§ 2.53 p.m.
§ LORD PETHICK-LAWRENCE rose to call attention to the Economic Situation; and to move for Papers. The noble Lord said: My Lords, it is a year since I moved a Motion in your Lordships' House similar to the one that I am moving to-day. I then said that I felt sure the great majority of your Lordships would feel, as I did, a sense of depression when they regarded the economic outlook of this country. Now what do I feel on that matter to-day? I think that in the interval there have been some bright periods and that, on the other hand, there has been a good deal of cloudy weather. Summing it all up, I would say that we are just jogging along here; and that method of proceeding does not fill me with great enthusiasm.
§ What are some of the most depressing factors? I would say, in the first place, the figures of the balance of payments, and, in the second place, the rate of growth of the gross national product. On the question of the balance of payments, I find that a great many people who read these figures are mostly concerned with the items of what are called visible trade—that is to say, of course, the excess of imports of merchandise over the corresponding exports. That is indeed a very serious matter. But from my point of view I am equally concerned, if not still more greatly concerned, with the position with regard to 622 the balance of invisible trade, because many of the items which form the invisible figures are, I think, at least as important as those of the visible items, and in some cases even more important.
§ There are two among the invisible items that I single out for special mention, both relating to ships. In the first place, there is our construction and sale of ships to other countries and in the second place there is the carrying that we do of the world's trade in ships from our own country and from one foreign country to another. In both those respects, I notice that we are steadily going downhill, whereas in years gone by we were leading the shipbuilding of the world. I believe that at one time we produced nearly half the whole tonnage of world shipping. We have gone steadily down. In the second place, where we did a large part of the carrying trade of the world overseas, our proportion is steadily being reduced year after year until, in those two important items, and one or two that go alongside of them, we are now, instead of making a considerable profit, as we used to do in days gone by, reduced, I think, in some cases even to a negative—we actually lose more than we make in profit.
§ I regard those factors as a very serious attack upon an island community like ours, which has always boasted of its importance on the seas, from which in the past we drew a large economic revenue. Some people may say—and I go practically all the way with them—that we must remember that in the days when we had all these successes we trusted to Free Trade, and that one of the causes which has prevented a continuance of those successes is the fact that we impose large tariffs on goods coming into this country. That may be so or it may not: I would not finally decide that point. But undoubtedly it will occur to a number of people, and I think there is at least something in that view of the situation.
§ Equally with my concern about the balance of trade, I am very much alarmed at the situation with regard to the gross national product. I never weary your Lordships with a lot of figures when I am talking in these debates, because I take only figures which are matters of common knowledge and of which I imagine the great 623 bulk of your Lordships are fully aware without my having to remind you. But there is no question whatever that, compared with all the leading industrial countries of the world, we show a very bad return. Whereas other countries are going rapidly ahead, and every year show a large advance in gross national product, in this country the figures of growth of national product are very meagre indeed. There is no doubt that we are a long way down in the list, with only a very small percentage increase, compared with that of many other important countries in the world.
§ Not long ago I was attending upstairs a talk by a very distinguished industrialist and economist. He said to his audience: "You must not be too alarmed about that, because, of course, the fact is that in the years immediately succeeding the war we made such a wonderful recovery and made such great advance. These other countries who are outside our borders are making a similar recovery now, a good deal later on. Therefore, it is not unexpected that their rate of progress to-day should be considerably greater in percentage than ours in this country." There may be something in that argument: I am far from denying it. I would just remark, incidentally, that the years immediately following the war, when the advances that were made, were years when the Government of my Party were in office, and that the years of stagnation, which have been since the beginning of the 'fifties, more or less, are current with the term of the present Party in power. I do not want to press that Point too far. I am prepared to admit that to some extent it may be a coincidence. But I think it would be a little unwise if noble Lords opposite pressed that favourable unction to their hearts and thought that that explanation of coincidence was entirely the case. In my view, remembering all the troubles that have afflicted industry since Conservative Governments have played ducks and drakes with the monetary system of this country, there is a good deal to be said for the view that the circumstances owe at least some origin to the way finances have been managed during the rule of successive Conservative Chancellors of the Exchequer.624
§ I turn next to the question of the matter that was raised a little while ago in this country. If your Lordships will carry your minds back, you will recall that about a couple of months ago the noble Lord, Lord Boothby, had down a very important Motion relating to the liquidity of the world's finances. We had a most interesting debate on that occasion, and it has since come to my knowledge that some of the persons most concerned in this matter have taken a very favourable view of our debate and have found it of great value to their discussions. But the real question is: what are we going to do about it?
§ I think noble Lords who read the papers dealing with these financial matters will find there has been a very great deal of discussion of this question, realising, as I think most of us who took part in that debate did, that the time might be coming when it would be too much for two individual countries, the United States, with their dollar, and we, with our pound, to support practically the whole burden of maintaining the liquidity of the finances and trade of the world. That, I think, is dawning upon large numbers of people who understand the financial situation, and I think the very least that we are entitled to hope is that some international organisation—perhaps the International Monetary Fund—may become the ultimate basis of world credit, buttressing up the finances of the dollar and the pound. That is, I think, the least we can expect. It may be that circumstances carry us even further, and that the actual basis of credit may be shifted from the dollar and the pound to some international body such as I have already mentioned. However that may be, I think world financial circles are now awake to the fact that the present situation is dangerous; that it is unfair to the two currencies which bear the burden at the present time and that, sooner or later, some steps will have to be taken to remedy that situation.
§ Now let me say a word on another subject; that is, the Common Market. Only in recent weeks it has become clear that this matter of whether Britain shall join the Common Market or remain outside it has been for some time past exercising the minds of Ministers of the Crown, and that all through Parliament, and outside Parliament, in large 625 sections of the country, industrial and otherwise, this matter is arousing the very deepest interest. Whether it be right or whether it be wrong, it seems quite likely that steps will be taken, advances will be made, which may or may not result in our entering in some shape or form the Common Market. It is certainly not for me to drag into an economic debate of this kind any lengthy comment upon that very important matter, but it does seem to me that one or two words may be appropriate with regard to it, even here and to-day.
§ The first comment I would make is that there are quite obviously two more or less separate questions that have to be answered. The first is whether our economic advantage will be furthered or retarded by entry into the Common Market and I shall have one remark tar make about that in a moment. The second question is whether our political position will be improved or injured by entering the Common Market. Here I think we have to be very careful of what we mean and what is intended, because I can conceive of our entering the Common Market to our very great detriment if the terms of doing it were not carefully considered in advance. On the other hand, I believe that if proper terms are found it may be to our very great advantage, both economically and politically, if we take part.
§ Therefore the first necessity is that we should know—I presume that the Government do know, but I think that we on our side also should know—precisely what is involved; what is involved to our economic position and what is involved to our political position. When I say what is involved to our political position, perhaps I may explain what mean by the use of two words. There has been talk of a Common Government, or something of that kind. I think most of us would take the view that anything in the nature of a Federal Government which included ourselves and other countries is one that we should be very careful about. On the other hand, we might feel more satisfied about something which could possibly be a confederal relationship. On the economic side—and I want to say this with all the emphasis at my disposal—I believe it to be essential that we should enter negotiations with the people of the Common Market from a position of 626 economic strength and not from a position of economic weakness. That is just as important in the economic world, when we want to do a practical bargain with other people as it is in the military world. That is why I hope we shall put our own economic house in order either simultaneously or before we actually enter into the final argument on whether or not we should join the Common Market.
§ I venture to turn now to an entirely different subject, which to some extent arises out of the Chancellor of the Exchequer's speech. I think it has long been recognised by economists and leading industrialists that there is something very artificial in the annual character of our financial statements. It has long been recognised in business circles that if they want to make progress they have to plan not merely for the current year but for several years ahead. It is those firms and industries which think in terms of the future that are most likely to succeed land make progress. What is true of industry is equally true of the country. If it is necessary for industries to think in terms of years and not in terms of twelve months—whether the twelve months be a calender year or a Treasury year is of no importance on this point—we in political circles must accept that we also need to have a financial and economic period that is greatly in excess of a single year.
§ I was reading a most interesting article only a few days ago by a lady called Ursula Hicks, in, I think, the Lloyds Bank Review for April, in which she used a rather extraordinary ward to describe the present position. She calls it "the curse of annuality"—of depending on the single year for our estimates for the future. Remembering that, and taking as a start our nationalised industries, we see that the Government are already beginning to think in terms of a quinquennium and even a decade; and in matters relating to the Colonies—only this morning I think with regard to Kenya—the money devoted by the Government is a matter of a loan. We have to think in terms of several years.
§ Of course, this idea of planning for the future was started long ago by other countries, some inside and some outside the Iron Curtain. The fact that it was started by other countries which we 627 regard of lesser importance than ourselves ought not to deter us from following an example which is obviously a good one. What are we going to plan for? To put it rather crudely, and over-simply, I would say; planning for prosperity—because a great deal of planning that goes on today is not planning for prosperity. I think we have to plan not for stagnation and deoay, but for growth and advance, not only in economic and financial affairs but in all the affairs of the country. Unless we hitch our waggon to that star we shall travel very pedestrianly along the road, and I do not think we shall get where the country would like us to get to.
