THE ECONOMIC SITUATION

HL Deb 27 July 1961 vol 233 cc1091-149

3.16 p.m.

THE LORD PRESIDENT OF THE COUNCIL AND MINISTER FOR SCIENCE (VISCOUNT HAILSHAM) moved to resolve, That this House endorses the policy of Her Majesty's Government as outlined by the Chancellor of the Exchequer on 25th July for the purposes of upholding the strength of sterling. improving the balance of payments, and maintaining a sound basis for the continuing prosperity of the nation. The noble and learned Viscount said: My Lords, I rise to move the Motion standing in my name on the Order Paper. I do so with a great sense of responsibility and a considerable feeling of personal inadequacy to cover a matter of so great a moment. But I have never moved a Motion as to which I felt a greater confidence that the thing I am trying to do is something which it is our duty to perform.

It is only a few days since we held our debate upon the Finance Bill, and the arguments then used on both sides of the Chamber will be familiar in our memories. The statement made by my right honourable friend the Chancellor of the Exchequer is fresh in our minds and your Lordships will not expect me to rehearse it. Moreover, I feel certain that your Lordships would not wish the debate we are holding in our House to be simply a replica of the proceedings in another place. It may be that we have a distinctive and, in some ways, as important a task to perform, because it is, I think, all too easy in matters of this complexity to lose one's way in the thicket of facts and figures, to travel for hours in the rather dismal fog of Party and political recrimination, or to tread the well-known treadmill of economic argument.

But I am convinced that the thing which needs most to be said to-day is not something dark and mysterious, bidden in the recesses of a professorial mind, but something simpler—something that everybody knows to be true and everybody knows needs to be said. To me, at least, the issue is not economic; to me the issue is moral and political. It is not primarily a question of the pocket; it is primarily a question of the heart and head.

I begin with the moral imperative imposed upon us by the international situation. It was only last week that we held our debate on foreign affairs. We heard my noble friend describe the situation in which we were living as one of international anarchy—terrible words to be used by a responsible Minister of the Crown; and all the more terrible because they were generally acknowledged to be true. I have the conviction that we live and move in the context of tremendous events, in a critical phase in our history which will make demands upon the wisdom, the courage and the compassion of us all.

Do we wish that this country should have something to say in the events of the coming weeks and months? Can we leave foreign affairs simply to the foreigner? It is my conviction—I know it is the conviction of the House—that in this coming period of uncertainty and difficulty the voice of Britain should be distinctly and clearly heard—calm, wise, grave, moderate and moderating. Do we wish, or do we not, that this should be the case? For if we wish the end, we must also wish the means whereby the end can be obtained. I think that more than a little of the authority with which this country's voice will be heard will depend upon the mood, the resolution, with which the House, with which Parliament, with which the country, face the present proposals of Her Majesty's Government. If it were some great thing that the people were asked to do for their country, I think the volunteers would flock forward in their thousands. Men have died, they have fought, they have travelled the deserts, the seas and the air, to play the part of heroes. What is now asked is only a little thing, small in comparison.

We all know what hat; happened. We all know what requires to be done. We know—and the facts are beyond gainsaying—that over a period of years our national economy has grown annually by 2 per cent.; and the amount we have taken out of it in money incomes by 6 per cent. And the figures for the last few months show a rate of annual growth of 3 per cent. and 8 per cent. respectively. We all know that the demands of money incomes have been in excess of what the economy will bear, and have been at the expense, therefore, of one n o ther. We know that this cannot go on. Is this too great a thing for Britain to put right quickly? Is it too much to ask of a people that endured the years of war?

My Lords, in one set of circumstances it is not only too great a thing; it is impossible. If each ma n looks at his neighbours' burden and says, "This man's burden is lighter than my own. I will do nothing until it s shown to my satisfaction that his burden is made as heavy as mine", it is impossible. We shall wait, and we shall be devoured. A man never tries to be fairer than when he is dealing with his own family. But when one's child raises the cry, "It is not fair", one knows instinctively that, however unworthily, one must remind him of an old and more excellent doctrine than the exact equality of burdens. There has been a time in our history when to be in danger is to be in a position of honour; when the logic of events, strange whims of chance, or even the mistakes of one's superiors or comrades, have placed one in a position of added burden that has been considered a privilege to be eagerly embraced. And until, in the ordinary conduct of our economic affairs, we can recognise that this alone is the way upon which a modern society can endure, we shall find that it is too much to ask that people will bear what they need to bear in order to put an end to the situation in which we are now placed.

But, my Lords, it is not a great thing which is being asked of us. To talk of austerity is a misuse of language. In a country which enjoys a national income of £22,000 million a year, better distributed than it has ever been in the course of our history, to ask for a certain degree of personal restraint is not a high request to place before a great people. To talk of tightening our belts when we all know that the trouble is that we have let them out a couple of notches a year, and that that is the cause of our misfortune, is to be guilty of complete deception. The trouble is that we could put this thing right in six weeks if we wanted to, and if we were determined.

What picture do we want to present to the world by September or October of this year? A people angry, distracted, squabbling over matters of the pocket? A people driven to borrow on short-term and not prepared to put its house in order? My Lords, I refuse to believe that this, is the true spirit of the British people. Yet I think it would be absolutely wrong if we were to-day to join in the general orgy of self-depreciation and self-reproach by which this controversy has been marked. We have not devalued our moral standards in any part of this country. If we have a balance-of payments problem, as we have, it is of the order of £350 million a year. If you add the money which we are paying across the exchanges to keep our troops in different parts of the world, including Germany, to the money which we are paying across the exchanges to help those countries which are called underdeveloped, you get a deficit of about £350 million a year. If we cared to renegue upon our responsibilities or our moral obligations, we could enjoy all our "I'm all right Jackery" without the smallest degree of balance-of-payments problem, so long as the world lasted and did not fall about our ears.

I sometimes think that people are a little too ready to take Britain for granted. We have since the war deliberately set upon a course of action which in some ways makes our economic life more difficult. We have introduced and maintained a generous system of social security; we have pursued, even at risk, the persistent policy of full employment. Many of our problems would be easier if we did not care to carry these burdens. Is it too much to ask that we should set national efficiency as the third of our great national objectives?

My Lords, I refuse to believe that Britain is standing in the second place of the world's economy. I spent, as many of your Lordships may have done, some hours of recent weeks looking at the Soviet Exhibition. I do not wish to depreciate or to underestimate the achievements over 40 years of the Soviet Union. I sent the scientists from all the Councils for which I am responsible to look at what they have been doing, but the universal judgment is that we are not behind except in fields very closely connected with defence, which we have deliberately chosen not to enter. Our scientists and technologists are equal to the European, even to the American. But of course science and technology are not a substitute for good management, good labour relations or hard work; an honest facing of the facts of life.

I refuse to believe that Britain is not a good investment. No one has ever got rich by selling Britain short. I look about the world—Europe, America, South America, Asia and Africa—and there is no place where your money is going to be as safe. There is no country which is fundamentally more socially homogeneous, more technically capable, and ultimately more sure to possess an honoured part in the economy of the world.

My Lords, there is one more intimate thing that I hope your Lordships will allow me to say, and I know that the noble Lords opposite, although they will not agree with it, will bear with me. It has been said that the present situation is inconsistent with the prospectus, as it is called, whereby the present Government secured power at the last Election. I have never before spoken of it, but the fact is that I, as much as 'any other man after the Prime Minister, was responsible for fighting the last Election. It is not for me to say to what extent, if at all, I influenced the result, but I Should only like to tell the House this.

The whole campaign as I envisaged it, as I tried to carry it out in the speeches in the country and by any other means in my power, was built around this doctrine. It would have been easier, perhaps, to say to people, perhaps particularly in my own Party, that we promised great reductions in Government expenditure, immense prosperity, easy going and higher wages. What I did say was this. I said that this country needs investment; it needs schools; it needs roads; it needs hospitals; it needs an education service equal to the demands of the present age; and every penny of the capital we can put away to those purposes will be money well spent. But I added that we should need every penny that we can put away to carry out even the modest programme which we then promised; and I added that my one worry 'was lest we should have engaged in that respect to do too much.

My Lords, When I criticised the Party opposite, as we all at Election times criticise our opponents, it was not on the grounds that they did not want the same objectives: it was precisely because the programme which they had put forward, in addition to claiming to provide these things, which all are agreed are necessary, engaged also to purchase with public resources vast assets of existing industries and of houses, and to make vast personal payments by way of welfare services, adding Iv to a total expenditure which I was quite certain this country could not carry. And if anybody wants 'my candid opinion as to why we won, or why we won by the extent we did, I would tell him frankly that it was nothing I said, but that at a certain point the leaders of the Party opposite felt it possible to say that all they engaged to do would be done with a reduction of taxation and without any other cost to the economy.

Now, my Lords, we differ about these things, and I mention this fact not to resurrect old controversies but because I feel that if people say we won on a false prospectus my honour as a servant of the public in involved. Looking back, searching my conscience, there is not a word, I think, of what I said then that I would not say again. And if we are to work together, as I hope we may without offence to one another, noble Lords opposite will recognise that we must work together in the knowledge that both sides are sincere.

My Lords, the present situation demands three things. It demands a plan to contain our present inflationary tendencies—that is, a shore-term plan. It demands a plan to control Government expenditure within the size permitted by the growth in our economy. And it demands a much longer-term plan for the expansion of national efficiency, on the lines I tried to indicate some days ago in the Finance Bill debate. I use the words "national efficiency", rather than "national productivity", for one reason. We have to remember, of course, that the whole of what we can gain by way of a raised standard of living comes from the product of industry. But efficiency in administration, efficiency in the public service, efficiency in other services, is no less part of the campaign we must wage than the direct production of goods for the purposes of export, and those who contribute to it play as important a part in the national life as those who increase the national economy by their direct efforts.

Of those three plans each is a vital part. As I tried to indicate the other day, it will not be enough to contain our present tendency to inflation this time unless we make up our minds not to go back to the recurrent series of crises which have plagued a series of Governments since the war. But, equally, if we do not contain our present tendency to inflation it will be impossible to carry out the longer-term plan.

The third part of the plan, the need to contain Government expenditure itself, is a necessary part of the other two. We cannot carry the conviction we need to carry, when we say that in the private sector money incomes must not expand more rapidly than the national growth will permit, unless we contain public expenditure, too, within that limit. Nor can we contain present tendencies towards inflation unless we begin to put in that plan at once.

Here may I say something about the teachers? It was one of the happiest experiences of my life—though it was only for a very few months to he Minister of Education. I think I can say that my relations with the teaching profession were happy. I came to respect them, and I more than once enjoyed their hospitality and kindness. There was one thing I learned about them: their passionate desire that their vocation in life should be thought of as one of the great professions. Of course one wants to see such men and women adequately rewarded. It so happens that they, in common with very many other professional and industrial organisations, have a pay claim, the cost of which to the country out of public resources would be £100 million a year. And the cost of the tentative award would have amounted to £60 million a year. What would have become of our appeal in respect of money incomes if this had been allowed to go by without comment or without abridgement? How could people say that we were in earnest?

I would only say this, and I would wish to say no more; and I say it, I hope, without any desire to say anything in bad taste. I think I know the spirit of gratitude and generosity of the people of this country. If the teaching profession thought it right at this juncture in our history to say, "It is reasonable that some part of our claim should be moderated, as our contribution, as our part of the burden", they would win, I am absolutely certain, a position for their profession in the life of the country, a moral ascendancy, and a right of gratitude on the part of their fellow countrymen, which would stand them in good stead for maybe a generation to come. The opportunity is there, and I hope and believe that they will take it.

