circumstances that he did this afternoon.

The leader in The Times goes on: Britain's failure to improve exports is more due to the apathy of managements than to the shortcomings of workers. The ordinary Labour speaker who goes to address a meeting and who says things like that is, as a rule, either entirely ignored in the news section of the Press, or criticised for having over-stated the case. But when the country comes up against an economic crisis, such as we now see we are going to be faced with, then an appeal is made from the other side. It was interesting to me when I heard from the lips of the noble Viscount, Lord Amory (I took his words down this afternoon, and I think I have them correctly) that "You never had it so good" was a dangerous basis.

VISCOUNT AMORY

My Lords, would the noble Viscount just complete my words? I said that, though factually correct, it was a dangerous basis for future acts and conduct.

VISCOUNT ALEXANDER OF HILLS BOROUGH

"Though factually correct." Well, I beg to challenge that, if I may. I notice, on going back over my papers, that at the time of the General Election, on September 23, 1959, the Leader of the Conservative Party, the present Prime Minister, said: To-day the British economy is sounder than at any time since the First World War. Sterling has been re-established as a strong and respected currency. Our balance of payments is strong. I do not remember any time in my life when the economy has been so sound. Does the noble Viscount agree that that was the true position?

VISCOUNT AMORY

Yes.

VISCOUNT ALEXANDER OF HILLS BOROUGH

He does. Well, the present Chancellor of the Exchequer does not seem to agree about that. Nor did it match up with the statement made by a former Chancellor of the Exchequer, Mr. Thorneycroft. There is a grave dichotomy between the two. I wish I had time—I will have at some time—to go back and point out the differences between those statements.

Let us look at what Mr. Selwyn Lloyd says about it. This is what he said on April 17 of this year in the House of Commons [OFFICIAL REPORT, Vol. 638 (No. 90), col. 797]: … it cannot be disputed that prosperity did not rest on a sufficiently sure foundation. He also said: … 1960 was … a year of rapidly rising real personal income … But the other side of the medal was the dangerously high pressure of demand on productive resources, the signs of a return of increasing costs and prices, the failure of our exports to increase sufficiently, and the consequent serious weakness in our balance of payments. On any basis of calculation, the balance of payments during 1960 was very unsatisfactory.

That statement was made a little more than three months after the statement the Prime Minister made in his propaganda appeal in 1959 for the voters' confidence, Moreover, when you consider the differences that we have had in the last 9½ years in this balance-of-payments position, there has surely been an enormous amount of ground for the critics, some of them in the City and more outside the City, to complain about the Government's failure to deal with the balance of payments on a long-term and steady basis. They have complained, as Mr. Selwyn Lloyd was saying only last week, that the Government have been constantly accused of "Stop and Go". The electors may well have to say to the Conservative Party at the next Election that they have done some of their "Stops" and some of their "Goes" to fit in with Elections.

The careful examinations of the Budgets of 1955 and 1959 were surely calculated to encourage the mass voter to feel that the Government were doing wonderful things for them; yet within a few months, each time, the exact reverse has been stated. They have said "You go and do this. You get their vote". Then you get the extraordinary effect on the balance of payments of the lack of proper economic planning, and there has to be a special appeal to the people to get together. The Government say: "Don't ask for any more increases of wages. Of course, we will do a little by putting an extra tax or two on profits. We may beg them not to pay out so many dividends, but we are forced, out of social justice to give this relief on surtax to people with large incomes." Nevertheless, they will go on increasing the cost, if necessary, as I gathered from the noble Viscount, Lord Amory, this afternoon, of every piece of extra service put into the Health Service and the Welfare State. They say it is reasonable to ask the people themselves to pay for that. Therefore, it goes on adding up.

In the long run, except by application to the National Assistance Board, the size of income of the people is getting more 'serious under the Welfare State. It is a very perilous way in which to try to induce a sense of fairness into the minds of the people in the country. I thought it was just as well to put that before your Lordships this afternoon.

With regard to the body that it is proposed to set up, the noble Viscount, Lord Amory, said that he was rather encouraged to go on in that direction because of his experience with the agricultural side of industry and what is called the Review of Prices. He said that the great thing was to get to understand and to know the facts, to have working parties, and so on and so forth. Believe me, I can assure the noble Viscount that if he went to the thoughtful people in the trade union movement, not only at headquarters but at branches, he would find they have a pretty good idea of What are the facts. I am all in favour of such consultation between trade unions and employers as will produce (shall I say?) an expanded explanation of the facts of the situation concerning either the particular industry or the national economy. But believe me, the working class of this country are not quite so ignorant of these matters as is suggested, I think, in the noble Viscount's statement.