§ I said just now that this attempt at departure from the annual basis of the Budget arose in the Chancellor of the Exchequer's speech. He rather turned the thing that I am aiming at and stood it on its end, because instead of arguing in favour of a longer period than a year, he said that a year was too long, and that he must therefore deal with matters that might arise in the course of the year and attempt to meet them by a quicker method than a new Finance Bill. I can see some point in that view, though, as I shall show a little later on, I see certain objections to it. I want to make some criticism of his proposals, but before I come to that let me just finish what 1 was saying. There are, I think, reasons why we should plan for three, four, five or even as much as ten years hence, and I hope that Members of the House, whatever their political views (because this is not a purely Party question) will find themselves in substantial agreement with what I am attempting to say.
§ Finally, I come to the question of the Budget speech and of the various points that were raised. There are three points with regard to that to which I want to draw attention. First of all, let me say that I have long thought that it was quite unfair that a person with earned income should be allowed to deduct a certain portion of his income for the purposes of income tax but should not be accorded the same right when it comes to sur-tax. It seems to me that it is just as much legitimate to deduct from earned income for one tax as for the other. Therefore, in so far as the Chancellor of the Exchequer has made that proposal, I think it was justified, pro- 628 vided that he did other things at the same time.
§ I should have thought that the time when he was making these large but justifiable concessions to people who had earned income, allowing them to make the same deduction for sur-tax that they made for income tax, was not the occasion to make by other methods some much larger and considerable alleviation in the payment of sur-tax. That is particularly true when we remember that only a few weeks before, as the noble Earl, Lord Dundee, will recollect, the Chancellor of the Exchequer had put forward proposals, which were approved by both Houses, for additional burdens by way of a health tax on some of the lowest paid people in the country and those who are living on scraped-up income for their old age. I think that, if he was going to make those larger concessions, it ought to have been at a time when he was making proposals for other relief in all parts of the country and for all classes.
§ Therefore, although there is something to be said for the better treatment of earned income taxpayers, and certainly for their having the relief they were given, making the same deductions for sur-tax as they are given for income tax, I cannot think that it was appropriate at the same time to make these other rather large concessions. If is, of course, a well-known fact, which I do not think we need argue about here, that the earned income people make a considerable "getaway"—I will not put it higher than that—Hby means of so-called expense allowances. I think that is admitted. Although the Chancellor of the Exchequer made some almost nugatory move in that direction, I feel that it is quite time that he went a great deal further in that matter than he has done so far.
§ The second item I want to call attention to in the Budget is this. There is the question of this optional taxation that he may or may not impose in the course of the year. To the principle, I have not much objection; but I cannot say that I approve of the precise measures and items that he selected for this optional tax. While purchase tax has some merit, I do not think it would be right, or wise, to extend it. It is largely a poll tax on the people and, as such, I do not 629 think it is the proper method. As to the business tax on the number of employees (I believe that there was at the back of his mind some idea which I will not develop at present), I do not think it would achieve the purpose for which it was set up. I think it is a quite capricious tax, affecting some industries very much more than others.
§ I think, in the third place, that it is very dangerous to flaunt in front of industry, which needs encouragement by the Government, a possible burden that will unsettle their views for all the months in the year. It reminds me of a man who was playing golf, and who, instead of having an ordinary handicap, said he would have three "boos". When it came to the second hole and he thought this opponent was going to make a successful stroke, he said, as loudly as he could, "Boo", with the result that his opponent was put off all the time of the rest of the match. He never knew when the second "Boo" was going to be allowed to interfere with his stroke. It is rather like that with the Government and this proposed new taxation. Leaders of industry will never know whether or not the Government are going suddenly to impose this very considerable burden on them. It is bad enough to have the risk of high bank rate being imposed upon them; and they will certainly be reduced in their activity by the uncertain knowledge of what the future holds in store.
§ The last thing I want to say a word about is the capital gains tax. I know perfectly well most of the snags of the capital gains tax, and I know that it is not nearly the simple thing which many people who have advocated it think it is. Nevertheless, knowing what was done with regard to P.A.Y.E., which was regarded as quite impossible until it became an accomplished fact, I believe that it is certainly within the means of possibility for the Treasury to find a form of capital gains tax which would work. I am not going to discuss that now, because, as I say, I am quite aware, as most people who have thought about it in this House are, of the very great difficulty about it. It is certainly not for me to make any policy suggestion.
§ What I will say is something slightly different. It has become increasingly clear in the course of recent years that the sur-tax can be avoided by various 630 ingenious means of converting income into capital gain; and, however fast the Chancellor of the Exchequer runs in trying to stop up the holes in the sur-tax laws, he will be outpaced by the very clever lawyers and accountants who are struggling all the time to enable Mr. A to convert his real income nominally into capital gain. Therefore some means will have to be found by the Chancellor of the Exchequer to get over that difficulty. There must be some means by which the Treasury can catch capital which is really a converted form of income. I believe that in saying that I am not saying something which will be opposed by thinking Members of the Party opposite.
§ The idea went around at the beginning that the suggestion of a capital gains tax was an illicit effort of the opulent poor to grind the faces of the rich. I think that that idea must be got out of all our heads. Some means or other must be found to prevent people whose honesty is not too apparent getting away from the burden which they owe, and thereby putting an undue burden upon honest people who pay the taxes they should pay. I say that because I believe that at some time or other—and I noticed that the Chancellor of the Exchequer himself was careful in what he said—some means must be found; and so long as the Conservative Government are in power I hope that their Chancellor of the Exchequer will find a means of achieving the purpose I have described. I beg to move for Papers.
§ 3.25 p.m.
§ LORD CLITHEROE
My Lords, we always enjoy very much hearing the noble Lord, Lord Pethick-Lawrence, introduce this Motion every year; and on this occasion he has, I think, covered even more ground than usual. I hope to be able to deal briefly with one or two of the points he raised, but I certainly shall not be able in the time I propose to inflict myself upon your Lordships, to deal with all of them. I think it is some 30 years since the noble Lord occupied the position of Financial Secretary to the Treasury; and it is about sixteen years ago since I did. In the noble Lord's time the expenditure was just under £800 million. To-day, according to the figures (and I am not going to bother the House with many figures) it is over £6,000 million. That does not only represent the change in the value of money, I am happy to say, but 631 it represents a very great revolution in the whole of our financial affairs. But the interesting thing is that the amount of money we spent last year was almost identical with the amount of money we spent in the last year of the war. In the interim, of course, expenditure went down a lot, but it has now come right up again to what we spent in that last year of the war.
The noble Lord talked about the gross national product. I would just make one observation about what he says. I cannot reconcile my experience of the last decade with the terms that he used: "the years of stagnation". I do not know whether or not others of your Lordships quite agree with that. There may be comparisons to be made between what has happened in this country and what has happened in certain other countries, but they have not really been years of stagnation. The progress that has been made, the work that has been done, and the employment that has been given, have been, I think, greater perhaps than at any period during my time.
On the question of the Common Market I propose to say very little, as the noble Lord did, because I believe that my noble friend Lord Boothby is going to talk to us about that. He knows infinitely more about it than I do, and I feel that it would be much better to listen to him. But I rather share the view of the noble Lord, Lord Pethick-Lawrence, that we want some rather clearer definitions of what practical measures can be proposed to enable us to join this Common Market without doing undue damage to our agriculture, to our Commonwealth partners and to our partners in the European Free Trade Association.
We very much want to know also, what limitations are going to be put upon our sovereignty, because that is the point that largely underlies the noble Lord's anxiety about this matter. What limitations, I am going to ask my noble friend Lord Boothby to tell us, would need to be put upon our sovereignty if we were to engage in the Common Market, as, like the noble Lord, I should like to do if these difficulties can be met? There are some things we can do by way of preparation for it. I am not going to make the case for it, but I hope that 632 the Government will press on with the decimal coinage. That is something we are rather slow about, and the longer we wait the more expensive it will be to alter all the machines, and so on.
I congratulate the Chancellor of the Exchequer, on the whole, on his Budget, in the sense of the approach he made to it. I think the fact that he budgeted for a large surplus of over £500 million above the line was strong action, intended to preserve the stability of our currency and to maintain a healthy balance of payments. All that we must applaud. None the less, the Chancellor of the Exchequer obviously feels—and I think understandably—some anxiety about the balance of payments later this year. He sought to arm himself with some new means of curtailing purchasing power. The new surcharges or regulators, to which the noble Lord has referred, certainly mark a change of emphasis from monetary controls to fiscal controls. I am a believer in the efficacy of using the bank rate, for the simple reason that, when properly applied, it works. But I recognise that not only is a steep rise in the bank rate very painful—and it is, as noble Lords have often said, a blunt instrument—but it takes some months to work itself through the system unless it is applied, as the Radcliffe Committee said (and I am quoting their words),with a vigour that itself creates a major emergency.I believe that if the use of the bank rate had always been timely, it would not always have received quite so much criticism as it has done, and perhaps we should not have had so many jerks on the horse's mouth on the part of the driver. I daresay that some of the drivers have thought that a jerk was needed. I know that in the West of America, where they still occasionally drive a mule team, they can drive a twenty-mule team with a jerk-line. If you are driving a twenty-mule team, it may sometimes be very necessary to give them a jerk; and possibly that idea may be in the minds of some of the people who look after our monetary and financial affairs. There may sometimes have to be jerks, but we do not like them if they can be avoided.
An argument which is sometimes put forward, and which deserves a great deal of consideration, is that now we are 633 committed to a policy of full employment we have to pay the price for it. I think that is clear. It is suggested that that price is a greater manipulation of the economy by the Chancellor of the Exchequer—a greater manipulation, certainly, than was possible under the old machinery or was thought desirable in former times. Now we have recently tried a monetary regulator, the special deposits, which are, in fact, to put it bluntly (if I may do so) to your Lordships, forced loans from the banks. They are called special deposits, and it sounds rather nice. But they are, in fact, forced loans from the banks. I am a critic of this system, and perhaps I may be allowed to ask whether reliance need be placed upon this system much longer. I must declare an interest here, as I am a director of two of the clearing banks; but, being in that position, I have also had the advantage of seeing how it works in practice.