The important part of these proposals, from my point of view, is necessarily the long-term plan. I know, of course, that in a statement of the kind that my right honourable friend made in another place two days ago it is inevitably the short-term measures which get the headlines, the credit restrictions, the 10 per cent. regulator, the bank rate; and it is proper, of course, that these things should be hammered out in argument in another place. But I am afraid that the longer-term implications are by the like token disregarded. I should like to say a word about those, too, because they are there; they are not left out, and they are not less important, just because they occupy a less prominent place on the front pages of the newspapers.

It is not simply that various investment and depreciation allowances remain in the taxation structure; it is not simply that the investment programmes of the nationalised industries have not been attacked; it is not simply that in dealing with public expenditure a solid attempt is being made to preserve public investment to an extent not before attempted in crises of this kind. It is that the whole conception of the thing rests upon an appeal to 'the country, to industry—and to both sides of it—not merely in money incomes (those are crucial, and Ito those I will return) but in the setting of targets, a 3 per cent. annual increase for the gross national product, and a 6 per cent annual increase for exports, rendered absolutely necessary and of first-class importance by the loss of our invisible trade.

Those are the things, I hope upon which this House and the country, after the immediate debate is over, can fully co-operate and will concentrate. I cannot believe that either side of industry will venture to disregard the appeal to co-operate in these times.

VISCOUNT ALEXANDER OF HILLS-BOROUGH

My Lords, may I ask a question? I want to be quite clear, and what the noble Viscount is saying now is very important. Do I understand that the target that he thinks not impossible is this; to aim at 3 per cent. expansion in production as a whole and to expand exports out of that by 6 per cent.?

VISCOUNT HAILSHAM

I think those were the figures given by my right honourable friend, and that is what I intended to convey. The other thing that I wish to emphasise is that these things cannot be done by Government alone; they cannot be done by one side of industry alone. They demand the support of public opinion at every stage, and they will take place only after the careful discussion between the two sides of industry and the Government which my right honourable friend has in mind. May I just say this in passing, lest there should be any mistake about it? It has sometimes been said that our desire to contain public expenditure is an example of what has been called the classic bias of persons of my political complexion against it. May I assure the House that this is not so. It is simply the urgent necessity Ito contain all forms of expenditure within the rate of growth of the national product.

I turn now to the more immediate proposals: the rise in the bank rate, the credit restrictions, and the 10 per cent. regulator. I should like, if I may, to deal with just one general criticism which has been made of them and it has been made, I think, in all quarters and by persons of all political complexions. They have asked: are they not inflationary in themselves? The bank rate puts up perhaps rents, certainly rates of borrowing by local authorities and by private persons; the 10 per cent, impost (it is said) will add to the cost of a whole range of commodities, including fuel; credit restriction will make it more difficult to keep things going, perhaps, in exports—are not these things in their nature inflationary?

My Lords, I see the force of that argument, but may I just say this in answer to it? If we argue on those lines about short-term remedies, we accept defeat. If we once assume that what has happened is that too much money has been getting into the economy; if we concede, as it must be conceded, that the short-term remedy must be to take some part of it out; and if we concede that every time we increase the cost of anything or make things more difficult to buy we shall be greeted with a demand for more wages which must be met: then we had better not set about this business at all. It is because we refuse to concede that last proposition that we have confidence that the short-term part of the package will work. But in the end, everything depends upon the appeal with regard to money incomes. I say "money incomes" because I include profits and dividends with wages and salaries.

I do not want, at this stage of what I am afraid has been a longish speech, to engage noble Lords opposite in controversy on matters which have been debated before; but I should like, if I may, to say a word to them about tax-free profits and profits generally, not by way of substitution but by way of addition to what I said the other day. In a sense, we do not want to stop the man who exports, the man who improves efficiency, from earning profits, subject to his bearing the proper proportion of taxation. But, of course, one recognises that, in an economy with a tendency to inflation, paper values of assets will tend to rise unhealthily. The honest man who bought a house in 1946 on the fringes of London, to live in with his family, will find that that house is, at least on paper and if he cares to sell it, worth a good deal more than he paid for it. In a sense, that is a measure of the rise in prosperity of the country. In a sense, it is an unhealthy feature of an inflationary economy. In either case he has done nothing wrong, and indeed he has made no money—he has a paper profit on an asset he wishes to retain. Surely the only way to deal with that is to attack the malady and not the symptom —to attack inflation and not its consequences, so as to ensure a generally healthy level in the value of assets throughout the country.

But, of course, there are people who indulge in speculation just as there are people who indulge in horse-racing. I should like to say a word about the taxation of their gains. It is legitimate for noble Lords opposite to ask what is being done about that. Any source of money which can be taxed efficiently and without injustice is a legitimate source of inquiry when we are asking for sources of taxation to raise money for public purposes. There are people who go quickly in and come quickly out of a speculation, who cash in on the rise in paper values and turn it into money. Incidentally, they may do it by selling short as easily as by buying in advance. There is no reason why they should not be taxed, and my right honourable friend has promised that the resources of the Treasury will be devotee. to finding a way of doing it.

There is another point which I think it is vital to make. My father, who was, I think, one of the best lax lawyers of his day, maintained that people who carry on a business in the buying and selling of assets which other people treat as capital assets ought to have their profits taxed as much as people who carry on business in the sale of tobacco and cigarettes. It is purely confusing, so he said, to treat their working capital and their stock as different from the stock of any other business, simply because most people treat similar articles as capital and not as working capital. Their profits are profits, and he always maintained that, even under the existing tax law, they ought to be brought in. I was glad to hear my right honourable friend say the other day that he will try to find one way or another of ensuring that that will be so.

My Lords, I want to end on this note. The ultimate choice of this country is to combine on the definition of national efficiency, in the sense in which I have tried to explain it, or suffer the penalties of national frustration. I realise that in what I have said there is an element of what has come to be called, sometimes with scorn, "government by exhortation". But I maintain that exhortation is a necessary part of the machinery of modern government. It is resorted to by the free countries. It is resorted to—not less, but rather more—by countries which are not free. Exhortation is part of the business of leadership.

I notice on the Back Benches of this Chamber the noble and gallant Field-Marshal who led our armies at Alamein. He was backed by the terror of the battlefield, the power of court-martial, and all the forces and tradition of military discipline. One of the things which made him a great commander was that he realised that, with all these things, he would still not be able to achieve his military purpose without exhortation of the private soldier. What is needed in this country is the knowledge that each private soldier in the battle for national efficiency is carrying out a worthwhile national plan in his own part. What is needed is the belief that it is a privilege to serve in such an army and to bear burdens in such an army.

To end, what this country needs is a knowledge of the one economic truth which no man can forget except at his peril—so simple that a child can remember it, so true that a lifetime of experience cannot better it: it is the economic and moral truth that "Man does not live by bread alone." My Lords, without the recognition of that truth the people perish. I beg to move.

Moved to resolve, That this House endorses the policy of Her Majesty's Government as outlined by the Chancellor of the Exchequer on 25th July for the purposes of upholding the strength of sterling, improving the balance of payments, and maintaining a sound basis for the continuing prosperity of the nation.—(Viscount Hailsham.)

4.0 p.m.

LORD PETHICK-LAWRENCE moved, as an Amendment to the Resolution, to leave out all the words after "House", and insert: Considers that the proposals outlined by the Chancellor of the Exchequer on 25th July, dealing with the economic situation of this country, besides being unfair, disclose no constructive policy and are not calculated to secure the wholehearted co-operation of the nation.

The noble Lord said: My Lords, all of us listened with great interest to the speech of the noble Viscount, who has covered a very considerable ground and who has merited our attention in so doing. I should like to make it perfectly clear at the outset that I do not resent his introducing the moral aspect of this question, because I think that in the last resort the moral aspect is of great importance in considering the prospective value of one's duty to one's country, one's duty to oneself. In so far as the noble Viscount has stressed that aspect I certainly shall not take exception to what he has said.

But against that, I feel that in order to support this Motion he has to relate that moral aspect to the facts of the situation. Personally, I do not think that that part of his speech was in any sense proved. I do not consider he related the moral efforts he desired us to make with the facts of the statement which he has supported by his Motion. On the other hand, I do not think he has laid any claim that his Party has sustained the moral truth which he has ventured to put forward. The view in my Party as to what the attitude of his Party has been would be an entirely different one. Before I sit down, therefore, I propose to move an Amendment to his Motion, to leave out all the words after "this House" and insert the words that are on the Order Paper, which I expect most of your Lordships have read.

What I should like to do is this. I should like to put three questions. The first question is this: has there been, and is there still, in any sense a crisis? I should answer that question by "Yes" and "No". I would say "Yes" in the sense that there is a situation in this country which is of very serious import, and unless that situation is removed we are in a very bad way indeed. If the question were asked whether that crisis has arisen in the last few weeks or few months, I should answer, "No". I consider that such a crisis as there is has been going on for a very long time. I would say it owed its origin to the false attitude which has been put before the people of this country; and I would say, further, that we have been lulled to rest in this country by certain quite incorrect assumptions.

One of the things that have happened in the course of the last few years in this country is that we have profited on paper, and to some extent in reality, by the enormous change in the value in the terms of trade. We have succeeded in cashing in on entirely changed terms of trade between ourselves and the countries producing raw materials, with the result that, without knowing what has been happening, we have succeeded over the last few years in enriching ourselves and in meeting the balance of trade by means which were perfectly legitimate, no doubt, but which misled us into imagining that we had a permanently advancing situation. We had not. We had a situation which depended upon our gradually taking over the profits of some of these countries producing raw materials.

In the second place, we have deluded ourselves into thinking that a high bank rate enables us to have a profit which we can spend. Everybody who really thought about it carefully knew perfectly well that it was not an expendable profit because it consisted of "hot" money. "Hot" money came here because of the high bank rate, and if the bank rate was not further raised or if it fell we were going to suffer from the losses of money we had had the benefit of for a time. So for two reasons we were deluded into a state of selfsatisfaction—one owing to the change in the terms of trade and the other owing to the position of "hot" money—and into a belief that we were in a much better position than we were.

The crisis, or whatever you like to call it, that has now burst upon us is a sudden realisation of the true facts of the case. I have been preaching from these Benches, time and time again—and the noble Viscount is quite aware of it—that the situation was a very serious one and needed to be attended to carefully. The Government have waved it off on the grounds that we were going along quite satisfactorily and could afford to make all sorts of reductions in taxation. And now we have come to face the true facts. That is so far as the crisis is concerned.

The second question I want to ask is: what is there about these proposals which is really going to solve our difficulties and get us out of our difficulties? I was rather interested in the speech of the noble Viscount. He swept aside all of what he called the short-term remedies and said that the really important things were the long-term remedies. They have been so obscured by short-term remedies that up to the present time I am not very clear what precisely they are. I realise that the Chancellor of the Exchequer has not yielded to some of the things to which he might have yielded. Ore was to reduce the investment allowance. Then, again, one of his regulators way a proposal, as your Lordships know, to have a poll tax on all the labour in industry; and that has been so universally condemned, in-chiding condemnation by Members of his own Back Benches here, that he has very wisely got rid of it.

What is left? I am not very clear from the noble Viscount's speech precisely what is left. According to him, there is a great deal of real advantage to be obtained. But, on the short look at what has been done, it is a question of the old doctrine over again. I know very well that in America at the present time many people are taking what they call tranquillisers. We have been given tranquillisers for a long time past in this country and we have been put off from giving attention to the great gravity of the situation by its being pointed out that things were going fairly well. It seems to me that to a large extent these new proposals of the Chancellor of the Exchequer are—I will not say a lot of tranquillisers, but there is the same kind of (lope that we have been put off with all the time.