However, I will say that I myself arm concerned about the poor attendance at the branch meetings of trade unions, and that very large parts of the population, not only the working class, are perhaps very much of the spirit of a text that the noble Viscount the Leader of the House will know very well. It is a very rarely quoted one and is contained in a very small book of the Prophets, Zephaniah, where punishment is proposed for those who settle on their lees and say that the Lord will do no evil, neither will he do any good. In other words (I think it was the noble Viscount, Lord Amory, who recalled this expression to my mind this afternoon), they say, "I couldn't care less". I think that charge could be made of some of the people found in all sections of our population—they "couldn't care less".

Nevertheless, there is enough knowledge and experience in the trade union movement for them to see that they have to go on safeguarding the rights of their members, and that they have to examine very closely the economic measures proposed. When you come to speak about restricting spending power, I wonder What are the facts in the real restraint of the spending power of the worker? The workers are the largest consumers of ordinary goods in the home market. Let us go back over the last 9½ years and see how far the cost of living has gone down because of a restriction of spending power. Every time the Government put a tax upon goods—and how right the noble Lord, Lord Brocket was on this this afternoon!—we have an increase in prices. Unless you control prices at the same time as you put on taxes—and you have always been unwilling to do that in the Conservative Party—up go the applications for increases in wages; and as the cost of living goes up it is reflected in the increased cost of wages in every section of production.

If we want to get an idea of the effect of this policy of the Government, which they have applied from the moment they became the Government in 1951, on the basis of "Set the people free!," "Stop rationing", "Give up controls: let the people have what they like!", we have to look at the grave results which this has had upon the national economy. Let us take the matter that is now being freely bandied about—the cost of our defence, and the suggestion that we ought greatly to reduce the money which is being spent on our defence commitments overseas. I wonder how many of us have looked at the comparison of the cost of our defence in the last few years. In the last year for which I was responsible as Minister of Defence, the total of the military budget was £759 million, and the number of personnel 850,000. If we take another crucial year, 1951–52, the year of Korea and of greatly increased demand for the Services, which was started by the Labour Government and carried on by the first post-war Conservative Government, the military budget was £1,131½ million, and the personnel 866,000. In the year 1961–62, the budget was £1,655 million and the personnel 444,000.

This increased cost, reflected in every Department providing for defence, was the result, not completely but largely, of the Government's failure to deal with the economic problem of the State. Economic writers in the newspapers who are critical of Government policy come back again and again to the point that somehow Government expenditure must be reduced. The question is whether Government expenditure is being reduced on the right things, and whether things are being expanded which ought not to be expanded. In his Liberal days, Sir Winston Churchill used a saying which I repeated many times 50 years ago, and which is not altogether out of relation to the 1961 political programme of Conservatism. You will not bother with the Weights and Measures Bill. You do away with the Road Traffic Bill until some other time. But you must have a Budget for reducing surtax for the rich and must force through a Licensing Bill that no true lover of temperance wants. Sir Winston's comment on that side of Toryism was: The Tory Party is the Party of vested interests, with the open hand at the Treasury and the oven door in the public house. Nobody can use language quite so appropriate on matters of this kind as this great master of invective.

To-day we are facing a coming economic crisis—and what is promised? Apparently a soft-hearted appeal to the workers of this country to come together to try to get you out of economic difficulties into which you have so largely been responsible for leading them. On the other hand, there is no need to be downhearted about the position that could be attained, if you had a policy of real economic planning. It is stimulating to find that now in certain capitalistic circles they are no longer against national economic planning. They are for some planning. They find that they are gradually being converted. Like the noble Lord, Lord Barnby, they see that they cannot rely merely on an increased bank rate, which is as capable of producing inflation as not; they want planning. The noble Lord, Lord Hawke, just now said something about how other countries would deal with the situation with which we are faced—I cannot remember his exact words and will look it up in the morning. But he said that we cannot do that—we are British.

LORD HAWKE

My Lords, may I refresh the noble Viscount's memory now? I said that other countries were able to impose quotas, licences and tariffs when they got into difficulties, but that apparently there is a different rule for the British.