As many of your Lordships know, the use of this regulator has resulted in the banks having to sell investments very heavily to finance export trade and for other legitimate trading purposes, and this has not helped the gilt-edged market, which sadly needs help. I do not think the system is wholly just or effective because, among lenders, the banks alone have to provide these forced loans. No other lenders of money are called upon to provide these special deposits—only the banks. I recognise, however, that the problem of returning these special deposits to their owners is a delicate one, lest the impression is given that the dangers which they were designed to meet has disappeared. That I recognise. It is always easier to put on controls of any sort than to dispose of them. We have all in this House, on both sides, discovered that by experience. There will therefore have to be a very carefully thought-out public explanation of why this is done if, as I most sincerely hope it will be, it is done later in this year. I most sincerely hope that the first step will be taken later in this year.
The fact is, my Lords, that the banks would like to see their liquidity rate higher before the end of the year, because great pressure comes upon the banks in the early months of every year owing to the demands of the tax collector. The banks have a very difficult time then, and it is very in- 634 convenient for the banks to be bumping along the bottom of this 30 per cent. of liquidity. That, in itself, is an arbitrary figure—30 per cent. of liquidity—but the banks like to adhere to it. The reason it is so awkward for the banks to be bumping along the bottom of it is that in many cases bank customers have limits up to which they can borrow from the banks, and the bankers just do not know when particular customers are coming to them to take advantage of those limits. The banker does not know how much money is going to be drawn out from his bank to-morrow or the next day. In fact, emergency payments often arise. One has a good illustration of that in the case of the death of a very rich man. In order to get probate to deal with his estate, his executors may be obliged to borrow very heavily from the bank to pay duty. Requests for payments of this sort come very unexpectedly and, as a rule, cannot be foreseen. All sorts of other demands come upon banks very swiftly, and I can assure your Lordships that these special deposits have created very difficult problems for the banks and for their customers, which I should wish to avoid. I do not think it has worked out to be a very good plan.
Having dealt with that attempt to regulate monetary affairs, may I now come for a few moments to the two proposals made by the Chancellor of the Exchequer in his Budget—these two new regulators, the object of which is said to be to give quick and flexible means of regulating the economy between Budgets. Obviously, there are advantages in that from the Chancellor of the Exchequer's point of view, and if Budgets are (as they are normally) annual affairs, and are, as the noble Lord suggested to us, governed by the number of days which it takes the earth to go round the sun, rather than by a time selected more appropriately for the task in hand, whatever it may be, it is quite understandable that the Chancellor wants something of this sort. But, of course, all such proposals to help the Chancellor regulate his affairs to that very extent unregulate the affairs of every private citizen in this country, and particularly traders and people engaged in commerce. Therefore, naturally, they do not like them. If you are a shopkeeper, you do not like suddenly being 635 told that there is going to be an increase in the tax on your goods. If you have a stock of goods or if you are short of goods, it affects you very much. Whatever your business, it is something you do not like. We are told that this is the heavy price we have to pay, due to the fact that we are trying to reconcile two things we all want, though we have not yet quite found out how to manage it—that is, to keep full employment and, at the same time, avoid inflation. That is the excuse for these new regulators.
I will say just a word about them: I shall not be too long. The payroll regulator is the first one proposed. After hearing all the many varied objections that have been put forward to this tax, at any rate in the form in which it is proposed, I will say only that I trust very much, even if it is accepted in another place, that as the airmen say "it will never get off the ground". I do not think it will be satisfactory. I feel that there is perhaps some confusion in the objective here: confusion between the desire, on the one hand, to regulate consumer demand, and the desire, on the other, to economise labour in the long run. I am not sure that it has been thought out as fully as it might be, and I hope that this payroll tax will not be used, at any rate in its present shape. I have interests in a great many industries in this country, and I have considered this tax in relation to each of them, and also in relation to agriculture. The firms in which I have a responsibility employ more than 100,000 people in various parts of this island, so I have had a good look up and down. In my humble opinion, if I may give it, I believe that in most cases this tax will not be effective, and that in some cases it will be definitely damaging. So I cannot say that I favour that particular regulator in the form at present proposed.
§ LORD CLITHEROE
The noble Lord says: "It will not happen", and I hope he is right.
I make only one other comment on the proposals in the Budget. Once again I want to stress the fact that I think the Chancellor of the Exchequer has done quite the right thing to budget for a large surplus, but I am anxious about the new tax on heavy oils. The Chancellor 636 said that this would raise the industrial costs by one per cent. But, my Lords, it does not work like that; it raises costs very heavily in those cases where the burden falls. In the case of steel, or glass, or many of the chemical processes, the burden may be very heavy, and it may raise costs a great deal more than one per cent., when taken in combination with many recent rises in costs. In the case of steel, they have had increases in coal, coke, labour, transport and oils, and have been threatened with increases in rateable values. That all adds up to a considerable sum, and I think this will make increased prices for steel inevitable in the near future.
I wish that this new impost could have been avoided, because this tax is not deflationary. True, an argument can be put forward that it withdraws some purchasing power; but, on the other hand, it undoubtedly will raise costs. When you take into account the fact that, of the £50 million-odd which will be raised by the tax, a great part already comes to the Government by way of taxes—income tax, profits tax, and so on—I am inclined to think that this particular one was hardly worth the difficulty it creates and the damage it will do. I hope that that point will be very seriously considered.
I hope that the Chancellor of the Exchequer will continue to maintain his strong financial policy, and that he will not overlook the fact that when he strikes at private spending (if that is what is intended when these regulators, and so on, are used), it is no good doing so unless he can make quite sure that the money withdrawn is not spent in the public sector instead, and that any investments made in the public sector are really profitable. Because investment is very important. Everyone says we must have more investment, and I agree. But unwise investment is worse than no investment. Unwise investment loses money, and it is most important to avoid that because it is wasteful and retards growth instead of promoting it.
§ 3.43 p.m.
§ LORD BRAND
My Lords, I follow two noble Lords who have ranged over a very wide surface. I intend to be rather more selective and to deal with what I regard as the most important 637 problem in this country, and that is our balance of payments. I will not say anything about the Budget. I do not like the oil tax, because I have just changed the firing of my house from coal to oil, on the advice of the Government that we ought to. Now I am paying the penalty. I am glad, however, that the Chancellor has raised a large sum of money to try to balance our income and expenditure, and I think it may help us to get through this year, anyhow, without serious difficulty.
As I say, I want to devote my attention to one single aspect—namely, the balance of payments, which I regard as by far the most important and difficult problem to be solved, and certainly the most difficult to understand. We are making little progress at the moment in solving this problem. We are, with the United States, one of the two most important financial centres of the world. As everyone knows, dollars and sterling are two great international currencies. The German mark, strangely enough, is now, in some respects, the strongest currency in the world. Germany is now getting near to having £3 million worth of gold—or. I suppose, of dollars or sterling—and she has few international liabilities. On the other hand, our sterling balances—that is, our debts to the rest of the world—were, at the end of 1960, £4,436 million. As against these, our holdings of gold and convertible currencies were £1,154 million, only a little more than one-third of what the Germans hold, though our liabilities are so enormously greater.
I should add that we have now made arrangements with the I.M.F. to have drawing rights on them, which I think amount to £900 million. But we must not think that that is money belonging to us; we have to repay it to the I.M.F. We have to put our own house in order; they cannot do it for us. They can give us time to do it, but they cannot do more. Germany has had two great inflations. Every debt was wiped out by the first inflation, and much by the second. Our external debts of £4,000 million to a great extent arise out of the last war. Although they were still big, we never did what Sir Winston Churchill, I understand, recommended—namely, make what he called a "robust" settlement of those debts, which I suppose meant writing them down. We found that we could 638 not do that with India and with other countries.
I have one other point to make on this question. I was one of those who negotiated the American Loan and the Canadian Loan at the end of the war. The Canadian Loan was only 500 million pounds—or dollars, I forget which. What strikes me as strange is that the big loan that we had from the United States was never amalgamated with Marshall Aid. So all the other countries, through Marshall Aid, received enormous help free, but we still pay heavily each year in interest, and to the sinking fund, to the Americans and the Canadians for the debts we incurred through helping to win the war.
Now I wish to refer in a little detail, but as limited as I can manage, to the happenings with regard to our balance of payments in this country in 1960, as explained in the Balance of Payments White Paper. I think the noble Lord, Lord Pethick-Lawrence, assumed that everybody knows what our balance of payment figures are. I only realised fully when I looked at them for the purpose of this debate, and I think that they are worth pondering over. Our reserves, strangely enough, considering the other figures, have increased by about £180 million this year. This is satisfactory, but quite how it was achieved, I do not know. Secondly, our sterling liabilities—that is, the £4,000 million are up by £200 million.
Thirdly, and most important, the excess of visible imports over exports was £366 million this year, which is bad. It could not be worse. Fourthly, our net invisible exports—and here I agree very much with the noble Lord, Lord Pethick-Lawrence—were down to the miserable figure of £22 million. They used to be some £400 million or so. They used to carry us along, but now they have gone. Shipping earnings, and I do not know what else, have almost disappeared. That makes a current balance shortage of £344 million. Out of that deficit (so to speak), we managed to lend the rest of the world £201 million, in either Government or private investment. That makes our total shortage £545 million on current account.