Take the question of: nigh bank rate. I do riot want to drag in high bank rate on every occasion, but the fact is that the Chancellor of the Exchequer said, and the noble Viscount admitted it, that to a certain extent the nigh bank rate has and inflationary effect. It tends to send up the value of prices; and, there- fore, so far from improving the immediate situation, making things better and making us more competitive, it is going to do the exact reverse. Putting up the bank rate, restricting credit and putting up prices here is all going to make us (at this time, at any rate) less competitive. Therefore, when I relate the noble Viscount's moral arguments, about which I am not complaining at all, to the facts which are in the Chancellor's speech, I find that they are at variance with one another. I understand the noble Viscount's point of view, but his arguments are to a large extent at variance with the facts as they are brought home to us.

As far as I can see, therefore, so far from making us more competitive and enabling us to get into the world and to expand, the proposals of the Chancellor are to a large extent of exactly the reverse character. They are going to make it harder for us to compete. By restricting credit and restricting enterprise, they are going to make us more stagnant than we were. I have preached in this House, time and again, that our progress, and productivity if you like, or the enterprise of this country, is far below that of practically all the advanced countries of the world, and I cannot see anything in the new scheme brought forward by the Chancellor of the Exchequer that is going to help. On the contrary, it is going to make us less competitive; it is going to increase our stagnation; it is going to do all the things which seem to me to be likely to frustrate British enterprise and stop us getting on with the job.

Let me take another thing. I have argued, and some of my colleagues in another place have argued, that we are lagging behind in the matter of planning. I see no forward step by the Chancellor of the Exchequer to set the economy in greater motion by planning. I see none of that. On the contrary, I see the same old dope, the same old quack: medicines put forward as those that have been in the offing all this time, and which, in my opinion, have not succeeded in their purpose.

That brings me to my last point, and it is one at which Members opposite will not be surprised. I think we are today in the position of having to face this business for a long time. We have got to stiffen the backs of the people of this country. We must make them realise that if they want to be a great nation they must be worthy of being a great nation. They must be prepared to make sacrifices, and they must pull themselves together and work harder. But you cannot do that all on one side. If you are going to do that, you must make an appeal to people all round.

Now the noble Viscount cannot get away from the fact that in the Budget as a whole an enormous reduction of taxation was made in respect of the earned-income surtax payers, and that has remained in the minds of the working people of this country as a very unfair division of release from taxation. The Chancellor of the Exchequer will not be able to make an effective appeal to the working people of this country so long as that remains the principal feature of the Budget that was introduced last April. The Government cannot expect to have a united people behind them while they limp under that cloud of unfair discrimination by way of relief to one certain class of the population and handicap on the other. I cannot see how the Government can get out of that. Nor can I see how the Chancellor of the Exchequer's proposals can be accepted in this country so long as they suffer from that lamentation.

I therefore shave no alternative but to move the Amendment which stands in my name on the Paper: first, because there is no relation between the moral precepts which the noble Viscount has put forward and the concrete proposals which the Chancellor of the Exchequer has laid down; and, secondly, because there is no relation between the principles of equality as shown by the taxation of different classes of people and the principles Which come to light from studying the Chancellor of the Exchequer's proposals both in the Budget and since. I beg to move.

Amendment moved—

Leave out all the words after ("House"), and insert— ("Considers that the proposals outlined by the Chancellor of the Exchequer on 25th July, dealing with the economic situation of this country, besides being unfair, disclose no constructive policy and are not calculated to secure the wholehearted co-operation of the nation.") —(Lord Pethick-Lawrence.)

4.18 p.m.

LORD REA

My Lords, we have got to the position where, although we are officially discussing the Amendment, we are in fact, of course, discussing the substantive Motion together with the Amendment. Your Lordships may know that in another place the Liberal Party put down a second Amendment to the Government's Motion which, in terms, was very similar to that of the official Opposition. My friends and I on these Benches have thought it unsuitable to weary your Lordships with any second Amendment from our Benches. Therefore, I think I may say that we are generally in support of the Amendment proposed by the Labour Party through the noble Lord, Lord Pethick-Lawrence. I do not think our own Amendment would have differed very much from it, though possibly in one slight verbal context. I see there is the rather archaic phrase that the proposals are not calculated to secure the wholehearted co-operation of the nation. I should have thought that they were certainly calculated to secure the cooperation of the nation, but in my opinion the calculation was a bad one and they will not in fact do so.

My first reaction to the Chancellor's statement, and I think the reaction of my colleagues here, was one of surprise at the inadequacy and lack of attack in the statement which he made. In this House we have had a most interesting speech from the noble and learned Viscount the Leader of the House appealing to our moral and idealistic side. I must say that I found myself in almost complete agreement with him in everything he said. Oddly enough, I also found myself in agreement with the noble Lord, Lord Pethick-Lawrence, who really did not differ very much from the noble Viscount in principle. Where I feel that. I must to some extent criticise the Government side is that we have been told by Ministers and in the Press, and we have gathered from our own observations, that things are in a bad way—a very bad way. Statements of Ministers lately have indicated to us that something very drastic was going to be done, and that we were in a parlous state. This mountain brought forth a mouse, and it seems to me that this mouse was a Treasury-minded mouse, rather than a comprehensive mouse.

I think the public were: keyed-up over the last week or ten days for something much more stringent from the Chancellor of the Exchequer. Most of us found his statement completely unfundamental and with no dynamic approach; there was nothing that one could find very inspiring about it. And worst still—though I do not attack it too severely—it had no positive aim. It was all a question of restriction, of restrictive practices, and of cutting them down. After all this cry of "Wolf, wolf!" from the Government, I feel that the public's confidence has been considerably sapped by what has in fact eventuated. I would suggest that there are two con elusions: either that the Government overrated the seriousness of the position—and after listening to the noble Lord, Lord Pethick-Lawrence, I think that unlikely—or, secondly, that although recognising the seriousness of the situation, they have not dealt with it in a really adequate way.

The Government talk of plans. The right honourable gentleman, the Chancellor of the Exchequer, specifically says that he is not afraid of the word plans"; but we on: his side of the 1-louse are—on the part of the Government—very much afraid of the word "plans". Surely, we elect a Government—we do not personally, but Governments are elected—on policy and manifesto—which is based on a general plan to go ahead. We are sometimes a little alarmed when we hear of three-year plans, five-year plans, plans which have not originally come into the programme of the Party concerned and which are very difficult to see through to the end, as the noble Lord. Lord Pethick-Lawrence, said.

As a very small instance of that, we found, only a few days. perhaps a week or so, ago, the Postmaster General's heart was bleeding for us because we were spending too much as telephone users, and instead of having to spend:3s. 6d. to speak from London to Newcastle, he made us tie great gift of enabling us to speak from John o' Groats to Land's End for two pence. It would be a very short conversation, but there it was; it was to help the telephone users; we needed assistance. Then, only this week, the Postmaster General came along again and said that he was very sorry, he could no: make ends meet, and the telephone users would have to pay more for rental, and there are now these increased charges in other ways. That is only a small example of the come-and-go, push-and-pull, policy which I think really underlines the fact that there is very much this wrong planning.

In the present matter which we are discussing it seems to me essential that we should not regard imports in general overall as "necessary evils". 'They are not an evil. Surely, they are only a complement to exports. If you have two children, one ailing, either by being puny or too tall and scraggy, and the other healthy, you do not suppress the ailing one because you do not like its looks. The trouble is, as the noble Lord has said, inflation itself; more money wanted all round without more production. I, for one, do not blame the trade unions alone for the raising of wage levels which has gone on all through; I would blame also the employers, who raise the prices of their products, with no related increase in quantity or quality, just to be in a position to give higher wages for the same production. It seems to me a wrong thinking on both sides of the fence in this matter. The Government surely could control the price of essentials.

But, instead of that, what are they doing? First, they are really keeping down wages in the categories 'which are in their control, leaving other wage bargaining as a sort of free-for-all. As the noble Lord, Lord Pethick-Lawrence, says, it is invidious how one part of the community is impinged upon by these suggestions and the other part is left alone. Secondly, the Government propose to balance the Budget by indiscriminate taxes—I think I can only call them indiscriminate—on production, regardless really of the poverty and hardship caused in the lowest income groups. I think it is the people with very small incomes who are going to be hit hardest by the present proposals.

My Lords, there are a number of speakers, and I do not propose to keep your Lordships, but I think it is my duty to suggest what I think might be done. Of course, the basic problem is always money, so if we had more money to encourage the export market and home production, it could be used in very many ways. I am reverting here to a very old hobby horse: that if only we would abandon the independent nuclear deterrent, we could have so many millions of pounds with which we could really do something, for the state of the British market. I think we can do that without loss of security, because our contribution in this nuclear matter is negligible. But I will not go into the details of that question. Also, there would be no loss of prestige, because if we could tackle our internal economy we could regain the lost leadership which we used to have in Europe and the world. I feel sincerely that in no short time we should easily have that power in this world of ours. Command in this world will lie really more with the economic than with the military power, as it always has in the past. By the saving of that great amount of money, we could encourage sound trade and build up good commerce, as far as the usual channels allow, and we could balance the opportunities, which are in such imbalance, between the underpaid and the overpaid. Also—and this has only been touched on, but doubtless will be touched on again—we could remunerate more adequately the teachers of this country, who I think all would agree are underpaid in such a great community.

Having mentioned that we shall need priority in the economic field as well as in the military field, I think we might all see that in the next generation we are going to need men with a great deal of expertise—what I think the noble Viscount called "scientists and technologists of the best quality". We shall not obtain scientists and technologists, or even humanitarians, of the best quality unless we provide teachers to teach them. I do not say for one moment that our present teaching staff are anything other than excellent and are producing excellent results, but unless we can keep up their living standards by giving them a comparable standard to that of other people who are going into science and other fields where reward is high, we are going to suffer very much when the next generation comes along.

Then I do think that we should abandon, in the moral and idealistic way (as the noble Viscount put it), the principle of punitive concentration of passing evils, trying to restrict by punishment, rather than looking wider, picking out what is good and encouraging it, fostering productivity and incentive—particularly incentive—by generosity and encouragement. I think the Government's watchword might be much more "Give, give, and give" to the good things, rather than taking away, restricting and disciplining those things which appear to them to be of less value. Therefore, I think our political approach as a country, and indeed as a Government, does need more spirituality; that is, a constructive and not a destructive policy in general.

My third point is that we should aim urgently to free all sorts of movement in the world, and that is not taken account of at all in the present statement of the Chancellor of the Exchequer. In fact the brake seems to be put on there more than ever. It is surely more urgent than ever that goods should circulate much more freely. Tariffs, trade barriers, protection—we have had those for thirty years, and during those thirty years members of all political Parties have said that they must be lowered and lowered, and then finally abolished. Yet we are still hanging back in this sort of work which I think needs urgently to be done.

Secondly, we should have a much freer movement of people. Mutual knowledge can be obtained only by mixing together various people of different countries. There should be an interchange. There should be an interchange of goodwill, an interchange of friendship, and particularly an interchange of young folk, so that they can see what their contemporaries in other countries are doing and where they are heading. We should mix much more freely. I would press the Government to take such steps as trying to get the institution of passports completely abandoned. Travel allowances are quite unnecessary these days, and all forms of difficulty and restriction everywhere for those who would like to mix with their follow-men of different nationalities should be done away with.

Thirdly, the Government should give much more attention to the dissemination of knowledge to other countries. In principle, that is agreed by the members of all Parties, but we live in a world where we still think that the British are a good people and the rest of the world knows it. I would subscribe perhaps to the first half of that, but not to the second. I think that cur information channels are quite inadequate. We should encourage the B.B.C. overseas broadcasts. We should got our message of goodwill, not only for goodwill but in order to sell our goods abroad, not only to Russia and China, 10 Portugal and Africa, but also to our friends in Europe and elsewhere.