VISCOUNT ALEXANDER OF HILLS BOROUGH

My Lords, I am not at all loth to practice anything which is reasonable in an economic plan which will bring about what we want—an expansion of British production which will not simply go to expand the home market but will go into export and so maintain that vital thing, our balance of payments. Other countries are doing that successfully, and at last, apparently, even some experts in industry and finance are beginning to see the daylight in this respect.

No doubt, with my colleagues, I shall have an opportunity of bringing our views again before the House, when the expected statement of the Chancellor of the Exchequer is made. The papers say to-day that it is possible that this most important statement will be made tomorrow in another place by the Chancellor of the Exchequer. I hope that he will announce as quickly as possible what he intends to do because, as noble Lords have already said, uncertainty is one of the worst factors of the present situation.

The last thing I want to draw attention to is the position of the local autho- rities, who are so often attacked about their public works. Perhaps they are the most hard hit of all by the Government's general financial plans to deal with crises. Their expanding programmes of school building, health work and, in particular, housing have to be financed by money borrowed at 6¼, 6½ or 6¾ per cent., and this creates such a charge for them to pass on to people who are engaged in educating their children, or those who have to pay higher rates for council houses, or those who are building their own houses or buying their houses by mortgage from building societies and have to pay higher site costs plus rates, that you cannot expect to get a united effort from these people, until you have some better change to offer them than that which is facing them at the present time. I beg the Government to come down to brass tacks and to consider, as the first brass tack that has to be taken out, departing from the policy on which they have so far relied in dealing with economic difficulties, and to come to economic planning and to a fairness of taxation as between the various classes of the community.

6.40 p.m.

VISCOUNT HAILSHAM

My Lords, we are, I am afraid, all "waiting for Godot", in the sense of waiting for a statement from my right honourable friend, and I think the debate we have had this afternoon has to some extent been inhibited by that understanding, which is as common to Members of these Benches as it is to Members opposite. Nevertheless, if I may say so, I think the debate has been a useful one and has revealed a much closer agreement on all sides than perhaps might be assumed from the vigorous tone of the noble Viscount who has just resumed his seat. I think we are all agreed about the inadequacy of the attitude of mind exhibited by such phrases as: "I'm all right Jack", or "You never had it so good", or "I couldn't care less", or "A free-for-all"; but then, I think we always have been agreed about these things.

I would only suggest, quite humbly, that we should stop trying to attach these phrases to one another and unite in saying that they are inadequate phrases: because it will be within the recollection of noble Lords that I have again and again pointed out in this House that the original context of the only one which could by any stretch of the imagination be attributed to a member of the Government is that it was said by way of rebuke to a particular audience which had complained of its lot when it had no right to do so. I would suggest, therefore, that we can unite upon a view of the national necessity which points out the weakness and the limitations of such a phrase: indeed, I would say, quite gently and I hope without offence, to the noble Lord, Lord Pethick-Lawrence, whose contributions year by year in this debate are so valuable and so much appreciated by all sides of the House, that "I'm all right, Jack" was not a film about the Primrose League or even about the Conservative Government, but was a film about the trade union movement. Although I should probably be the first to agree that I'm all right Jack" is about the opposite of the real and the best traditions of the trade unions, there are people who have discerned in certain elements of the trade union movement in recent years a tendency towards just that attitude of mind.

That brings me to the second point upon which I think we can claim to be agreed, and also the point at which there has been some divergence of opinion—because I should like to discuss that, too. I think we are all agreed that if we are going to approach our national economic problems we must do so in the belief that the kind of policy which we are seeking to carry out is one which can be described as fair. The noble Lord, Lord Pethick-Lawrence, used the phrase "fair do's", and I do not complain of that. He went on to say that it should not only be fair, but should be seen to be fair. Again, I do not think I quarrel with that. But here I would make a serious qualification. In my view, at least, the necessity of economic policy is to be fair; and the noble Lord, Lord Pethick-Lawrence, will remember that to be fair is not the same thing as to seem to be fair; and to seem to be fair is not the same thing as to be seen to be fair. I agree that the policy must start by being fair, and I then say that it must be seen to be fair, because everyone must unite to show that it is fair.