Against this, I understand that the Government know of capital movements into this country of £168 million. That 639 leaves what the White Paper calls a "balancing item"—what balances it, I do not know—of £377 million, which has to be covered somehow, and of which the White Paper says:This figure is probably associated with an unrecorded flow of capital into this country.That means that we have short money over here amounting to £377 million, which has balanced what we have lost on current and capital account. I apologise for all these figures, but they are important. What they seem to show is that during 1960 we went heavily into debt on our current account, notwithstanding which we lent £200 million over and above this very big current deficit to the world outside, but fortunately very large capital sums were sent here temporarily from abroad, I suppose owing to the high rate of interest. Therefore, I would point out to the noble Lord, Lord Pethick-Lawrence, that a high rate of interest has some use on some occasions.
§ LORD SALTER
My Lords, to the extent to which this high rate of interest attracts short money, is it really such an advantage? Is it not a momentary advantage, but a later danger?
§ LORD BRAND
We do not know when we shall have to repay it all. The result is for the moment good fortune, but it is not a procedure which we can expect to last. If we are to strengthen ourselves permanently and be able to lend abroad, we can do so only out of a surplus of exports, visible and invisible, and not out of a huge deficit. We may think it a compliment to us that so much money should be sent here when our trading figures are so bad. I think that there were in fact two causes. One was that the dollar was very weak, and the other, that our interest rates were high. We are, in fact, lending long and borrowing short, which is what no institution likes to do or can do for long. It is not a healthy procedure.
As your Lordships no doubt know—, indeed, it has been said just now—there are various schemes now being discussed 640 to enable the International Monetary Fund to act as a means of coming to the help of countries that are in temporary difficulty. I do not agree with the scheme put forward by Professor Triffin, which makes the I.M.F. into a sort of United Nations Central Bank, like the Bank of England or the Federal Reserve Bank. He proposes that we should hand over our reserves to that body. On the other hand, I agree with Mr. Bernstein's plan, which I will not go into here. He was a friend of mine in the Treasury at Washington when I was there. His plan is to enable the I.M.F. to advance large sums to any country which gets into difficulties, but it does not in the least mean that that country has not to get out of its own difficulties by its own efforts.
I should like to quote certain figures, on a different subject, which were given by Mr. Bernstein in an article I have recently read, "A Comparison of Germany and the United Kingdom". Mr. Bernstein is a very competent statistician and observer. His statement is that, in the United Kingdom, private consumption absorbs between 65 and 67 per cent. of gross output. In Germany, the corresponding figure is between 57 and 59 per cent.—an "enormous difference", as he says. German wages have gone up, but the average hourly wages in manufacturing are, he estimates, about 18 per cent. higher in the United Kingdom than in Germany. He thinks it is doubtful whether "the productivity of British labour is that much greater than that of German labour." Of course, Germany has an advantage in that she spends much less on armaments. She also has had the advantage of 10 million refugees from Eastern Europe, all of whom she has absorbed. Wages have not risen as much, relatively to productivity, in Germany as in the United Kingdom. And, as your Lordships know, trade in the Common Market has increased much more than in the Commonwealth.
To come back to the United Kingdom, our balance of payments is the great problem which must concern the Government, industry, the trade unions and the British people alike. We are having a good time now, but we are not paying our way. Consumers' expenditure has gone up by £1.700 million in the last four years. In those years, 641 total imports went up by £1,000 million and total exports went up only by £600 million. The country's great difficulty seems to me to be that the words "balance of payments" mean absolutely nothing to the mass of people, whereas the words "Welfare State" probably pre-suppose constant increase in salaries and wages and therefore a tendency towards inflation. The duty of trade union leaders is to understand fully this serious problem and to educate their followers, and the duty of industrial leaders is to devote their energies to increasing exports. The duty of the Government, in the end, is to take such action as will in any event maintain the country's financial stability. I note with pleasure Lord Amory's Motion on June 15 for a more purposeful and dynamic spirit of co-operation in industry. I hope he will show us the way we should go. If we cannot do better than we are doing now, we shall ultimately end up in deep water.
§ 4.0 p.m.
§ LORD GRANTCHESTER
My Lords, I am very conscious of the difficulty of following the noble Lords who have already spoken, all of whom have experience in Government or in service on governmental or inter-governmental committees. Less ambitiously, therefore, I will try to speak in simple and non-technical words.
We used to speak of getting into a rut; that was something to which we reacted; we felt that we had to make an effort to get out of any groove, for a person in a groove was no longer able to decide his course. To-day we speak of trends and patterns and plans. That sounds rather less like an admission of having lost control, of having lost the power of initiative, the power to shake ourselves clear of the rut which holds us its slave. but really it means the same thing.
As the noble Lord, Lord Pethick-Lawrence, has mentioned, in theory Parliament decides expenditure each year and the means of paying for it, but for many years the pattern of the nation's expenditure has remained almost fixed, carrying over from one year to another a pattern accepted as almost inevitable. A Chancellor of the Exchequer is considered to be making a real effort if he tries to contain one year's expenditure within the overall total of the previous 642 year. Then he finds certain inevitable increases—the higher cost of new drugs, or an increasing number of persons are living beyond the pensionable age, or an increased number of children are entering school. So he resorts to talking not in plain figures, but in percentages of expenditure to estimated gross national income. I think it is not surprising that the general public do not understand what is happening. This is the pattern to which we have become accustomed; should I say by a process somewhat akin to brainwashing? Surely the time has come to sound the alarm.
May I recall the staggering figure—and "staggering" is the only appropriate adjective to describe the sum taken from the people of this country by Government, which is no less than £7,000 million a year including National Health contributions and local rates? We can be glad that the Chancellor of the Exchequer feels that some administrative saving on an expenditure in the national Budget of £5,000 million a year must he possible, and has appointed a Committee to decide where and how much. We can praise this decision as showing a healthy respect for efficiency and economical administration. Any further saving can be achieved only by major decisions on policy. For instance, so far as Defence is concerned, whether and to what extent greater integration within our alliances can cut costs. But this is a decision which personally I feel must follow, rather than precede, closer political association, or at least the establishment of an acceptable authority for the taking of joint political decisions.
Excluding Defence, we are left with an expenditure of over £3,000 million a year on the social services. As we all know, the purpose behind the establishment of these services was humanitarian, to ensure minimum standards in health, education and housing, and a minimum income in unemployment and retirement for those incomes were too low to provide for themselves. First of all, in a day when we all try to dodge personal responsibility, and pass on to an official the natural obligation to care for others, in many cases even for our own elderly relatives, let us have a review of the measure of our humaneness to those in need, such as the level of National Assistance payments, war pensions and the training of the disabled, irrespective 643 of the reason for what we may think is the cause of their being in need.
Having made that clear beyond all possibility of misunderstanding or misrepresentation, could we not ask some simple questions about our social services? For example, how much of the retirement pensions goes to people who have not paid for them and do not need them? Are the family allowances going to the purposes for which they were intended? How much of the housing subsidies is subsidising people who can afford to pay full rents? Should there now be a reconsideration of the compulsory starting age and leaving age at school, with greater flexibility both as regards choice of subjects and payments—that is to say, a greater approximation to the practice in non-State schools? What is the point of paying money and supplying services to people whose incomes are enough for them to do without them or to pay their cost or part of their cost? What sense, and how much waste, is there in forcing them to buy services from the State? How much more generous could we be to those in need if we could cut out these transfers of money from consumers, contributors and taxpayers to the State, and then back again? Has not the State become the super middleman, and are there not very great advantages to be gained by cutting down the services of this super-middleman? This might help to restore greater interest and freedom of choice to a large number of citizens who to-day think they could spend their money better than any official can spend it for them.
Could we not ask the Chancellor of the Exchequer to use the authority he has, as the keeper of the nation's purse, to shake up every spending Department, to shake them out of the rut? Could he not request plans which, while caring and fully providing for the needy, would enable many gradually to pay, like self-respecting citizens, for the services and the kind of education they desire if the Chancellor of the Exchequer no longer emptied their pockets of such a large proportion of their earnings, as he does at the present time? I suggest that this is the kind of shakeup which it is essential for the Chancellor of the Exchequer to bring about if this country is to present a modern outlook in to-day's conditions, rather than to be content with adjustments in taxation as between the individual and the corporation.
644 Without having had sufficient time, perhaps, to achieve worthwhile economies—and it must take any new Chancellor a considerable time to find his way about—I am sure the Chancellor was right to place the emphasis in his Budget on increasing the reward for individual effort. The side effects, as the doctors would say, of taking away by taxation such an amount of a man's earnings as has been done since 1944, has undermined character and lowered standards all round. I think we are all conscious of this.
I should like Her Majesty's Government, in co-operation with the trade unions, to launch a campaign to encourage all who can to make a greater effort, to take a greater pride in the quality of workmanship. Some goods are rather carelessly produced to-day. But the prerequisite of any such campaign is surely that every worker and every craftsman should be satisfied that he is not being asked for more than a fair contribution out of his earnings from harder and more careful work by taxation. It is depressing to see to-day in London stores many foreign-produced household requisites selling at prices not less, but higher, than their British produced counterparts; being sold on their quality in design and workmanship. Surely, so far as American produced goods are concerned, particularly where there is a fairly high labour content, we should be able more than to hold our own in competition.