I would say no more except that I think that this statement which we are considering is a bureaucratic and myopic Budget worthy perhaps more of a parish council than of a great Government such as we have, representing, not if I may say so, just timid Tory terrors but also, at least in theory, the lusty and dogged spirit of our whole nation, who, as your Lordships remember, rallied to a man to Churchill in the darkest desperate days and who I think to-day would rally to a Government of any political colour which offered them sufficient leadership and sufficient imagination in our present troubles.

4.32 p.m.

LORD BRAND

My Lords, I do not intend to discuss in detail the Chancellor of the Exchequer's proposals. I am going to deal, so far as I can. in a short time, with the question of inflation, from which we are suffering now and from which we have been suffering since the end of the last war, and which we should get rid of as soon as we possibly can. I support the Chancellor's proposals, in so far as he is trying to diminish the excess demand that exists in this country at this moment.

Inflation is derived from two sources —excess demand and the constant rise of wages and incomes. Clearly, we are now living beyond our means. Mr. Selwyn Lloyd gave figures for the year 1960–61 showing that wages and salaries had increased by £1,000 million in that year and that other personal incomes had increased by £450 million. On the other hand, national production had increased by only £650 million. Therefore, last year, on wages and it comes, we went to the bad to the tune of £800 million. That is certainly inflation. Evidently we are in a period of excess demand, which. as I say, is one of the causes of inflation.

We have been traveling on the road we are travelling now since the period of Sir Stafford Cripps. I do not know whether your Lordships saw a little chart that appeared in The Times a few days ago, showing the value of the pound over the years from 1938 to 1961. I have a copy of it here, and as your Lordships see, the value goes steadily down, practically without cease, whether under a Labour Government or under a Conservative Government, and now there has just begun a steeper fall, because we are so far exceeding our means.

Our weakness is well exemplified by some figures in a document recently sent to me, produced by the Action Committee of the United States of Europe (Common Market), of which Mr. Monnet is chairman. He has been a great friend of mine for many years and he sent me these figures, which I think I should quote. They represent the reserves and short-term liabilities at the end of December, 1960, of the United States of America, the European Community and the United Kingdom. The figures, which are expressed in dollars, are as follows. The U.S.A. has nearly 18,000 million dollars of reserves and nearly 19,000 million dollars of liabilities. The European Community has 15,500 million dollars of reserves and 2,000 million dollars of liabilities. The United Kingdom has 3,200 million dollars of reserves—one-fifth of what the European Community has—and nearly 11,000 million dollars of liabilities—more than five times the liabilities of the European Community. So we see the position into which this country has gradually fallen over the years in relation to the United States and to the European Community.

In 1950, the official gold and foreign currency reserves of the countries now in the European Community were 3,100 million dollars, and they are now 15,500 million dollars. At the end of 1950, ours were 3,700 million dollars as against what we have now, 3,200 million dollars. So we are in a state of extreme weakness compared to the European Community and of great weakness, too, in my opinion, compared to the United States. The chart in The Times shows us the inflation from which we are suffering, and at the moment the Government are trying to restore strength of the pound to a certain extent by cutting down too great demand. Our difficult position was not so apparent until the last year or two because, as all your Lordships know, the dollar was weak, and therefore a great deal of foreign money was sent here because for the time being the pound looked as strong as, perhaps even stronger than, the dollar. Now that the dollar has recovered to some extent, all this money is being taken away from us and we are having to make large borrowings from the International Monetary Fund for the purpose of strengthening the pound. But, of course those borrowings will have to be repaid. I am not quite sure for how long we have them—I think it is about two years—but they will have to be repaid shortly, and we must put our conditions right in that time.

My opinion is that our fundamental problem is inflation, and that is what we must do everything in our power to stop. We are increasing inflation at this moment, because our prices have gone up, due to excess demand here, and our sterling remains unaltered. Therefore it pays the foreigner to import here, because he gets higher prices and he converts those higher prices into sterling at, say, the same price that it was a year ago. On the other hand, we cannot export, because our prices are high here and our sterling remains high. If we devalued sterling, then the foreigner would find it more difficult to import here and we should find it easier to export. But I hope that we shall not contemplate devaluing at this moment and that we shall get out of our troubles.

Mr. Gaitskell, a few days ago, in what seemed to me to be otherwise a good speech, did not deal at all with the causes—that is, inflation—except to put the blame on the inefficiency and lack of enterprise of British industry. I think there is a more general cause, though I am all in favour of Mr. Gaitskell's idea of having a planning staff for industry, such as was set up in France after the war and did wonders for French industry. I consider that the fundamental cause of our troubles arises not from inefficiency so much as from inflation, and that inflation and rising prices come in the main from two causes. They come either from the cause which I have already mentioned, excessive demand—and that the Chancellor of the Exchequer is trying to cure—or from the constantly rising incomes, and particularly wages.

The question is: how are these rising prices brought about? If any of your Lordships wants any light on this subject I would refer him to a large book recently published by the Organisation for European Economic Co-operation, whose Council about two years ago requested a group of independent experts from different countries to study this problem and report on their findings. The Report has now been published. It is a big Report of nearly 500 pages of small print, but most of these pages are taken up with accounts in detail of the conditions in the various European countries and in the United States. Any of your Lordships who care to read the book will find, in the first 75 pages, most of what you require for a good knowledge on this subject of rising prices. Each of the six economists came from a different country, and they were all eminent in their profession. Our representative was Professor Richard Kahn, of King's College, Cambridge, a very good economist, who is an executor of Lord Keynes' estate and not one who could be called at all a Right Wing economist.

With your Lordships' permission, and if I am in order, I should like to read a few paragraphs which appear in the conclusions of these eminent economists. The causes of rising prices which the group found significant were (a) Special or temporary causes such as bad harvests; (b) Excess demand for goods and labour"— which is what we are suffering from— (c) Excessive negotiated wage increases as an independent force; (d)Monopolistic pricing. From what they say later, the writers plainly thought that (b) and (c)—that is,"Excess demand for goods and labour, "and" excessively negotiated wage increases "—were the main causes of rising prices. Excess demand they took to be the volume of aggregate monetary demand which cannot be met at existing prices without exerting undue pressure on productive resources, partly from excessive Government expenditure—which we are suffering from here—partly from a consumption boom financed by banks, hire purchase companies and so on. Excess demands, as I say, exist in this country at this moment.

The writers of the book think that wage increases can be considered an independent cause or factor of price increases only when they are determined by negotiations between organised labour and groups, and employers; and that, of course, is what happens here. They point out that wage increases are accustomed to be generalised over a country, and that a money/wage illusion —and this I should like to emphasise—. is likely to be established leading to demands over and over again, though the gain in real incomes is inevitably equally upset by higher prices. They acid In our view this factor has been of particular importance in the U.S. and U.K. Later on the Report says: All Members of the Group are agreed that excessive wage increases secured through negotiation have been a significant factor in the upward movement of prices. Then they add: In the view of the majority of the Group the essential element to be stressed first of all is that the stabilisation authorities"— that is, the Government— must have a wages policy for dealing with the problem of wages just as they must have monetary and fiscal policies for dealing with the problem of demand. Most countries, they say, have not yet faced this fact squarely. They go on: We are fully aware that to do so requires a decision at the highest political level and a political understanding of the need for it. They point out that In France the Government announced its wages policy in connection with the stabilisation programme initiated at the end of 1958…It is evident that the policy was deliberate and thought out, and that it was consistent with and an integral part of stabilisation aims. That is what we want here. They repeat that, On the other hand, there is nothing significant that excessive wage increases have to offer because they are immediately followed by rising prices. When the Report conies to their discussion in relation to the different European countries they end up as follows: On the strength of its record to date "— in the United Kingdom, this is— the system of wage determination in the United Kingdom must be judged to have failed to respond satisfactorily to he new problems posed by full employment. It would be wrong. how ever,"— and I hope this is true— to overlook the much greater awareness of the deficiencies of this system which has grown up on all sides in the last few years. Beginning in 1956, the Government has carried out a campaign to educate public opinion, the unions, and the employers, about the basic relations between wages, productivity, and prices, and there is evidence that this has led to some change in attitudes, but with the inadequate nature of the institutional arrangements in a number of industries, the weakness of the central bodes on both sides"— that is, the trade unions, the T.U.C., the Government and industry— and the lack of any clearly defined norm for arbitrators to have as a guide when making awards, there can be no assurance that wage increases will in future be kept in line with the. growth potential of the economy I think your Lordships will agree that this is a fair description—even too favourable perhaps—of our circumstances.

The devil about inflation is that it feeds on itself. Supposing inflation is due to higher wages—too high for the country concerned—then prices rise, and then some industries and some speculators make large, sometimes very large, profits, the former out of increasing sales, the latter out of a capacity to foresee what vast fortunes can be made by clever speculators in an inflationary period. These profits are, of course, advertised in the newspapers, but no one advertises the plight of a far larger number of people who are made poorer and poorer by inflation because they do not know how to defend themselves against rising prices. It is the big profiteers and the receivers of big dividends who prosper out of the rise in prices, which infuriates labour in to demanding still hither wages which, if granted, increase prices again and provide still higher profits for certain sections; and so on ad infinitum. This process will go on until some Government is strong enough —as in Germany at the time when the Rentenmark was instituted by Dr. Schacht and the recent stabilisation in France—to bring the merry-go-round to an end. Our inflation has not gone anywhere near those of Germany and France, but it will increase as the rounds of wage rises increase and as prices continue to rise.

In such circumstances, the whole market, for a time at least, booms. Why should home industry bother too much about exports when there is a roaring bull market at home? Moreover, the same circumstances, so long as our exchange remains unaltered, offer a fine market for importers from abroad. It used Ito be France who could not manage its own affairs, and which went from bad to worse over the years. We thought that France could never put herself right. Now it is this country, and there seems no end to it. Perhaps we might get Mr. Rueff and Mr. Baumgartner (who put the exchange right in France) over here to teach us how we could do it.

My Lords, lour serious danger, as pointed out in the O.E.E.C. Report, is that our institutions are too weak. The T.U.C. does not control the unions, and it appears to the public that the unions often do not control themselves but are under the influence of the organised shop stewards who initiate many strikes. It cannot be right for a democracy that our destiny and our fate, financial and economic, should be determined, not by the Government and Parliament, but by shop stewards; that it should be they who determine whether we can or cannot control inflation, and whether, therefore, we are to go bankrupt or not. There must, however, be many leaders of trade unions, and also many leaders of industry, who wish to co-operate, who recognise the evils of the present situation, and who would be glad to set our country on an even keel again. This must be also what every Government and every Chancellor want. That this aim should be achieved is vital to our future.

4.56 p.m.

LORD BOOTHBY

My Lords. I must confess at the outset of my remarks that, unlike the Lord President, I do not feel any sense of personal inadequacy; I just feel a sense of personal despondency, because this has happened all too often before. This is the sixth balance of payments crisis since the war; and I remember that six times I have now gone down to the House of Commons after a tremendous Press campaign warning us against the dreadful things that awaited us and all the sufferings and sacrifices we should have to take and make; and then nothing much has happened at the end of it. We just get the same old rise in bank rate—that is about what it comes to—and we leave the House of Commons feeling a little sad at having been braced to make sacrifices and then not being called upon to do much. It does not hit the individual in the same way as it huts industry. Then everything gets better; the "hot" money comes back; and then it happens all over again.