But I fear that underlying some of the strictures from the other side of the House this evening there has been a confusion of thought attached to being seen to be fair. I think we are always rather apt, on all sides in this country at the present time, to be afraid of being really fair, for fear lest somebody call us unfair if we are. Here is the point at which I join issue with the criticism which has been levelled against us by noble Lords on the Benches opposite, and especially, I would say, by the noble Lord, Lord Walston, because I think, at least, that this attack upon the surtax reliefs is not a case of attacking a real injustice, but a case of a demagogic attempt to represent as an injustice what is in fact a belated act of social justice. The noble Viscount, Lord Alexander of Hillsborough, quoted certain figures which he had got, as he quite frankly said, from his Party sources, as he is well entitled to do. The comparison he made was between a man earning, I think, £12 a week, or £600 a year, in 1956—then and now. But his comparison is fallacious, because he omitted to state that even in the last eighteen months wages had risen 8½ per cent., and therefore the truth is that the man who was earning £600 a year in 1956 would now be earning £15 a week—that much more. This is the fallacy of the noble Viscount's whole attitude of mind, which I wish now to analyse at a little greater length.

VISCOUNT ALEXANDER OF HILLS BOROUGH

My Lords, I must point out that I was not dealing with how the wages of individuals in the community have increased in any of the examples I quoted. I was talking about what is the rate of net taxation upon that sum of income gained by anybody. I am entitled to quote it from that point of view and examine its fair social justice from the point of the income quoted.

VISCOUNT HAILSHAM

And I am entitled to point out the fallacy of that attitude, and that is what I propose to do. I think we must examine this a little more fully. My noble friend Lord Dundee, when he opened the debate earlier in the afternoon, pointed out that, broadly speaking, the internal wealth of this country—the standard of living, if you choose to call it that—has risen more in the last ten years than in the hundred years before that; and that has largely been made up (and I am glad to know that it has been made up; I do not want any mistake about that) by increases in wages which have gone on consecutively since the war. I am delighted that that has been so, because that seems to me to be something which has been a real gain in our time. When I was a boy, and when I was a young man, we were constantly having to deal with problems of malnutrition, unemployment and poverty. This has all been swept away, and in the last ten years, at any rate there has never been such an increase in the standard of life of the whole community. But I must say this bluntly to noble Lords opposite: the bulk of that has gone to the wage-earning classes.

These surtax reliefs are not going to the great industrialists. I know that the noble Lord, Lord Walston, represents a type of enlightened employer in the industrial and agricultural life of this country. But the independent professional classes, others who earn salaries, and smaller businessmen, have not gained in proportion either to the capital wealth of the great concerns or to the wage-earning classes. And it is they who will in fact be benefiting to a large extent by these reliefs which we are now discussing. They do not necessarily have much capital. The noble Baroness, Lady Summerskill, was putting to me in this House, only about five days ago, "If you want your research workers in a particular field, you have got to pay them properly". What we are talking about when we are talking about these surtax reliefs is precisely the first-class scientific research workers, precisely the professors, precisely that level in industry. It is they who have not enjoyed the increase of benefit in the last ten years about which I have been talking. Perhaps the noble Lord will forgive me. I will give way, but I want to conclude this point or, at any rate, to develop it a little further.

The fact of the matter is that the level of surtax placed at £2,000 and remaining at £2,000 since, I think, 1920, is an anomaly and an anachronism in our time. It is pure demagoguery to pretend the contrary. The other day I made an inquiry as to What the average male wage-earnings would be in 1984 if we continued the present trend. The average would then be £2,000 a year. It is really absurd to pretend that this level of £2,000 is otherwise than an anachronism at the present time, or to denigrate as amongst the more wealthy members of the community—as amongst the kind of rich who are supposed to be trampling down the faces of the poor—these people who are going to get this income relief. The big industrialists may not need it. By and large their salaries have risen high enough at the top of industry, and their capital investments have appreciated enough for them not to worry about surtax. But the people you are attacking when you attack the surtax relief are the ordinary professional class people who have not enjoyed an increase of Standard of life at all comparable to those which I have been describing. It is in fact the middle class who are being attacked by this kind of demagoguery, and not the very wealthy.

LORD PEDDIE

My Lords, I hope the noble Viscount will pardon my interruption, but I want to make a suggestion. I am at a loss to understand the argument the noble Viscount has advanced concerning the connection between the change in the standard of living over the past decade as compared with a hundred years ago. Is he telling the House that the standard of living over the past ten years, from 1951 to 1961, is greater than the increase in the standard of living of the workers from 1851 to 1961?