To return to the Chancellor of the Exchequer's recent Budget, it seems obvious that behind the framing of this Budget there lurked two great fears, one for the future value of sterling, and the other the fear of renewed inflation. To budget for a large surplus above the line was no doubt intended to show this country's determination to pay its way. I agree with the noble Lord, Lord Clitheroe, that this was desirable and necessary at the present time. The Chancellor's assurance that he will not engage in new borrowing during the year should also help to strengthen the nation's credit.
As the noble Lord, Lord Brand, has reminded us, to fulfil our minimum obligations without courting trouble it is necessary for us to earn a surplus on our balance of payments of not less than £250 million a year. Yet we have been 645 falling short of this by something like £600 million (I put it in round figures; I think the noble Lord, Lord Brand, said £545 million) because our exports fell short of our imports by something like £350 million in 1960. It should be possible to make those simple facts clear to everyone. We have been spared a sterling crisis more by the actions of people in other countries than by our own good sense and efforts, but we cannot count upon such continued good fortune. When the gold standard was fully effective, an automatic corrective was brought into operation which had the effect of correcting deficits in balance of payments, and any surplus was properly used for external loans. There was perhaps more confidence in the political stability of the world in those days than these is to-day. Perhaps there was a little more commercial honesty in those days.
I do not believe, any more than does the noble Lord, Lord Clitheroe, in the Chancellor's proposed new payroll regulator. But if the nations which believe in a market economy free from unpredictable intervention by Government are unwilling to accept the discipline of a full gold standard, is it impossible to devise some automatic deterrent to living beyond a nation's means? If I may say so with respect, I agree with the noble Lord, Lord Brand, fully, that this is the most serious problem we have to face, and it cannot be put right by action taken by fits and starts. What we must try to find is something which works automatically as a corrective, as we had before 1914.
Fears of renewed inflation obviously behind this Budget are real and cannot lightly be brushed aside. The chief danger surely comes from overloading the economy by excessive Governmental expenditure, the increasing expenditure all through what is called the public sector.
Some Governments have during the past year experienced difficulty in finding means of restraining by monetary discipline excessive demand at home without attracting the inflow of short-term funds, to which the noble Lord has already referred, to the embarrassment of other Governments. No doubt any system which leaves any freedom to individuals tends at times to be considered by authority as a nuisance, and certainly there are many Government 646 officials in various countries who look upon the movement of these short-term funds as a nuisance. But surely, without expanding credit—and that is what I understood the noble Lord, Lord Brand, to be afraid of in his reference to proposals which have been made for the organisation of a World Bank—without expanding credit, for this would be inflationary, it should be possible by co-operation between central banks to avoid disturbances caused by the international movement of short-term funds. I think the European central banks are taking steps to put some such corrective into, operation should it be necessary. Any measures which a particular country found necessary to restrain inflation could then be taken without causing embarrassment in another country where the internal conditions were different.
May I, in conclusion, sound a word of unbelief in the current excessive preoccupation with economic growth solely in terms of production? Nor can increased wages be based on an artificial stimulation of production irrespective of market conditions. Sound economic growth must come first from service to the consumer. To be of service is perhaps the highest ideal in business. Are we in danger of coming to think that a factory exists simply to produce and to provide employment for producers? Surely the key to growth is the good will of the consumer who is invited to buy and to use what should be produced for his pleasure or convenience. t should be every producer's pride as well as every salesman's pride to serve the public. This is the key, I suggest, to securing increased exports, so necessary for our country's existence and by which alone our high standard of living at home can be maintained.
§ 4.26 p.m.
§ LORD WALSTON
My Lords, my noble friend, Lord Pethick-Lawrence, in opening this debate raised so many problems and covered such a wide field that ii is hard to know where to follow him and how much to restrict oneself, but I shall try to deal with one point and one point only, which, with great respect to the noble Lord. Lord Brand, is in my submission, even more important that the balance of payments, because without it I do not believe that we can solve our balance of payments problems. I refer to what the noble 647 Lord, Lord Grantchester, has just mentioned, and that is growth—increased production. Of course, I agree with him that there is no point in producing just for the fun of producing. There is no point in producing simply in order to give employment. One can only produce successfully for the consumer. But, accepting that point, I believe that our efforts must in the first place be channelled into and focused on increased production. It is perfectly true that in theory we could solve our balance of payments problems without any increased production if we were to decrease consumption, if we were to lower our standard of living; but I do not think any noble Lord here would accept that as a practicable possibility. That brings us back to the increase in the total wealth produced by this country as being of prime importance.
§ LORD WALSTON
I agree entirely with the noble Lord. We must not, as I said, produce willy-nilly. We must bear in mind the fact that our production must be sold, and therefore the consumer, his requirements and his pocket, must all come into our consideration. But if we look back through this country's history we can see that a very interesting and fundamental change has taken place over the years. We are now called a nation of shopkeepers; we have been for some time. We are also a nation of bankers and a nation of exporters. But the wealth on which all those activities originally were based came from basic production—from our iron, from our coal, from our factories and from our shipping, too, which is a basic necessity even if it is not technically producing anything, and, of course, from our land. There is no need to remind your Lordships that wool was the foundation of the wealth of this country and that in the past we have been considerable exporters of food. I am not suggesting that we should once again become sizeable exporters of food, though, in passing, I think that if the Common Market develops we may well find ourselves in the position of exporting food to the higher-cost Continental countries.
648 But the change which has taken place has resulted in wealth now finding itself more and more in the hands of those people who are not actually producing anything but who are engaged in other activities, such as banking, merchandising and insurance. If you look round to-day at the profitable investments in this country you do not find that our basic industries are considered profitable. If you want to make a sound investment you look to the insurance companies, to the retail stores and to property shares—all things that are useful, in their way, but are not actually producing any more. I would not go so far as the noble Lord, Lord Clitheroe, in referring to bankers as a "team of mules"—he, being a banker, would have more right to do that than I have. But I suggest quite seriously that to-day the material rewards which come to people who work at any activity in this country are entirely out of gear with the value of what they are producing.
Let me give your Lordships a completely personal example. During the last six months certain personal investments of mine have increased in value and have shown me a profit in six months—and a tax-free profit at that—of double the profit I have been able to achieve by farming for twelve months on a relatively large scale, both in this country and in the West Indies. You may say that if I consider that wrong I should not profit from it. That is another story. But surely it cannot be right for a country, for a community, for a society to exist in this way, where more spendable wealth arises from shrewd or fortunate, but unproductive (in the strict sense of the word), investment, rather than from relatively hard work with a relative amount of skill and experience in producing something tangible. I believe that we must try to alter our basic concept in this respect and make a conscious effort to redress the balance. I am not suggesting that we go back to the Middle Ages, to the eighteenth century, or even that we go back to the nineteenth century, but that we redress the balance to the extent that the material rewards go somewhat more than at present to the people who are producing wealth, and somewhat less than at present to the people who are engaged in the exchange of wealth in one form or another. Until we do that, 649 we shall not get very far with this problem, which is not a new problem but one that has been with us now ever since the end of the war—indeed, from rather earlier than that.
Coming down to rather more specific matters, what should we attempt to do in order to make this increased production possible? As the noble Lord, Lord Pethick-Lawrence, said, we must have stability. We cannot have an economy which fluctuates up and down from year to year, and from month to month. We must have a planned production—not a detailed plan but an overall plan—so that those engaged in producing know what is wanted, and know in what they should invest their money. In my opinion, we should also have far greater specific incentives to investments of the right sort—that is to say, investments in capital machinery.
I will not go into detail because it is not a matter on which I am qualified to speak, but as an example I would mention initial allowances and depreciation allowances, which can be used not as a fluctuating year-to-year weapon or incentive, but as a far longer-term means of encouraging the right sort of investment in the right sort of industry. There again, it should not be an overall form of allowance which gives a company equal incentive to buy a Rolls Royce for its director as to install a labour-saving and efficiency-producing machine; it should be a selective one with regard to the actual investment itself, and a selective one with regard to different industries, so that these industries which it is decided in the national interest must be encouraged are given that incentive, and those which are not considered to be so important can be left to fend far more for themselves.
But it is not enough simply to encourage the right sort of investment. It is not only machines that we need; it is the men to work the machines—and we must have labour in the right places and of the right kind. That is talked about now as the mobility of labour. It is perfectly true that we cannot afford to have labour sticking in one area of the country because it has always been there, regardless of whether there is any work or any useful work for them to do, and refusing to move elsewhere. But labour is not simply an entry in a ledger to which certain wages have to be given 650 every week. Labour means you and me; labour is composed of ordinary people. It is quite obvious that we must regard the human needs of those people if we want them to change their homes, their surroundings and their work. It is not simply a question of going from one factory to another at seven o'clock in the morning. It is a question of moving, of finding a new home, of finding a new school for the children and new neighbours for the wife. Those are the problems which are holding up mobility of labour, and those are the problems to, which, if we are going to achieve mobility of labour, we must give thought and specific financial inducement in one way or another—in removal allowances, priority in housing, or whatever it may be.
I suggest to your Lordships that there is one further matter—one which has been talked about from time to time but, because it is so full of very real difficulties, has always been shelved. I refer to the whole question of wages, of a national wages policy. Can we really afford to go on to-day with wages being arranged, negotiated, as they are at present? I know that I am treading on dangerous ground, and many of my noble friends here may strongly disagree with me. But there is no getting away from the fact that at the moment wages that are paid are simply the result of conflicting forces: are the unions strong enough to get a rise in wages for their members? Are the employers strong enough to resist it? Is the market strong enough to stand it? It is purely a battle of strength. In my view, battles of strength, when resolved, rarely give the right answer. If we are going to plan our industry, if we are going to plan our production over a period of years on the right lines, we must be prepared to face this problem and be prepared to decide which industries are in need of more labour, which should be encouraged, which require or deserve higher wages and which should be lower on the list. We cannot go on dodging the issue for much longer.