These proposals have, of course, little relevance to the basic long-term economic problems confronting this country. They are designed simply to get us through yet another balance of payments crisis—as I said, the sixth that has happened since the war. The method is the old one and, I think, the bad one, of attracting "hot" money to this country to see us round the corner. Many years ago Keynes wrote: Unless the aggregate of the new investments which individuals are free to make overseas is kept within the amount which our favourable trade balance is capable of looking after, we lose control over the domestic rate of interest. This is precisely what has happened; hence the rise in the bank rate. I think we probably had to do it. But we had to do it only because once again we have lost control—because the balance of payments has gone wrong. I think it would have been better if the Government had taken far more strenuous steps to keep the balance of payments right, which they have never done. I think this policy will succeed in the short run: but at a very high cost, particularly from the long-term point of view.

Let us take a brief glance at three of the main proposals of the Chancellor. First of all, the 7 per cent. bank rate, which is generally regarded as a crisis rate, in conjunction with the 3 per cent. special deposits. This is the clumsiest economic weapon of all, because it hits the lot; and, on the whole and on balance, it hits the small man rather than the big man throughout industry. It will cause a diminution of productive investment in industry—it must do—and, therefore, deter economic growth at a moment when we desperately need it. It will also increase costs and rents, and decrease productivity.

What does it all really amount to? By raising the bank rate and the special deposits to the fantastic height they now are, you knock the whole national economy about, in the desperate hope that a reduction of imports will somehow or other, come about as a byproduct. I just do not believe that this is the way of doing it. This is using a sledge-hammer instead of a scalpel knife. In so doing you impose heavier burdens, not only upon the Exchequer, and on the taxpayer who has to pay higher rates of interest, but also upon local authorities throughout the country. There is not much hope for the export trade here. As I said in another place as long ago as February, 1953, trying to increase exports by repressing industrial development at home is a policy of desperation.

The second major proposal is a surcharge of 10 per cent. on Customs and Excise duties. While it varies, of course, on different items, the effect is to put up the cost-of-living index by 12 per cent. Nobody is going to tell me that this is going to make it easier to hold wages during the "pause" which is so strongly advocated by Her Majesty's Government. I say no more about that, but I must add one final word about the teachers, to whom the Lord President of the Council referred. I am the first to admit that they were foolish not to accept the Burnham award and have dom., with it. They would be in a better position to-day; in fact they would be "home". But to single out teachers of all people in this country to-day for special attention, and to say that you are not even going to implement the original award, and at the same moment give an £18 million subsidy to build a "Queen" liner for the Cunard Line, at a moment when the whole Atlantic passenger ship traffic is declining, does not seem to me to make any kind of sense at all.

My Lords, I have just come back from the other side of the Iron Curtain, and I can tell you that they are taking education very seriously; mote so than anything else. Everybody knows, some of your Lordships better than myself, of the tragic shortage of mathematical teachers, in particular, which, if it is allowed to continue, will have a disastrous effect upon technical training throughout this country. What a moment to single out teachers to make special sacrifices, when every other country in the world is plunging ahead in the fiord of educations I really do think that, from a psychological point of view alone, it is a disastrous mistake; and I beg the Government at least to put this one right, because I can see no end to the trouble. I do not think the teachers will go on strike; but I know they are disheartened, and the Government is making them more disheartened; and they are the last class in the whole community who should be made to feel disheartened at this moment.

I am absolutely certain that the Lord President's appeal—fervent, eloquent, and made with great sincerity—for what he called a "certain degree of personal restraint" is very necessary; but I am going to ask him quite frankly, and somewhat brutally, what the Government have done to encourage this. They removed practically all discipline from the economic field from the moment when they started indulging in what used to be known—perhaps the Lord President has forgotten it—as "the dash for freedom"—Mr. Butler's "dash for freedom". I never supported it, I always thought it was a mistake. In fact what they did was to take all discipline away from the economic field; and in so doing deride the memory of Sir Stafford Cripps, who, when all is said and done, exercised a greater moral authority in time of peace over the people of this country than any Chancellor of the Exchequer since Gladstone. I think we ought not to forget it; it is true, and he was right.

Enough of this; let us just have a look at the record during the last ten years. First the Government removed all building licences. I am on the record here. I opposed it from the start. They then abandoned all effective control over the export of capital from this country. They made no attempt whatsoever to plan our industrial development in co-operation with leaders of industry and the trade unions. They set up no planning machinery of any sort or kind. Nor did they make any attempt. to stop the speculative boom in land which has now got completely out of hand, in fact out of control. Finally, they have completely failed to curb increases of national expenditure which we can no longer afford and which can only lead in themselves to inflation.

The result, my Lords, has been, and we had better face it, an orgy of completely reckless personal speculation—for example, in property shares and television shares—which has no parallel in the history of this country since the South Sea Bubble. In these cases one field for speculation was allowed to continue by the Government, and the other was actively created by the Government; and the Lord President comes down to this House and appeals for "a certain degree of personal restraint"!It will not do. I know the stand he took himself about television. I am only taking it as an example; but all this has been going on now for too long, and not the slightest attempt has been made to deal with it or curb it in any way.

There are one or two questions I should like to ask the noble Earl who is going to reply. How much capital does he think has gone out of this country during the last five or six years by way of the escape hatches of Kuwait, Bermuda, and Nassau? How much of the Overseas Trading Corporation surpluses abroad have not returned to this country in any shape or form? How much money has been wasted—and, I emphasise the word "wasted" because I am not a supporter of unilateral disarmament—on armaments over the past ten years, which we really cannot possibly afford? How much capital and labour has been employed, and is still being employed, on the construction of quite unnecessary buildings in this country—anyone can see it going on right the way from John o'Groats to Land's End—while slums continue? Lastly, do Her Majesty's Government really think that we can afford, at this juncture, to rebuild New York and Chicago; because that is what I gather Mr. Clore and Mr. Cotton are setting out to do? I am sure it is very desirable, but I should have thought that the United States themselves could have looked after that one.

My Lords, of course I blame the Treasury more than the Chancellor of the Exchequer. I blame the Treasury because for over 40 years it has been the most disastrous institution this country has ever had. In fact I often wonder how we have survived it. It is a miracle. Except in the two world wars, when Keynes was there, they have never had a new idea, still less a good one. And I am old enough to remember the 1920's, when Sir Winston Churchill said, without any great conviction: It is the orthodox Treasury dogma, steadfastly held. that whatever might be the political or social advantages, very little additional employment can, in fact, and as a general rule, be created by State borrowing and State expenditure. We have since learnt the answer to that one; but if the Treasury could seriously hold it as "dogma", what cannot they believe? They can believe anything. They still boast that the only man who ever made them do what they did not want to do was Lloyd George; and that was before the First World War, when he had to hire an external Civil Service to get through the measures he wanted, 'because the opposition within the Treasury was so implacable. It is my chief regret, in a life full of regrets, that I was never given the opportunity of being Chancellor of the Exchequer. It would not have lasted long, but it would certainly have been fun while it did.

The noble Viscount, the Leader of the House, said that one of the advantages of this place is that there are some things one can say here that one cannot in another place, where there are, after all, votes to be considered. For example, one thing I should like to say is that this country is still riddled with restrictive practices, and they are not confined to one side of industry; both sides are equally to blame. The ship-building industry, my Lords, is dying at the 'present time; and this is due to the people inside the ship-building industry, and well they know it. They will not take any steps to put the situation right; and that is not the only industry to which this applies.

I often smile when I read some of the very pompous leading articles in our newspapers saying what a terrible thing restrictive practices are. They say how important it is that we should free the economy of them and shoulder our responsibilities. I often feel inclined—except that one has to keep in with the Press, so long as one is in public life—to 'write a letter saying, "Have a rook at your own office and see what the employment situation is, and see how many redundant people you are employing". Here is the reason for the recent closing dawn of newspapers; it is because the printing industry in this country is an absolute scandal, and none of the newspaper proprietors has the guts 10 stand up and say, "Enough of this nonsense!We have had enough", just as the shipbuilders should have said, "Enough of this!" long, long ago.

On this aspect I want to say one other thing—and it is splendid, and I feel relieved, that I do not have to ask for votes any more when I say it: I wonder how many jobs in this country to-day are being done by three men when one man would do. I should think the number is absolutely staggering. For that I.do not blame the trade unions entirely; I think the employers are also very much to blame, because it has all been too easy for them This is,something that ought to be said by somebody, somewhere—and I do not see why it should not just as well be said by Lord Boothby in the House of Lords as by anybody else—because we all know it is true. We have to face up to this problem, because it is not a comparable problem with our chief competitors in the world.

If I may, I should now like briefly to put forward a few proposals of my own, because purely negative criticism is an arid job, and rather pointless. I agree with what the noble Lord, Lord PethickLawrence, said. The noble Viscount the Lord President of the Council has the personal authority to make the moral appeal he made; but on the record of the Government, the facts as we know them and these particular proposals, I do not think the Government have any right to make any moral appeal of this kind. They have not shown the way by asking for, or imposing, any discipline upon industry.

If you ask me what I would do, I would say first that wages have to be related to productivity. One of our chief troubles is that we have not related wages to productivity. They have risen by 6 per cent. against a rise in productivity of less than 2 per cent. over the last two or three years. That is no good. But how can you get an agreed wages policy unless you have a plan, and bring into that plan the trade unions themselves—in fact both sides of industry? We want, as my friend Lionel Fraser said in an admirable letter to The Times the other day, Five-year Plan for Progress; because, as he truly said, there is no alternative to a coherent, long-term economic policy.

Going back to the recent trip I took in Eastern Europe, although they have failed in agriculture because neither the peasant system nor forcible collectivisation will do, they are making tremendous strides on the industrial front. Their productivity, and their gross annual national product, far exceeds ours in all of these countries. And why? Mainly because it is extremely well planned. But it is important not only for Communist and Socialist countries. As the noble Lord, Lord Brand said, they are doing it in France and doing it extremely well. M. Monnet started it; M. Massé is carrying it on. The results are achieved by influence rather than by coercion; and they are startling.

France has a planned economy not far short of, and in some respects better planned than, that of the countries east of the Iron Curtain. The whole staff of the planning organisation in France does not amount to more than 40 people, but they do very well. They have got 3,000 of the really important and influential industrialists together, and persuaded them to follow an agreed course. This is what we have to do. And I beg my noble friend to ask the Chancellor of the Exchequer to consider sending a small mission of inquiry over to Paris to see how they do it. And they may as well go on to Bonn, because Erhard is doing it, too. Both the economies of West Germany and France are infinitely better planned than ours—that is inevitable, because ours is not planned at all.

We shall then have to come to grips with the problem of international reserves. With our present reserves and liabilities we cannot carry on with sterling as the second major international currency of the world. I have, on this, at least, an unblemished record, because I did oppose the Bretton Woods Agreement. I opposed it on three grounds. First of all, because it put the onus of restoring equilibrium in international balances of payment on the debtor countries and not on the creditor countries, which it did; secondly, because it failed to provide adequate liquid reserves for the dollar and sterling, which is true; and thirdly, because it fixed exchanges at rates which were arbitrarily chosen, in a world of flux. I am one of those who doubt whether any democracy with a completely free economy can ever maintain, indefinitely, a fixed exchange. I am not sure it can be done, because it means that economic pressures which might otherwise be corrected by variations in the rate have to be met by infinitely more difficult methods, and sometimes impossible methods, such as a substantial all-round reduction in wages, which are almost impossible in a free-economy democracy.

I think we should say to the International Monetary Fund before they meet this September, "Look here, there are the Bernstein proposals; they would help a great deal, but unless we can get more adequate liquid reserves, and unless we can avoid this agonising biennial balance-of-payments crisis, for which a 7 per cent. bank rate seems to be the only remedy, we shall have to let the pound not be devalued, but just go". I am not at all in favour of devaluing ever again to a fixed level, because that guess might be no better than the last one. A floating pound worked pretty well between 1931 and 1937, supported as it was by a powerful Exchange Equalisation Fund. I think that if we told them that we would let it find its own level again, if adequate liquid reserves are not provided, they might do something. I doubt whether we can maintain the pound, with our present wholly inadequate reserves, at this narrow fixed rate.