VISCOUNT HAILSHAM

My Lords, I was referring to something in the earlier part of this debate, which I do not think the noble Lord heard. I was not claiming a statistical analysis of my own. I was only referring to what had taken place. The actual statistical analysis matters nothing compared with the fact (with which the noble Lord, Lord Walston, and my noble friend Lord Dundee are agreed) that in the last ten years the internal wealth of the country has increased, at any rate, on the scale and of the order of that which I have described. I say, therefore, that we must avoid, in our determination to be fair, the fear of being called unfair. On the contrary, we must seek to be fair.

Now I turn from that to the economic situation and to the Budget proposals. I think the first decision which had to be made by my right honourable friend when he introduced his Budget was whether he was going to introduce a counter-inflationary Budget or some other kind of Budget. His primary decision was to raise a surplus above the line of £506 million a year, which he did by increasing taxation by a net total in the full year of £80 million. No one, at any rate, has questioned that decision. The more striking proposal which he included was the proposal, which has been much discussed in this debate, of adopting two new so-called economic regulators to deal with the threat of inflation. I should be the first to agree that any form of proposal by which an attempt is made to deal with inflation by putting on taxes is very much a pis aller. It will have the difficulties which have been urged on both sides of this House. In other words, it will, by the imposition of taxation, either cause hardship or add to cost. That is the common feature of all taxation demands. It is also the feature of all the economic regulators at the hand of any Government by which to attack inflation.

We know that hire purchase restrictions, for example, bear hardly on particular sections of industry, and they are unjust in that respect. We know that the higher bank rate has the disadvantage which the noble Lord, Lord Pethick-Lawrence, described; it raises the interest rates, and this may hit both the ratepayers and others who legitimately need finance. It may affect the level of rents and that can cause hardship. And so on. The choice of whatever regulator you choose will cause economic hardship, and none of them can be justified except in terms of an over-riding necessity to defend the economy against inflation. It is a second-best. It is a pis aller to take money out of internal demand, by Government action, to achieve that purpose.

It has the effect, of course, to which noble Lords have referred when they speak of this "Stop and Start" and of the sudden jerks in the economy brought about by Government action to control inflation. Of course there is a better policy. But a better policy demands acceptance by the great mass of the people—and that means the wage earner, because wage earners constitute the great mass of the people—of voluntary restraint in the extent to which they seek higher returns for their labour. If that is not the case, then if a Government does its duty it will be compelled, in one way or another, to introduce new regulators, or to take other steps by means of law, to stop and start as the economy requires it. I will return to that at a later stage of my argument.

I think one can say that the novel experiment which my right honourable friend has taken in his Budget, which consists in seeking the right from Parliament to introduce new rebates or new taxes during the course of the financial year, has not been criticised as a constitutional device. Indeed, one noble Lord—I think it was my noble friend Lord Hawke—congratulated the Chancellor on an imaginative and original Budget. I fancy that he had this particular feature in mind. It is a feature of the Budget which I think ought to come in for praise. My right honourable friend has taken this now course to add, as I think my noble friend Lord Amory said, a new club to his bag—a new means of dealing with inflation, not instead of but in addition to the other instruments which previous Chancellors have enjoyed.

I come from that to what I think is a melancholy feature of this debate. This is the point upon which my noble friend Lord Amory dwelt in what. I must acknowledge, was a most helpful and, I should have said, a most brilliant speech. It is of course true that in this Budget we have been driven again to the use of counter-inflationary devices which we should gladly have avoided if the pressure of inflation had not compelled us to adopt them. My Lords, it means, I think, just this. Since the war there have been a series of what I will call financial crises or economic crises—the word has been criticised on both sides of the House, but it is not a bad word, because we understand what it means. It is true that there have been a series since the present Government took office in 1951–1951, 1955 and 1957 we can remember.

The prime feature of all these crises is that they entail painful and unpopular Government action. They received painful and unpopular Government action. But we weathered them. The only difference from the two previous crises under the Labour Government is that the first drove them into a devaluation which they did not weather, and the second into a General Election, when they left us to clear up the mess. But what has been common to both Parties since the war has been the liability of the British economy to recurrent emergencies of this kind. I have no doubt whatever that we shall weather the present emergency; all experience leaves us to believe that we shall. But I think my noble friend was perfectly right, that what should give us pause at this moment in our history, what ought to cause us momentary reflection and, I think, a new departure in policy, is the recurrence of the disease for so many times under so many different Governments, and met by so many different methods. It is this which ought to give rise to a more national and possibly less partisan approach than has been possible in recent years.