There is, of course, one further, and perhaps even greater, advantage in having some form of national wages policy. It is probably one of the most effective anti-inflationary measures that can be made use of at the present time. As the noble Lords, Lord Brand and 651 Lord Grantchester, have both said, our exports, our production (whether it is exported or not), must be of a type the consumer can afford to buy. The higher our costs, obviously the smaller our markets. I am not saying, "Let us keep our wages low for that reason". I certainly would not say that. But I do say that we cannot afford to allow the level of our wages to be left solely to the bargaining strength of the people involved. If we are to avoid inflation, if we are to keep our costs down and be competitive on the world markets, I can see no way of achieving this without the Government's having the strength and courage to go firmly for a national wages policy and, on that basis, really control inflation and, over a long-term period, control the type of production and the type of growth that is necessary to solve the balance-of-payments problem and the other economic problems about which my noble friend has spoken.
§ 4.41 p.m.
§ LORD LUCAS OF CHILWORTH
My Lords, I join with other noble Lords in paying my tribute to the noble Lord, Lord Pethick-Lawrence, for opening his annual debate in an even more interesting manner than he usually does; it gets more interesting with the passage of years. I hope sincerely—and I feel other noble Lords will do the same—that we shall have the pleasure of this annual event for many years to come.
I should like to commence the few remarks I intend to address to your Lordships by following the noble Lord, Lord Clitheroe. If he will permit me to say so, I agree with nearly everything he said in a most admirable speech. He said—and it was underlined by the noble Lord, Lord Grantchester—that here we are to-day, taking 37 per cent. of the gross national income in taxation. The noble Lord, Lord Clitheroe, puts the figure at £6,000 million; the noble Lord, Lord Grantchester, made it £7,000 million because he added the rates. How much of that annual amount that is being taken out of the pockets of the people of this country is usefully spent, and how much is wasted?
The noble Lord, Lord Clitheroe, said that what we had to do in the future was to see that the money spent by the 652 Government, which is an increasing amount as the years go by, was usefully and profitably spent. The noble Lord, Lord Grantchester, paid a tribute to the remarks of the right honourable gentleman the Chancellor of the Exchequer when he said that he intended to look at this whole question of Government expenditure, Government accounting. It sadly needs it. I understand that, as a start, a Committee has been set up (I do not know whether it was the same Committee as the one Lord Grantchester was referring to), presided over by Lord Plowden, to consider a new scheme of Government estimating. I think it has reported already. It is common knowledge that the Estimates of Government Departments are so unreal as to be meaningless, both in their origin and in their outcome. I should like to ask the noble Earl, Lord Dundee, who is to reply to this debate, whether it is not possible for the Plowden Committee's Report to be published, so that Parliament can read it. After all, Parliament is responsible to the people of this country. I think that all these facts and all facts of this kind should be made available to Parliament as soon as possible.
When I read the speech of the Chancellor of the Exchequer in introducing his Budget I searched, and searched in vain, for one thing that would make a contribution to what the noble Lord, Lord Brand, has stressed, balance of payments, and to what other noble Lords have referred to, increasing our exports. We have been told by Ministers of the Crown, who have perambulated this country stirring up industry, that industry must increase its exports. They have told labour that it must not do anything to increase the cost inflationary spiral. Yet that is just precisely what the Chancellor of the Exchequer's Budget has done.
I agree with the noble Lord, Lord Clitheroe: I cannot imagine a worse thing to do at this period of time than to increase the fuel tax. As he quite rightly said, it is no good the Chancellor of the Exchequer saying that it is only marginal; as he quite rightly said, where it falls it falls heavily. Once we start a cost inflationary spiral in the steel industry of this country it is going to have some devastating results upon our economy and upon our export prospects. In my view, everything should be done 653 to make our great industries, particularly the steel industry, competitive. The competition they will have to endure in the future from the Continent makes it absolutely imperative that the costs of British steel are kept as low as possible.
That brings me to the point on which I feel strongly and which I shall perhaps be told is rather "dynamite". In my view, if the steel industry of this country can buy coal more cheaply from abroad it should be allowed to do it. I understand that a free hand is given to the Coal Board to buy steel abroad. We must not start interfering with the economics of the costs of basic industries and trying to "featherbed"—the word that comes into my mind, as perhaps a good term to use—a section of the community, at a cost to the rest of the community and at a cost to the thing we want more than anything else; that is, to increase our exports, which will be our prevailing need for many years to come.
I do not think the Government should hesitate one moment. They may have to face some trouble. If I may say so, with great respect, they have not been very good at facing troubles over these last two or three years. They have generally managed to clutch a tight hold on damp squibs, but when it comes to problems which call for real government they have not shown themselves very apt. In my view the whole of our fuel policy in this country needs to undergo a reappraisal. We are still committed to an expenditure of £3,000 million in our electrical production industry; we are committed to millions of pounds in other nationalised industries. I beg leave to doubt whether a large bulk of that expenditure to-day would fall within the category of what the noble Lord, Lord Clitheroe, calls profitable. I want to come to one specific case in a moment.
I see the noble Viscount, Lord Amory, sitting there. My mind goes back to this time twelve months ago. I made a plea, a plea that got me into a lot of hot water, I may say—but having lived a long time in life in hot water it did not have much effect upon me. I pleaded that the Chancellor of the Exchequer should relieve the surtax burden upon the young, up-and-coming executives, scientists and engineers of this country. I pleaded that one of the 654 things that we in this country wanted above everything else was an increase in incentives. The noble Viscount, Lord Amory, was kind enough to agree with me. That did not do me any good, either —but that is just by the way. I am convinced that I was right then; and I am convinced now that they have to be increased.
I only hope that I can now enlist the support of the noble Viscount, Lord Amory, in this belief: that the whole of the individual taxation of this country has got to undergo a fundamental change. In my view, high taxation is one of the most inflationary factors we have to deal with to-day. I should like to see surtax and income tax merged into one. I should also like to see unearned income treated better than it is to-day. I say that on these grounds, my Lords: that capital is as worthy of its hire as labour, and one cannot do without the other. When the noble Lord, Lord Walston, was talking about the huge capital gain he had, I was tempted to interrupt him and to ask him what he did with it, but I did not.
§ LORD WALSTON
May I point out that I did not say that it was a huge one. I said it was double the one that I got on farming.
§ LORD LUCAS OF CHILWORTH
Then it must have been huge, because, knowing the noble Lord, Lord Walston, I know that he does not farm for the benefit of his health.
§ LORD LUCAS OF CHILWORTH
He does: but all farmers living on the verge of bankruptcy always look very well. But I suspect that what he did with his capital gain, whether it was huge or whether it was small, was to invest it, and he expected to get a return on it. I think there is so much nonsense talked about unearned income. When you come to think of those who have worked hard all their lives and who have indulged in thrift and saving, to live the last 20 or 30 years of their lives, perhaps, away from the hurly-burly, why should that not be counted a virtue as much as working on the productivity which gained them that amount? The fact is, my Lords, that we want investment and we want saving; but immediately the 655 young executive, who now has the carrot dangled in front of his nose to go on and on, saves and invests what he has earned, he is taxed far more than when he was earning it. There is something wrong there.
I want now to come to one point which I have already briefly mentioned. There is one section of our economic and national life that has an unsatiable appetite for money—I refer to our nationalised industries. I have studied as well as I can the White Paper on the financial and economic obligations of the nationalised industries, and I have come to the conclusion that the prerequisite of any success in our nationalised industries is that they must be able to attract brains of a calibre equal to those in private industry. I was not in the country at the time it happened, but I doubt if I have ever read or heard so much nonsense about any subject as I read or heard about the Beeching appointment to the Transport Commission. And for people to say that this country was aghast at a man being paid a gross salary of £24,000 to do a really first-class job of work is just a misuse of language. My Lords, what the country has been aghast at with regard to the British Transport Commission is that, through rank bad management at the top and inept handling by the Government in allowing it to go on for so many years, it has lost £500 million of the taxpayers' money. That is where the Government are vulnerable: they have sat twiddling their thumbs, year in and year out, while that deficit mounted and mounted until, at last, the best part of £400 million had to be written off.
It was the noble Viscount, Lord Amory, who blew sky-high the ridiculous method of accounting which allowed that to continue. When he was Chancellor of the Exchequer, he said, "I am having no more of this nonsense the current deficit of the British Transport Commission will go above the line in my Budget, and will be paid for out of current taxation". That was £100 million there has been £100 million ever since, and there will be £100 million for very many years to come. That, my Lords, is one of the results of the unfortunate experience of allowing patronage to enter into nationalised industries. The deficit on the Budget of last year was, I think, 656 £400 million. Twenty-five per cent. of that was contributed by the British Transport Commission. That is the estimate that will go in this year's Budget, and in next year's as well.