Thirdly, I would restore building licences. I would not do it on a big scale, but I would do it on a sufficient scale to stop the wasteful and extravagant building which is going on. We have had enough of that. Fourthly, I would reimpose some effective control over foreign investments, using a better method than that used in the past, which would not be difficult. Fifthly, and finally, I say that, since the quantitative control of investment is the core of any planning scheme, I would set up an organisation comparable to that which exists in France to direct investment into channels which, from the national point of view, are the most productive and most important, and away from wasteful channels. It can easily be done by some discrimination in the granting of investment allowances; and does not require any elaborate machinery. I would do it in consultation and collaboration with the industrialists and the trade unions. I know that I shall be accused of advocating physical controls, planning and socialism. I do not care what I am told, and I do not care what you call it. It may be physical controls, planning and socialism. But there is one thing that is amore important than any of these things, and that is sense.

Before I sit down, perhaps I may be allowed to detain your Lordships for a moment or two with a quotation from a very trenchant paragraph by a friend of mine, the outspoken, fearless and independent financial correspondent of the Spectator, Nicholas Davenport. because he succeeded last week in putting into one paragraph what I have been trying to say, and saying much less well, in the last twenty minutes. He wrote: If anyone should repent, it is the Government itself. It should confess that it has been pursuing idiotic economic policies, refusing to plan and direct the two sides of industry. refusing to apply a building control and so allowing the building and contracting industry to over-reach itself and force up wages, relying on higher rates of interest and credit restrictions to do the impossible act of balancing the economy, encouraging the wrong domestic investment by indiscriminate investment allowances, refusing to control our overseas investment and allowing foreign exchange we have earned to stay abroad instead of coming home, trying to protect sterling with 'hot money', that is, short-term foreign loans, expecting to boost exports by knocking the home trade in consumer durables, raising the price level at home by higher indirect taxes and dearer money and then complaining of the uncompetitive prices of British exports! This catalogue of ghastly mistakes is enough to make the nation rise up in anger and tell the Prime Minister that they have never had it so bad—in Government administration. That is powerful stuff, but I think that if you read it in Hansard to-morrow you will agree there is more than an element of truth in it.

I am old enough to remember the day when Keynes described Snowden's proposals in the economic crisis of 1931 as "replete with folly and injustice". I am tempted to apply the same words to the present proposals of the Chancellor of the Exchequer, but I have too high a personal regard for him; and I certainly do not want him to share the fate of his predecessor, who also raised the bank rate to 7 per cent. and, so soon afterwards, became a "little local difficulty". I should not like the present Chancellor ever to become "a little local difficulty", especially if it came so near to an Election that he could not even be recalled as Minister of Works. I do not want to see him go; but I think he really must do a bit better than this.

The only reason that I can think of for what he has now done—I have searched my mind for the last 24 hours—is that, somehow or other, it is a prelude to our entry into the Common Market. I cannot see any other point in this exercise at all. We shall be dealing with this situation next week, so I will content myself with saying to-night that, in all the circumstances, and holding the views that I do, I do not think it would be possible for me to go into the Lobby in support of the Government to-night.

5.23 p.m.

VISCOUNT ALEXANDER OF HILLSBOROUGH

My Lords, I rise to support the vote of no confidence in the Government, and I think I can express some confidence that the noble Lord who has just spoken so energetically in support of our points of view will not merely not go into the Government Lobby but will surely join us in our protest when it comes to the vote.

We have already had an interesting debate; but I should like to say to the noble Viscount, Lord Hailsham, that I was disappointed with his speech in opening, not because I did not admire the language of it, because I did, or the presentation of his great and moral appeal, but because it did so little to show us what were the, Government's detailed proposals to deal with the present financial difficulties, and how far they were going to proceed on the basis of a short-term policy and to look for a long-term solution in order, as the noble Lord, Lord Boothby, said, to try to stop.a repetition of these steadily recurring crises in our economic and financial life.

I am sorry that the noble Lord, Lord Brand, has left the Chamber. As usual, he made a thoughtful and financially informed speech. But, somehow or another, speeches of that kind always seem to bring in somewhere the kind of statement which is less likely to obtain working-class response to the kind of appeal that the noble Viscount made. It sets up the difficulties of the shop steward, the large element of wages in rising costs and the inflationary tendencies. It always stresses things like that. Of course, the fact is that we, as a nation, have had the most extraordinary experiences in our lifetime. I do not suppose any nation which has occupied the pre-eminent position of ourselves over a number of decades ever had to face such a succession of crises as the First Great War and the Second Great War, to find in the end that, after fighting these two great and long campaigns, with huge human as well as monetary sacrifices, we had to try to readjust our own economic position and standards to meet the situation.

While I thoroughly agree with the facts stated by the noble Lord, Lord Boothby, about the planning efficiency of France and West Germany, Belgium and Italy, I must say that there is a marked contrast between the manner in which the Governments and the peoples of those countries are meeting their war costs compared with the manner in which we are meeting ours. In the whole of our economic problems, both after the first war and the last one, we as a nation have faced up to financial situations in a manner which I think is much to be admired, and we have now to go on in the future facing together difficulties which the others have discarded. I think we have to remember that.

Nevertheless, the noble Viscount must remember that in connection with any great calls to national unity for our self-defence and for the maintenance of our liberty, the working class of this country has taken its equal share at least with every part of the community. Nor is there any case in my memory in which the general electorate of the country have not taken their full share of responsibility whenever the country has been in great danger. The question is, of course, as to upon what basis you approach them and in respect of what sort of crisis.

When we look at the build-up of the campaign in the Press, to pre-Ministerial-statement speeches of what was going to happen over this economic crisis, then surely the whole of the nation was looking for the production of something quite out of comparison with the steps taken in the last three or four crises. Many of them say to-day, when you ask them what they think of the statement of the Chancellor of the Exchequer, that they regard it, in the circumstances, after that pre-statement campaign, as an anti-climax; that in the proposals which are made there is nothing really which is likely to be constructive or something upon which to build as a long-term policy so that industry can deal with the one thing essential in order to get our proper recovery. I asked particularly, because I wanted to be quite clear that I had not misread it in the newspapers or misheard it from the noble Viscount, Lord Hailsham, when he spoke about the recovery including a 3 per cent. increase in expanded production and that that was to cover an increase at the same time of 6 per cent. in our exports. I gather that my hearing of it was quite correct.

Let us look at that. The real problem is not the denying of this, that or the other within our community. The real problem which has been facing this country ever since this Government came in is that we have been falling back and back among all the other great industrial producing countries, especially in our rate of expansion of production. I do not need to bother the House with them, but I have all the details here; they speak for themselves. There is hardly a single producing country in the world which has not kept far ahead of us in our rate of expanded production, year by year. We have seen the speeches which have been made over and over again by my right honourable friend in another place, Mr. Harold Wilson, upon the sort of football league table, of which usually we were at the bottom or bottom but one. These are published every six months, and they show how we have been falling behind.

Of course, there is nothing yet in the proposals submitted by the Chancellor of the Exchequer of a really concrete character to show that the Government have in mind major plans that would make a real attempt at getting an expanded production overall and make quite sure that in that will be included a proper provision for the production of the goods which are most readily acceptable in the export market, upon which we still must depend if we are to be able to pay for the balance of our food and raw materials that we cannot produce in our own country.

It seems to me, therefore, that we have made a little step forward when it is mentioned in your Lordships' House (I think it was the noble Lord, Lord Rea, who said it) that the Chancellor of the Exchequer said that he was not afraid of the word "planning". I do not know whether the noble Lord, Lord Boothby, had taken note of that short phrase in the Chancellor of the Exchequer's speech. The Chancellor of the Exchequer is not afraid of it.

LORD MIDDLETON

He dare not do it.

VISCOUNT ALEXANDER OF HILLSBOROUGH

That is the whole point. I was going to say that he does not dare do it upon the kind of wholly national basis which we on this side of the House have always considered is necessary if you are to get a plan properly working.

Look at the position of the Labour Government from 1945 to 1951, with all its faults—and we all have faults in Government; no one can set up on the part of a Government and say, "We are perfect". We know that. If you look at the state of bankruptcy, with the failure to continue Lease-Lend in this country in 1945, and at the kind of conditions we were up against, you will see there is nothing like it in all our history. The national planning brought such an increased and expanded production that it put us on the map and enabled us to partake in what, I will quite agree, was a different type of foreign market from that of to-day. After the war there was a buying market, and if it had not been for the opportunities there were at that time out there, rather than a situation which is now turning things right the other way round, I do not quite know what we should have done. But it was an enormous advantage. We could not have done it if we had not planned nationally and controlled the direction of goods, commodities and raw materials, and had action to make sure how to reach our objectives. You could not find any other way to do it. The record will stand and I defy any economist to be able to disprove that that was the fact.

What we need now is a plan which will enable us to go steadily forward the other way. Remember, the Government have an enormous responsibility for the manner in which they have essayed to lead the people since 1945. In 1950, when we were meeting increasing difficulties because of the outbreak of troubles in Korea and finally the Korean war, what was the attitude of the Conservative Party? The attitude was, "Never mind about these great difficulties. Never mind about the cost on top of all your other troubles. Set the people free!". It was not a patriotic appeal for all the people to stay together. It was, "Set the people free!". My leader was quite right in another place when he made the rejoinder to the Prime Minister's comment the other night, "We did not devalue the pound", Mr. Gaitskell said [OFFICIAL REPORT, Commons, Vol. 644 (No. 150) col. 1082]: The right hon. Gentleman devalued something as else—he devalued our moral standards". You have had ever since a pressure upon the Government, upon industry, upon finance itself, with the people having been promised that they must have it. Nothing must be in the way of the utmost pressure of salesmanship in the home market. So when the noble Lord, Lard Brand, talks about excessive demand, it is no use his thinking that that is simply because of some lapse of moral stature upon the part of the ordinary citizens of this country. It exists because of the policy which was brought in in 1951, and emphasised and stressed in 1953, against the views of men like the noble Lord, Lord Boothby, or the noble Viscount who has been making an appeal this afternoon. You had your Independent Television service set up, with all the racket which has been exposed in the Press about the manner in which it was done. There was pressure salesmanship to advertise, bringing in such enormous revenues that some men have made a 1,000 per cent. profit on what they originally put in. The pressure for sales means that every house, in certain classes of areas, must go on with the old game of "Keeping up with the Joneses". If somebody next door is listening to I.T.V. programmes and wants this spin dryer or this refrigerator or this television set, then we must have it too! All the pressure is on spending on the home market. an things which are not really, in every case, vitally necessary, although they may be great comforts and give a great sense of satisfaction in the heart and mind of the person concerned because he is not worse off than his next-door neighbour.

This responsibility lies with the policy of the Government. Although I very much admire the language of the moral appeal of the noble Viscount this afternoon, and I appreciate its sincerity. I have to point out that here we are in the same place that we were in in 1951, when the Government came in and said that things were much worse than they had expected. Yet they said, "Set the people free!" You have to-day, nearly ten years after, a fall in the European reserves of gold and other securities to a lower point than existed in October, 1951. This is the case that the Government have to answer. I have seen 'nothing yet, either in the statement of the Chancellor of the Exchequer or in the statements made so far in this House, that can satisfy me that what I am saying to your Lordships to-day is not a true statement of the facts of the situation.