It was for that reason that I welcomed the speech by my noble friend Lord Balfour of Inchrye, because, unless I am mistaken, he was very much of that opinion too. I must say that I have come to the conclusion, as I think he has done, that the time has arrived when the British people, quite apart from Party politics, should make a new, resolute and prolonged effort to get out of this recurring sequence of balance of payments crises and into a situation when, if regulators are necessary from time to time, they do not involve sudden changes in the pattern of economic life. I would agree with him too, and I would agree with the noble Viscount, Lord Amory, that if this is to be done we must face, without political preconceptions, certain facts of life which I think all Parties have been reluctant or unable to grapple with hitherto, and we must face them in the knowledge that the Government will fail unless the people recognise that the effort cannot be made by the Government alone—or by any section of the people alone—and that national efficiency demands a whole series of efforts. And I would say, sadly, but still with some conviction, that in my judgment those efforts would not be complete at the end of one year as my noble friend suggested. I think it will require an absolutely concerted, determined direction of policy stretching over several years at least.

And I would say that my noble friend Viscount Amory was right in drawing attention to one underlying fact. In our country the working population is growing in numbers by only one half of 1 per cent. a year. Any increase in national wealth, if it is to be enjoyed without inflation, must therefore depend mainly upon the growth of output per worker. Output, if I may say so, is a word I would use to describe various kinds of efficiency and production.

In the past ten years the average growth of output per worker has been approximately 2 per cent. per year. Now, my Lords, no increase in personal income of any sort, no increase in wages and salaries, which in total exceeds this figure, can be other than inflationary. It does not matter what political or social philosophy we adopt. No increase above the average increase in output per worker can be other than inflationary. Until this record is improved, every attempted wage or salary increase, by any organised body whatever, which exceeds it, is, in substance—however reasonable it may seem to those who make it—an attempt to get something at the expense of everybody else. There may be cases, of course, when such an attempt is justified. We all know that relativities cannot be permanent everywhere. But it cannot be justified in every case. In the great majority of cases my conviction is that it has not been justified at all.

The fact is that during most of the 1950s, whilst the average annual growth of output per worker has been of the order of 2 per cent., the average annual increase in wages and salaries was 6½ per cent. against the figure of 2 per cent. In 1959, it was 5½ per cent., but it has grown much more rapidly since.

LORD SILKIN

My Lords, may I just ask the noble and learned Viscount, while he is speaking of wages and salaries, whether he would not say a word about profits? Have they not been rising even more rapidly than the figures quoted?

VISCOUNT HAILSHAM

The answers to the two questions put by the noble Lord are, respectively, "Yes" and "No", and he will hear in about two minutes' time, I hope, exactly why the answer is "Yes" to the first part of the question, and "No" to the second. But it is a fundamental fact that one has to look to the future to get to the bottom of this matter. No remedy which does not acknowledge that fact is fundamental. Every successive Government has tried to tackle it, and no Government has succeeded. It is no good noble Lords opposite, and, may I add, no good for highly respected leaders of the trade union movement, trying to strike defiant attitudes at successive Chancellors who draw attention to a fact as fundamental and obvious as this. If the country does not in this matter accept some voluntary restraint it must get restraint which is not voluntary. If the Government does its duty it will come from the Government. If it does not, the restraint will come from outside this country, by way of a flight from the pound, which is only another way of describing a lack of belief, by people outside this country, that we can be trusted any more as a nation.

It is a perfectly fair point made by the noble Viscount, Lord Alexander of Hillsborough, when he spoke, and by the noble Lord, Lord Silkin, a moment ago, to say that when we talk about wages and salaries it is also equally imperative to talk about profits and dividends. I think that of course one must compare the difference in nature between the two kinds of personal income, but it also happens that there is a perfectly fair answer. I think the House should know, although it is not in my judgment a conclusive point at all, that while wages and salaries have risen steadily profits have, in fact, shown no such steady rise. Between the first quarter of 1960 and the first quarter of 1961 profits actually fell by as much as 61 per cent. whereas wages and salaries during the same period rose by 8½ per cent. And if one takes a longer period, which I think one should, profits have certainly not risen in the same proportion as wages and salaries. Between 1954 and 1961, for example, the total rise in wages and salaries was 53 per cent., whilst the total rise in profits was 42 per cent. Moreover, it must be remembered that in absolute magnitude—and, therefore, in the size of the contribution which they make to the inflationary pressure—company profits amount to little more than one-quarter of the amount of wages and salaries.