I want to ask the noble Earl who is to reply to this debate: When can we expect some turn in this sorry course of events? I come back to the remark made by the noble Lord, Lord Clitheroe: that we have not seen the worst of this colossal wastage of money on the nationalised transport service. The truth will eventually have to be told about the expenditure on the Modernisation Plan: bad expenditure, bad costing, bad financial management, bad over-seeing—and I think the Government have got to take the lesson of that very seriously. Because let it be said, in truth, that all the time this sorry state of affairs was being pointed out to the Government—and consistently, year in and year out, from the Opposition Benches here, it was pointed out to them; and chapter and verse were given—Government spokesmen were standing up, like small boys whistling in the dark to keep up their courage, saying that one day the British Transport Commission would be a profitable concern.
There is only one other point about which I want to talk for a minute or two: it was mentioned by the noble Lord, Lord Pethick-Lawrence, as one of his major points, and was also touched on by the noble Lord, Lord Brand. It concerns the present position of our shipping, which is deplorable. I should have thought that Ministers, especially Cabinet Ministers, have spent one or two sleepless nights since the Cunard Company produced their last accounts. The taxpayers' money is going into a pretty sorry affair at the present time: but that, to my mind, shows the weakness of the Government's financial policy.
Many of us have pleaded for a long time that it is not beyond the wit of man—I think the noble Viscount, Lord Amory, said this twelve months' ago—that those who export should have some preference on taxation. We are told by the Government that it is impossible to subsidise industry, because that will incite everybody else to retaliate. Yet the excuse, as I understand it, for the subsidisation of the Cunard Company to build another ship is that the French 657 Government and the American Government subsidise the Cunard's competitors. But if the Government want to do this (and in their wisdom they may be right), what about the rest of our shipping all over the world, which is declining? What about South America, where the flag of discrimination is practically driving British shipping off the seas? In every port you will find the local Government saying that any imports into their particular country must be carried in their own national bottoms. And the situation will not get any better; it will get worse. What are the Government doing about it? One might also ask, at the same time, what is the shipping industry doing about it?
My Lords, there is only one thing that I think the Government can do, and that is to engage in retaliation. I know of no other way to cure this; and if it is not clone there will not be many ships sailing to South America, which in the future will perhaps be one of the most prosperous regions of the world. In my view, the shipping companies not only have to concentrate their fleets, but they have to reorganise the whole of their finances. Only in those two ways shall we start to build up once again a mercantile marine which, as I think the noble Lord, Lord Pethick-Lawrence, or the noble Lord, Lord Brand, said, contributed, years ago, so much toward our balance of payments. Now we are losing that, and it will not be got back by building a passenger liner which travels across the North Atlantic. It will not be got back by a subsidy of that kind.
§ 5.5 p.m.
§ VISCOUNT AMORY
My Lords, I do not propose to inflict on your Lordships this afternoon a prolonged dissertation on the economic state of the country, because I think the salient facts were admirably set out with great lucidity by my right honourable friend the Chancellor of the Exchequer in his Budget statement.
I understand that in catering circles it is recognised as a rather rare event for a retired chef to be completely satisfied with the gastronomic confections devised by his immediate successor. Invariably there are apt to be allegations of an excess or a deficiency of salt in the soup, or perhaps that the fish would have been better cooked in white wine than in olive oil. Therefore I am glad to 658 feel sincerely able to pay a respectful tribute to my right honourable friend for what I think is a sound, interesting, and forward-looking Budget.
It is seldom—or so it seems to Chancellors of the Exchequer, I think—that the general public indulge in rhapsodies about a Budget of an intensity that they are not well able to keep within control. Of my own Budgets, the appreciations I remember best approximated very closely to the well-known reply of the farm worker, when his farmer employer made a free issue of cider and asked his workers how they found it. The reply was: "Just right, boss. If it had been any better we would riot have had it, and if it had been any worse, we could not have drunk it." That is the kind of appreciation that is most lively in my own recollection.
My right honourable friend's Budget has been widely and rightly commended, I think his dilemma—and it is a dilemma to which we are becoming accustomed —is that he dared not add anything to spending power in the aggregate, and in fact wanted to restrain it. He did not want to discourage investment, so the restraint that was needed was a restraint concentrated, so far as possible, on consumer expenditure. He wanted to encourage incentive to effort, and to lighten the heavily progressive incidence of tax on personal earnings; and he wanted to see what further actions he could find to foster the growth of exports.
In truth, I think we are faced at the present time with a very strong contrast between the levels of our external and our internal prosperities. At home there is almost every sign of affluence and prosperity: more people at work than ever before; a record level of consumer spending; a record level, too, of saving and investment, both private and public; and of course, peak prices for equity shares on the Stock Exchange. We have also enjoyed about three years of almost stable prices, during which period (and this is what makes it so ridiculous, if I may say so, to refer to stagnation in connection with this period) the standard of living of the people of this country, in real terms, rose faster than, I think, at any other period in the past 20 years.
In the external sector—and I agree so much with my noble friend Lord Brand; thought the figures he chose about this 659 were accurate and absolutely to the point —the prospects there give ground for continuing anxiety. Our export performance, in relation to that of our main competitors, is not good enough and is lacking in dynamism. Imports are still running high, although the figures published to-day indicate a better trend after allowing for the seasonal influences. Then, as my noble friend Lord Brand rightly pointed out, we have a continuing very high level of new net investment overseas; and, of course, on top of that, a rising figure for aid to the underdeveloped countries and in our overseas defence expenditure. All those things, when added up, are on a scale which make it very difficult to see how, in the immediate future, we are going to be able to finance them from current earnings. I agree with my noble friend that one cannot for long envisage borrowing short and investing or lending long on this scale.
In all the circumstances, sterling, for a variety of reasons, has stood up well. I believe that one of the reasons is that those in other countries who study these things feel that our Government and the Chancellor of the Exchequer have produced measures that are correct and timely in our circumstances. Nevertheless, we must never delude ourselves into being in any doubt whatever that, as between these two fields—the internal and the external—it is the external which is the more important. I was glad that my noble friend Lord Brand underlined that point. So there are two dangers, of which my right honourable friend the Chancellor of the Exchequer has shown that he was acutely aware: the overseas trade and payment situation, and the fact that, after three years of substantial stability in the price level, there are again signs of rising internal prices.
To what extent does the Budget help to solve these two problems? I would refer to two or three of the main features. First of all, as my noble friend Lord Clitheroe said, in budgeting for a big above-the-line surplus and a very small below-the-line deficit, surely the Chancellor of the Exchequer is completely and courageously right. That will make a really important contribution to moderating the excess demand from 660 which we are suffering. And, incidentally, one would expect that it would strengthen the market for Government securities.
Next I would refer to the Chancellor of the Exchequer's proposal for reducing the incidence of surtax on income. Again his action is undoubtedly right and fair. That should increase the incentive to earn and to take risks. Noble Lords may ask me, if I feel that this is such a good thing to do, why I did not do it myself. I can only say, in retrospect, that I had my priorities which I thought were most urgent at the time, but I should dearly have loved to do this. As the noble Lord, Lord Lucas of Chilworth, pointed out, last year I had one rather unexpected burden to carry, rather late in the day, which was to provide above the line, for the first time, for a deficit of £105 million from the British Transport Commission. This certainly set me back a little in my calculations. But there are no sour grapes in this. I should like to congratulate my right honourable friend and give him the fullest possible credit for what he has done here.
I am glad to find myself, too, in substantial agreement with the noble Lord, Lord Lucas of Chilworth. I am sure that if he would join me here and sit by my side on these Benches, we should find ourselves in strong agreement on many other things as well. On one other thing I find myself in agreement with him—that is, on the seriousness of the flag discrimination situation. I would not venture to say what the solution is, because we cannot achieve anything by unilateral action. But this is something which is of growing importance, which is a severe handicap to us and which is also, I think, unjust.
This reduction in surtax may help our exports indirectly, but we must keep a sense of proportion and remember that, though they will provide a greater incentive to earn, if profits still remain easier to earn in the soft home market, then the effort is likely to be concentrated in that direction. The Chancellor of the Exchequer decided against a capital gains tax. I think that, on the whole, he was wise in present circumstances. The prospective yield would have been very uncertain. But I fancy that at some time in the future it may be sensible to 661 look for a further opportunity of reducing the burden of tax on personal incomes by spreading the incidence of tax over at least some part of the field which is at present regarded as that of capital transactions. This is an extremely difficult matter and I do not wish to go into it further now.
I thought the tax on television advertising legitimate and even wonder whether, if necessary, the Chancellor could not go a little wider into the field of commercial advertising. As a retired and superannuated chef, there are two confections about which I find myself rather less enthusiastic. First of all, the need for a further increase in profits tax, after the increase last year of 2½ per cent., is a little disappointing. A year ago, I proposed an extra 2½ per cent. on the profits tax, which brought in nothing last year, but something like £45 million this year, which I had hoped might provide sufficient revenue to cover the reduction in personal taxation which has been made. But the Chancellor of the Exchequer decided that he required this revenue, of which he was assured, to improve further his surplus, and that is such a laudable objective that I do not wish to quarrel with him on that.
Then there is the fuel tax on heavy oil. If that is passed on by the oil companies, the bigger part of it will enter into costs of production. As my noble friend Lord Clitheroe said, oil happens to enter to a quite appreciable extent into the cost of such products as heavy chemicals, fertilisers and steel. These are three products of which our export prices have to be particularly competitive at present if we are to secure business; and I am rather afraid that this increase in fuel tax, if it is passed on to the manufacturers, may result in the loss of some quite important marginal export business which we can ill afford to lose.