Let us see what is going on at the present time. We have been suffering, apparently, from the great increase in imports. Of course, if we were getting a great increase in imports because there were going back the exports to pay for them it would be a very good thing—part of a general expanding economy. But, as I understand the figures, in 1960 imports increased by £500 million. I have not time to go into all the details, but when we look at some of the details they shock us. Let us take steel, one of the great bones of contention among the Parties because it was nationalised. This House of Lords gave warning when it was nationalised that they would denationalise it at the 'earliest possible moment. So they had to do it.

Let us look at steel in the year 1959–60—look at the import figures and you will find it confirmed. You will find that in 1959 you imported 40 million tons of steel; in 1960 100 million tons. I ought to qualify the word "steel"; it is iron and steel; I have taken the two together. There was an increase from 40 million to over 100 million tons. I was reading a trade comment the other day and I saw that it was improving a little in the early part of this year. The real reason why all that extra steel was coming in in 1960 was that the steel industry had failed to keep up with the requirements of that part of our basic industry for stuff being turned either out or in; and failed also to meet the demand even of our home users of it; and so they had to buy foreign steel and iron. Is that because it was nationalised for a year or two? Not on your life! There is one firm down in Wales, Richard Thomas & Baldwins, which is still under national ownership. That is the successful one. It had a plan behind it—a real plan. I use the case of steel only as an illustration.

On the question of planning, and the way you use your fuels, I take the case of electricity. We have had one or two debates on this matter before with the noble Lord, Lord Mills. Look at the extent to which the Government have launched expenditure after expenditure upon the building of nuclear power stations in this country as compared with the type of station which could have been built using our own, natural raw material of coal; and how, in other cases, they have given a preference to oil fuel, importing it, instead of the natural coal of this country. I am quite sure it must be sound sense to have, may be, a pilot scheme, or even two schemes, for demonstration of electricity production by nuclear power. It might even be worth while having a "check off" against coal with one or two oil-fired plants. But here we have our own, natural raw materials being left and neglected, while we produce electricity at a higher charge to the customers at large throughout the country. It is not good sense. And all the time we have had the feeling that perhaps the name of "nationalised" industry is really a dirty word to many people, just as it was said the other day, in the other place, that "planning" is often regarded as a dirty word.

VISCOUNT HAILSHAM

My Lords, I should like to assure the noble Viscount that that is not so. The nuclear power stations, of course, are based on nationalised industry no less than the conventional power stations.

VISCOUNT ALEXANDER OF HILLSBOROUGH

I know. I am talking now only about the question of national planning at any time in relation to your overall plan. I say that if you had had a proper plan for using the raw material resources of your own, and had balanced that with your experiments in the proper way, you would not have spent anything like the money you have spent in those two fields to-day

But let us look at that part of the Chancellor's proposals which deals with defence. Take his statement during the early part of this week about defence. What a story that is! He says, "We are going to try to save money upon our overseas commitments". Some of the overseas commitments that used to be there are not there at all now. Practically the whole of our Naval station at Malta has gone. We have handed it over to a civilian dockyard company, which we hope will be successful in meeting the labour needs of the Maltese population. In many places we no longer have the commitments that we had.

But in general, in relation to the opening part of the noble Viscount's speech, when he appealed to us on the basis of the dangerous international situation, and bearing in mind the statement from the Foreign Office yesterday (these are my words, not his; I do not want to fasten on him anything he did not say) that there must be agreement with President Kennedy about our attitude to the general international situation, and also bearing in mind the examination which has been going on between Mr. Watkinson, the American Secretary of State, and General Norstad, as to what further call-up there will be, when I look at the state of our defences compared to January, 1950, when I handed over the office, I find the situation amazing.

What are the Government spending on defence? The fact is that we shall not have half the manpower forces in the defence of this country, whether abroad or at home, that we had in 1950—not one half; and we shall be paying £1,625 'million for them this financial year. I admire any proposal that may be made by the Chancellor of the Exchequer to get proper issues raised with reference to the cost of the maintenance of the troops we hold in Germany. That is a very good thing to do. But when you make a strong appeal to us, on a national and patriotic basis, about saving money here and there, and about our forces overseas, my reply is: have a look at the facts. They are extraordinary, and they have been getting worse and worse ever since the White Paper of 1957.

My Lords, those are the facts. If we take other proposals in the Chancellor's statement, what do we find? The noble Lord, Lord Boothby, has put the situation correctly. They will raise the cost of living at once by 1½ per cent.; and one cannot expect that the people engaged in industry, or the middle-class professions, Ito have that increased cost of living put upon them and not to want to be able Ito live properly. If they are Ito make a sacrifice, then surely they ought to be able to expect other people, in spheres different from theirs, higher up the scale of receipts, to make equally big sacrifices. It is not to be wondered at, I think, that the first reactions of some of the people on the industrial side in our Party were of concern.

I ask the noble Viscount to take note of what was decided yesterday by the trade unions, and their reaction to the proposals in general. They said they will be glad to consult with the Government and to co-operate, provided that what they are asked to do is to be on a fair basis. This afternoon the noble Viscount seemed to think that that was not quite good enough. I am going to read his words very carefully again tomorrow, to make sure. I do not want to do him an injustice on this point, but it looked as if he was adopting a rather high moral attitude to the workman Who says, "I ought not to be charged another 1½ per cent. on my cost of living if you are going to relieve surtax payers to the extent, among the highest incomes, of up to £3,000 a year benefit. I ought not to be expected to do that. But if you appeal to us"—this is what the trade unions are really saying— "to help and co-operate in anything that is required to be done nationally to restore our proper and sound position, we are with you if you will treat us as fairly as you treat your friends." That is not unreasonable.

VISCOUNT HAILSHAM

I am sorry to interrupt the noble Viscount, but I do not want there to be any misunderstanding about this. I was very careful indeed not to criticise anything that was said by the trade unions, or on their behalf. Indeed, I was rather encouraged, than otherwise, by the response they made to the Chancellor's appeal, and I hope I did not give the contrary impression. The only thing I did say was that if we are going to get on together in the future, as I hope we may, the offers of co-operation ought on both sides to be unconditional, and that we should try, if possible, not to make it a condition of our help to one another that somebody else's burden should be increased. It may well be a demand in the course of discussion, but to make help conditional makes it less easy to accept.

VISCOUNT ALEXANDER OF HILLSBOROUGH

I am just checking up a quick pencil note which I made, and I am glad the noble Viscount makes it unnecessary for me to quote. But your Lordships see now the impression left upon my mind. I am glad to have the further explanation, but certainly there is a feeling on this side, and among my colleagues in the other place, that this emergency Budget—and that is what this really is—is unfair.

After all, this is not the beginning of the matter. A very large burden was put upon the ordinary people, who are now in industry and commerce, in the new charges for the Health and similar services—very heavy charges. Putting that on top of what they are now asked to suffer, it comes a bit hard to the ordinary workman when he now finds he is not going to get a packet of cigarettes, which even after the war he could buy for 2s., for less than 4s. 6d. These are big differences.

I see the noble and gallant Viscount, Lord Montgomery of Alamein, over there. I was wondering what would have been said, when he was leading that great and line Army in North Africa, if cigarettes had been anything like this price to the troops. That was a great part of the happiness and the unity of those fine men who served us in all the fields of war, that we struggled and struggled and struggled to keep them as well supplied as we possibly could. But the workman also likes that today, and I think he is entitled to it.

If this is a question of whether or not we are getting the proper amount of production for what is being paid, that is another matter. I think we should be quite frank: the overall figures seem to show that the production does not go up at the same rate as incomes go up. Is that entirely the fault of the worker? I do not think so. I would not say that there are not faults in the worker. You will never get a working force of 11 or 12 million and find that every one of those 11 or 12 million is pulling the same amount of weight on the rope. There is a very vast difference, too, in the quality of management, and a very vast difference in the actual industrial relationships in the different organisations.

I was very sorry to see that a late Member of our House, Lord McGowan, passed away a few days ago. It is 40 years ago since I first began to understand and to learn what it means to organise good industrial relations between a great organisation and the workpeople of the trade unions. If we reached anything like that standard universally throughout industry, I believe we should get better management and we should get a much better result from the general contribution the workers themselves would make.

I am satisfied that the Government have not yet made up their mind to deal with this situation effectively. The bank rate has been dealt with by my noble friend and by other speakers. The other taxes that are supposed to be put on will make very little difference. We want a long-term policy, as well as immediate steps to secure our gold reserves position. But on the showing made in the Chancellor's statement, and after that the appeal by the noble Viscount, which did not have in it very much more detail, I am bound to say that we must adhere to our decision to move a vote of no confidence.

5.55 p.m.

VISCOUNT RIDLEY

My Lords. I share with others a disappointment that the present proposals of the Government deal only with the temporary difficulty which we are in, and not with the long-term problem which I think is clearly recognised to be with us. I do not want to repeat again what has been said about the short-term corrections in the form of higher bank rates and control of credit, except to say that I think in the circumstances it may be necessary to use those. But one should never forget the appallingly difficult situation it creates when there are these continual chances in matters of that sort throughout the life of the country, and also the fact that those controls both slow up investment in capital goods and make them more ex pensive.

What I find difficult to understand is the other main proposal, which is the increase in purchase tax. I understand that to be intended to reduce purchasing power throughout the country. It implies that there is now excess demand almost everywhere. I am not absolutely sure whether that is a right diagnosis. I think it is self-evident that in the building and civil engineering trade there is far too much work going on. But it is by no means apparent that in every other industry there is the demand to keep factories and plant working hard. One sees figures showing the small number of unemployed and the larger number of vacancies, implying that there is a shortage of labour. That, of course, is not a uniform pattern throughout the country. At the same time one hears it said, and figures are published to show, that the output of the country is not rising as fast as it should. Does that necessarily mean that employers are holding on to labour which they cannot properly use? It always seems to me very doubtful that any firm would do that for any length of time or to any extent, beyond keeping men on for a decent interval so as not to put them out of work more quickly than they can help. It is not a cheap exercise; it is an expensive one.

I cannot help thinking that the very large increase in industrial capacity which has been made in this country by the building of new factories and new plants must have some effect on these figures, and that the shortage of labour must be related to the fact that there are more factories. So I wonder whether there is any need to reduce the purchasing power in the way that has been spoken of; and even, if that is necessary, I should doubt whether this purchase tax method is the right one. It is only reasonable to expect that men will want their wages put up so as not to reduce their standard of living and purchasing power, and I think that those demands will be difficult, if not impossible, to resist.

One would have thought that some more general method might be chosen—even, possibly, the not-too-good method of hire-purchase controls, which fall unevenly on special industries but more or less evenly on everybody throughout the community. Possibly there might even have been an extra Budget, with some alterations in tax to last for the next six months. I feel that the method which has been chosen can do nothing but add to, expenditure and add to costs through rising wages and in other ways.

I can see nothing in these proposals that will help to get the balance of payments back into the right proportions for years ahead. This, I think, is the really disappointing thing. The only positive thing which the Chancellor has said, I think, is that he will control Government expenditure abroad; and there I think it is a matter of keeping it down to its present level rather than of reducing it. That means, among other things, if not reducing at least not increasing the aid which we are able to give to under-developed countries; and I think we are all in agreement that wd wish to see ourselves doing as much of that as we can. It may be that Government expenditure abroad will comedown a little, but I believe that the scale of that operation will never be enough to meet the difference that we have to meet in our trading exports and imports.

What I should hope to see would be some serious and rather detailed attempt by the Government in various ways to find the means of helping industry to reduce costs. I believe that that is the main problem now before us. I do not think it is universally true that reducing demand at home will necessarily mean that all firms in all kinds of industries will, as a result, have more to export abroad. I believe that it applies to some, but by no means to all, and certainly not to those who find that their costs will not allow them to compete abroad.