I accept, however, the fundamental point made by the noble Lord, Lord Pethick-Lawrence, that it is necessary to ensure that a fundamental balance of justice remains and that one cannot deal with the one problem without discussing the other. I would simply say to the noble Lord that while profits are, in fact, at least controllable in principle by an appropriate instrument, that is, by taxation—and it is not altogether irrelevant to point out that the taxation of profits of companies has been put up this year in order to countervail the relief in surtax, and last year by my right honourable and learned friend's predecessor—no appropriate instrument for the direct control of wage and salary increases has as yet been devised. We are, therefore, put into the position that one has been rising uncontrollably and the other has risen less, and on occasion recently has, in fact, fallen, and is controlled and controllable.

It is for that reason that I was particularly attracted by the suggestion of my noble friend Lord Amory, which he agreed, if he received support from the other side, to call the Citrine plan. I, of course, can say nothing about that this afternoon, but I promise to put that suggestion to my right honourable and learned friend and see whether it is favourably received. I would close, because I fear that at this late hour I have strained your Lordships' patience somewhat long. I feel that the time has come to get to grips with what my noble friend Lord Amory has described as the fundamental problem of the recurrent series of crises from which the nation has suffered since the war.

LORD STONHAM

My Lords, the noble Viscount has just said that profits were controllable by means of taxation and that wages and salaries were not, and that if the Government did not control them they would be controlled from outside by means of a flight from the pound. In those circumstances, what do the Government propose to do?

VISCOUNT HAILSHAM

My Lords, said clearly, throughout my speech, that I do not propose this evening to anticipate my right honourable and learned friend's statement, and I should not be expected to do so. If, however, the noble Lord reads what I have said during the course of my speech, he will see that I have said a good deal of what needs to be done. I was about to end by giving what can only be a personal opinion about certain other matters.

My Lords, we have deliberately made full employment the policy of this country since 1945. In times of boom this has created a difficult labour shortage over some parts of the country, although I agree with the noble Lord, Lord Polwarth, when he pointed out that other parts of the country did not enjoy that situation to the full. It would, I suppose, be possible, for a Government that was sufficiently ruthless, to slow down economic activity to the point at which jobs and vacancies were in balance. But it is surely a curious, even a Gilbertian, situation which would require one to create spare capacity in order to avoid inflation. It would be impossible to act in such a way without creating unemployment in areas where, at the moment, economic activity has not yet reached its fullest extent.

Rather we should set ourselves the deliberate task of adding, to the concepts of full employment and social security which on the whole have been common to the parties since the war, a third concept—that of national efficiency. Statistically, this might be measured in terms of gross domestic product per worker—t hat is, the total output of goods and services per worker. We should then seek to identify in each realm of economic activity the steps necessary to achieve or to improve it, and let nothing, neither vested interest, restrictive practice nor, as my noble friend Lord Balfour of Inchrye said, political doctrine, stand in our way. Let us in that spirit look at the entire economic theme: investment, mobility and training of labour; the level of wages and salaries; the level of profits and dividends; aids to industry; restrictive practices; tariffs; taxation; public expenditure and administration. Let us acid the third concept of national efficiency to our other public aims, and I think what we shall get to an end of our recurrent crises over a period of years.

There is, however, another factor without which we cannot succeed, and that is the factor upon which many noble Lords, from all parts of the House, have rightly laid stress. That is the need to call upon the feeling of patriotism which is never far beneath the surface of the people of this country. I do not think that they will fail to respond when they are shown the need. I do not suppose for an instant that a Government composed, as it in- evitably is, of members of one Party can succeed by themselves in making an appeal of this kind. I recognise, of course, the substantial justice of the demand with which we have been faced from the Benches opposite, that whatever proposals we make should be shown to be fair. I sincerely ask noble Lords, in all quarters of the House, to take this as what it is, not a challenge to remedy the defects of policy of a single Party, but at attempt to overcome a recurrent difficulty with which our country is faced.

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

Then, Standing Order No. 35 having been suspended (pursuant to the Resolution of July 13), Bill read 3^a, and passed.