For that reason, I should have thought that the great objective of everybody in this country, led by the Government, would be to find ways and means of bringing down manufacturing costs. By this, I do not mean only bringing down costs and leaving the manufacturer with more money in his pocket; I mean bringing down prices as the result of reducing the costs. So much has happened in the last year or so, as a result of Government action of one sort and another, leading to increases in costs, that one begins to think that this is a point which has not been appreciated in Government circles. For many years high indirect taxes have pushed up costs; and they have pushed up wages and therefore costs again.

These periods of high bank rate have been expensive for the building of new plant, and in other ways. This increased bank rate has been made necessary by periodic crises. Recently (although this is a small point) we have had derating of industry abolished. It is now necessary to pay rates, which again increases costs. Then the Olean Air Act, also very necessary, and very good and desirable, means more capital expenditure, and more running expenditure with no return. We have had higher coal prices, and it is felt by many in industry that the recent readjustment of prices was done in such a way as to load them with more than their share of the proper cost of coal. We have had a fluctuating policy on hire purchase and other matters, which has made planning difficult for many firms. There have also been increases in pensions contributions. They are in themselves desirable, and I mention this matter only as one of the many things which, one after the other, have been adding to the original primary cost of manufacture. On top of all that, we had in the Budget an oil tax, which hits many of our basic and important industries very hard; and now, in this "little Budget", there is another 10 per cent. addition. This shows the sort of thing that happens without any specific policy. I do not believe that at any time these measures were intended to add to manufacturing costs. But they have done so.

I believe that it is time for a reassessment of matters of that sort. There is no doubt Whatever in my mind that, if prices could come down, we should find our conditions of living at home very much easier. It is possible that we could have a reassessment of the methods of taxing industry, and the methods of carrying these Charges. Would it not be much better to make it as cheap as possible to' manufacture whatever it is that you want to sell abroad by removing these various impositions, or by removing their incidence? Then the manufacturers or businesses, having succeeded in selling abroad or at home, would have no grounds of complaint if they were asked to pay taxes from the resultant profit. I believe that, if this were done, in the end more money would be available from which taxes could be paid.

Some people say they would like to see a special differential form of income tax, so that exporters could be given some encouragement that way. I do not believe that it is practical to do that, or that it would be fair. Because it might well be that a firm supplying a semi-manufactured product to another manufacturer, who then exported it, would make a saving in his costs but would not get the benefit of the specially adjusted system of export tax which he would in fact deserve.

We have a proposal for a five-year plan for investment policy, and I very much hope that the Government will pursue that policy on the lines the French and Germans are doing in the way described by the noble Lord, Lord Boothby. That planning system does, however, function mainly as a form of investment planning, by deciding what forms of industrial capacity are required in the future; and it cannot, I think, do very much specifically to affect our exporting position and our capacity to be able to compete with importers.

I should like to see the Government confer with all organisations in industry to find ways and means, first, of reducing the real original cost of manufacturing, which I think must be distinguished and specified. It is cost that matters. At the present time, there are some products one knows of which it would be possible to export to the Continent with hardly any profit if this marginal small percentage of saving could be made. One would like to see the Government confer about that and think about this sort of problem, and also think about some new method of taxation on industry, perhaps weighted to encourage employers to employ fewer people in relation to units produced. In that way, efficient firms would be favoured, in much the same way as the investment allowances now encourage firms to instal new plant; and by producing a system which would be a definite inducement to firms to produce more cheaply, they would become more efficient and better able to compete.

I think one must now support the Government in their general policy of trying to introduce temporary expedients. I would do so, except that I doubt either the need for or the rightness of increasing purchase tax at this time. I regret very much that we have heard of no plans to help make a permanent change in the trend of our balance of payments; but I believe it is by no means too late. I hope that, as the months go by, the Government will get down to the problem of seeing in what practical ways they can make it easier for firms to compete in export markets, and also to compete at home with importers. Whether or not we go into the Common Market, we have the problem of competing both as exporters and against importers here, and I think conditions must be such that we have a chance as a country of holding our own. One thing I would say is that industry in this country has made an enormous contribution by increasing the rate of exports since the war compared with what they were before the war. The increase has been very large indeed. What remains to be done in relation to that amount is relatively small, though it is no less important for that. I would urge the Government to spend some time in looking at this side of the problem.

6.10 p.m.

VISCOUNT BRUCE OF MELBOURNE

My Lords, it is with the greatest reluctance that I am claiming your Lordships' attention for a few minutes this afternoon. The reason for my reluctance is that I am going to say practically nothing that I have not said before. It seems to me that I have spent years now in declaring my apprehension that unless some Government could succeed in enlisting the general support of all sections of the people, apparently we were going to continue with this cycle of economic crisis every few months. However, long experience has taught me that if, by the Grace of God, you happen to be right, repetition in the end will ensure that something will be done about the matter with which you are concerned. Hence my speaking again to-day.

We are discussing to-day the speech of the Chancellor of the Exchequer on Tuesday last in another place. After that speech, my feeling was one of very great disappointment, and I think that that was shared fairly generally. I believe that we were all hoping for something dynamic, forceful and imaginative, that would stir the country and lead to a great effort to get us out of our present position and out of this recurring cycle of economic crises. I am afraid that the Chancellor's statement hardly measures up to our expectations.

The statement indicates that the Chancellor is going to employ taxation and financial measures to meet the present situation. With that, I am not going to quarrel, on the basis that he had to do something on the short term and do it immediately. But we have all to recognise that what he is doing is simply something that may get us temporarily out of the crisis we are facing—something very temporary at that—whereas what we had hoped for was something much more constrictive and long term. To me there appears to be nothing in the Chancellor's statement that is going to make a contribution towards the vital needs of increasing production and reducing costs, in order to increase our competitive power, save what I think is called a "standstill" in wages. With regard to that, I am convinced that it will do the very opposite. It inevitably means an increase in prices. Can anyone believe that, in isolation, the wage-earner is going to sit down under that? It seems to be absolutely stupid even to imagine that that can happen, and I am quite convinced that we have to go much further and deeper into the problem.

I feel that the situation is much better expressed in a statement made by Sir James Turner (as he then was: he is now the noble Lord, Lord Netherthorpe, and a Member of your Lordships' House), when he was President of the National Farmers' Union. I have quoted this before, but it seems to me fundamental and I should like to quote it again: In my view the problem of inflation will never be solved, and this national economic disease will never be cured, unless and until someone tells the patient its real seriousness and what is certain to happen to him if a major operation is not performed, and performed skilfully and quickly. It is my deep and sincere conviction that the truth, however unpalatable, needs to be laid bare to the people of the country. The war-time catch-phrase, 'Britain can take it', remains true to-day—but only if her people are told what they must take, and why. That is another way of saying that the circumstances we are up against necessitate that the people should be told how serious they are and that their cooperation should be enlisted in a national effort to try to overcome our difficulties.

The first point is: Can we make the people understand? I am told that it is quite hopeless. I venture to suggest that it is nothing of the sort. The facts are relatively simple. Our national economy is exactly the same as every individual's economy. The individual can enjoy the things he can afford by what he earns and what he saves. The nation is exactly the same. Our earnings are what we get from our exports, visible and invisible, including insurance, shipping and similar things; and our savings are the returns we get from our capital invested abroad. These things are simple. I believe that the people could be made to see them and to understand.

Who is going to tell them? Obviously, it must be the Government and the leaders of industry on both sides, employers and trade union leaders. And the method of telling them must be to employ every conceivable aid—Press, radio and television. What we must tell them is that we really are in a desperate situation, and that, unless we can get out of it, their employment, their wages, their standard of living and their social services will inevitably go. I am convinced that those are the facts, and that we can put them into simple language. I agree that perhaps this is a little wearisome to your Lordships, because these facts are so simple to us, but even when I am listening to debates in your Lordships' House, the statement of the case begins to get so complicated that I begin to wonder where I am arid where I am going. Yet I think that it can be put so simply that people will understand.

The first point is that exports of manufactured goods are of vital necessity. The world market for manufactured goods is increasing, but so are the number of competitors we have up against us; and the hard facts are that in face of this competition, our proportion of the world market for manufactures is steadily decreasing. It fell without interruption from 1951 to 1961. Since 1953—that is, over the last seven years—it has fallen by 20 per cent. But, since 1953, Germany's share of the world market for manufactures has risen by about 42 per cent., Japan's share has risen by over 80 per cent., and France's share by some 8 per cent. All these countries were faced with exactly the same problems that we have, of maintaining their competitive power. But they have managed to do it primarily because their productivity has increased sufficiently to enable them to compete at a competitive price. Since 1953 Britain's export prices have risen by 10 per cent.; those of the United States by 7½ per cent., of West Germany by only 1 per cent., while Japanese and French export prices have actually fallen by over 5 per cent.

Those figures are very serious. They show clearly that our costs and prices have been rising faster than those of our competitors; that our productivity has been improving more slowly, and that the pattern of distribution of world trade has changed entirely. Surely those facts are so simple that they can be made clear to the people of this country and the people can be made to understand how serious is the position. That seriousness is brought out when you think of our balance of payments. Every householder can understand what is meant by the balance of payments: it is simply getting enough to pay for what you want. It is as simple as that.

As your Lordships well know, the balance of payments on current account of the United Kingdom was last year in deficit to the tune of £340 million, despite a slight move of the terms of trade in our favour. The actual overall deficit was, as stated by the Chancellor, almost £550 million, when you take into account the £200 million of our long-term investments abroad. Your Lordships will remember that the experts from the Treasury told the Radcliffe Committee that it was considered necessary as long ago as 1953 that we should have a surplus on current account of about £350 million—roughly the same as our deficit last year. Looking at last year's figures in perspective, therefore, we need to increase our current surplus by some £700 million in order to meet all our commitments, including building up our convertible currency reserves. I venture to say that even that is not so complicated that the public could not understand it and realise how serious the position is.

A further point is that, even if the people were convinced of the seriousness of the position, we should still have to get their acceptance of it; and they will have to put up with some very unpleasant things, having regard to the luxury we have lived in over the last few years. I have such faith in the British people that I am convinced that, if the situation were brought home to them, they would accept it, and would make an effort and self-discipline themselves. But they have to be convinced. And if we are to get their co-operation there is one vital necessity. Even if the people are convinced, it is imperative that in any remedial action not only must justice be done, but it must be apparent that it is being done.

In the Chancellor's statement great emphasis is laid on what I think is described as the "standstill" in wages, but it contains only a vague threat to capital. I say that it is absolutely essential, when you are dealing so definitely with wages, to deal with the position of capital. I do not propose to go into detail about what I would suggest should be done, if only for the reason that if I make any such suggestion it will become the subject of controversy and my fundamental point will disappear in it. And my fundamental point is that the people must be made to understand. That is the greatest task to which we have to set our hands.

There is one point, however, that I want to make on capital, and it is this. I protest at the idea, which to my mind is far too prevalent in this country, that there is something sacrosanct about capital. The United States and other countries have tackled the problem, and I do not accept the view that we are not capable of dealing with it. We have the brains, and we should do it. The point I am making is that there must be equal treatment as between wages and capital or we shall never get what I say is vital. I suggest that we should adopt the suggestion contained in the admirable letter of Mr. Lionel Fraser to The Times on June 27 last; namely, that the Government should formulate a coherent long-term economic policy. And the essential thing in that long-term policy is that it—and these are his words: will only succeed if it is understood and supported by the man in the street. From the Chancellor's observations it would appear that his mind is running in the same direction. If it is, why does he not bring the plan down now? It is urgent beyond words. The Government have had many years to consult their experts and these various bodies, Surely by now they have in mind what their own financial and economic policy is. My plea is: for Heaven's sake! bring it down, and bring it down quickly, because the situation is pretty desperate.

House adjourned during pleasure.

House resumed.