I know that in one steel company, with which I am familiar, the incidence on costs of this tax, if passed on, would be upwards of £1 million; and in a chemical company, with which I am also concerned, it would amount to far more than that. I suppose that I ought to declare an interest. By some strange twist of fortune, I find myself a director both of a chemical company and a steel company, and, I may say, of a bank, too, as I shall be mentioning banking later. 662 Frankly, I do not much like the fuel tax. No one realises the Chancellor's difficulties better than I do, but I do not like it because it is, at best, a very indirect way of imposing restraint on the consumer.
After picking those bones of modest dimensions, I should like to praise the Chancellor of the Exchequer wholeheartedly for his search for new short-term regulators, During my last few months at the Treasury, I felt increasingly the need for some new fiscal instrument which could be applied quickly and over a broad field of consumer expenditure, something which would leave a Chancellor of the Exchequer less dependent on short-term action in the monetary field by itself. I congratulate my right honourable friend on his idea of a surcharge on indirect taxes. It will be rough and ready, but if it is administratively feasible it will be simple and quick acting. If circumstances make it necessary, I trust that my right honourable friend will use it promptly and in good time. The other regulator, the payroll tax, is an interesting and, in many ways, theoretically a logical conception; but I personally share the doubts of a number of noble Lords who have already spoken, and rather doubt its effectiveness in its proposed form in either of its two roles as I understand them; that is to say, either as a regulator in influencing consumer demand, or as a disincentive in the wasteful use of manpower. As regards its possible influence in the direction of encouraging the installation of labour-saving machinery, I think that there we must pause to remember that, so far as it has an impact on the cost of labour, that fact will tend to raise the cost of the machinery which as a result of this it is hoped will be installed.
The last paean of praise that I should like to offer my right honourable friend is on his announced intention of pressing ahead with the development of the technique of forecasting and forward-estimating beyond one year. The Treasury and the spending Departments have been developing these techniques over the past few years because we have learned from experience that one year is a dangerously short period for estimating. In the case of a capital investment programme it is impossibly short, and in fact for some years we have been using three, four and five year forecasts 663 there. But even in the case of current expenditure it is certainly undesirably short, because even there it is impossible to change the level of expenditure suddenly and substantially with efficiency.
There has been a growing demand from honourable Members in another place for these longer-term forecasts and estimates, but I am by no means sure that when they have them honourable Members will do much with them. My experience has left me in some doubt about whether many honourable Members really want in their hearts to tackle the control of Government expenditure. Many of them, indeed, would, I think, be horrified if a really efficient instrument were put into their hands which enabled them to do this. However, that may be the thought of someone with some sad and disillusioning experience behind him. I hope that I have said enough to indicate the staunch support that I should like to give to the policies and the main measures of my right honourable friend.
My Lords, there are two or three other points on which I should like to comment before I sit down. First of all, there is the question of the expansion of production which also is of basic importance. I want to repeat what I have already said to your Lordships: that there, quite clearly, our policy must be to seek the highest rate of expansion that is consistent with a sound balance of payments and reasonably stable prices. And I want to emphasise a sound balance of payments, because there is no country in the world, with, I suppose, the possible exception of Japan, that is more dependent upon a sound balance of payments than the United Kingdom. I have metioned that over the past few years the standard of living in real terms has risen faster than ever; but I should like to emphasise again that our right policy must be the highest rate of expansion we can get, consistent with those two other factors I have already mentioned—namely, a sound balance of payments and a stable price level. If I personally had the choice between a rate of expansion of 2 per cent., 3 per cent., or 4 per cent. with a sound balance of payments and with stable prices, or a much faster rate of expansion such as 6 per cent. or 7 per cent. without those two things, then I 664 would have the lower rate of expansion and the sound balance of payments and stability of prices.
We listened with great pleasure to a speech from the noble Lord, Lord Pethick-Lawrence, which, for clarity and moderation in all these matters, is unrivalled. I thought the noble Lord was in particularly good form to-day, and we were all delighted with his speech. However, there was just one small matter to which I might refer, and that is his analogy of the Government "playing ducks and drakes" with the monetary system; and he implied that during the period of Labour office that particular game was not indulged in, very much to the benefit of the country. I would remind the noble Lord that those years were years of rampant and continuing inflation, and we suffered a devaluation of the pound. I think that is rather a high price to pay for the avoidance of the kind of game of ducks and drakes which the noble Lord feels we have been indulging in during the last few years. I will not say anything about the European problem which the noble Lord raised, except to agree with him about its tremendous importance. I am sure that we must seek the closest possible association, both in the political and the economic field, with Europe that is consistent with inescapable responsibilities that we simply cannot throw away.
My noble friend Lord Clitheroe mentioned decimal coinage, and I want to declare myself as a decimal coiner, if that is the right expression. I believe that the sooner we make that transition, the better. But the kernel of the problem, and one not often mentioned, is first to decide what the unit is to be. Is the basic unit to be a pound or the equivalent of 10s.? The latter fits much more easily and would bring the full benefits of the decimal system, because it would only involve two places of decimals. If we were to have the pound as the unit, we should not get the full benefits of the change. When once that basic question is settled, I feel that everything else will fall into place; and then the sooner the change is made, in my view, the better.
I should have liked to say something about special deposits, because my noble friend Lord Clitheroe mentioned them. Again I must declare my interest as a director of a bank; but I 665 find it difficult to comment, because I was the introducer of special deposits. I do not think I should agree with my noble friend that they have been entirely ineffective; and, of course, though the banks no doubt do not like them, from all the information that I have had the banks would dislike still more any more direct form of control. Then, I should have liked to refer to world liquidity, which is so important, but we had a useful debate on this topic in this House a few months ago initiated by my noble friend Lord Boothby.
§ LORD CLITHEROE
I intervene for a moment only to inform my noble friend that I did not say (at least, I hope I did not) that the special deposits had been wholly ineffective. I criticised them, but I did not say they had been wholly ineffective.
§ VISCOUNT AMORY
I realised that my noble friend criticised them, and may have misunderstood him in thinking that he was implying that they had not produced any result.
§ VISCOUNT AMORY
I agree that it is a rough-and-ready device—I will lease it there.
On world liquidity, I would only say, following on what was said by the noble Lord, Lord Pethick-Lawrence, that I believe one encouraging thing is the much greater degree of day-to-day cooperation between the central banks which is now taking place. Of the two proposals that have been mentioned, those of Professor Triffin and Mr. Bernstein, I find myself at the moment more inclined to Mr. Bernstein's. The thing If am sure about is that we must be looking for ways in which the role and scope of the International Monetary Fund can be steadily developed in the light of its success. That may carry us eventually to the point where that body may become a credit-creating body of some kind or another. Once again, I should like to underline what I think my noble friend Lord Brand said: that however desirable the increase, and however useful the increased resources of the International Monetary Fund are to us, we must never suppose they provide a substitute for carrying out the right internal policies at home.
666 The noble Lord, Lord Walston, raised the question of production, and he will forgive me if I feel that he was taking a rather old-fashioned view when he defined what he regarded as production. He seemed to draw a sharp distinction between the production of physical products and other forms. Every year that goes by I think it is harder and harder to draw that distinction, and the only way of looking at production now is over a very broad field, covering the field of services as well as the production of physical goods. The noble Lord told us that the sale of some of his investments had been much more profitable to him than the production of agricultural commodities. Of course the noble Lord there was having a practical example of the advantages of having something to sell that people really want: to buy very badly. He found himself in the market and he had the good fortune to own investments for which there was a strong demand. He can acquire virtue, if he sold those investments, from having met that demand.
The noble Lord's suggestion of discriminatory investment allowances is one of which I personally am rather frightened. He said, if I understood him aright, that they would enable the right sort of investment in the right sort of place to be encouraged. But there is one definite qualification there, which is that they would be the right investments and the right places in the judgment of the Government; and that might not mean that they were, in fact, the right investments in the right places.
I have detained your Lordships rather longer than I had meant to do, and I should like, in conclusion, to return for a moment to the state of the economy. There is no need to emphasise the first requirement, which is for expanding exports. That means 'that we must preserve at all costs our competitiveness in terms of price, quality and up-to-date design; and, secondly, that we must have the productive resources available to enable us to make those products available in the export markets. We must make sure that those productive resources are not wholly absorbed in meeting the demands of a too soft home market. Therefore, I conclude that the Chancellor is right in feeling that home demand must be restrained a bit and that it must be kept really keen and competitive. 667 That is going to be a difficult thing to do, when we are operating as close to the ceiling of full employment and the strong demand that comes from it. I believe that we shall not achieve success in the future unless we can keep the home market really keen and competitive. Where existing tariffs on imports into this country are unjustifiably high—and some are—then I should be in favour of a drastic reduction. Such action may be bad temporarily for our balance of payments in the short term, but in the longer term it would be action which would be healthy and stimulating.
All the time—and this is not easy for a Parliamentary democracy—we must seek ways of giving encouragement to people to save and invest—as against consuming—a steadily increasing percentage of the national income. The proportion that is being saved and invested has been going up of recent years, and I should think it will turn out a good figure this year, too. Unfortunately/—and this appears to me almost inevitable—this year we are going to have some excess demand again in the home economy, and I am afraid that if we avoid price rises it will be almost a miracle. So far as wage rates have gone through the season, it looks as if they are likely to go up about twice as fast as production; and production cannot go up very fast in the short term, now that we are up against this ceiling of manpower. The vacancies at present for jobs are, I believe, just about equal to the total number of unemployed, and from past experience that is a notorious danger point from the point of view of inflation. It is quite right to be experimenting to see how close we can get to that ceiling with safety, but do not let us delude ourselves: at a certain point the pressure will be so great that we shall get rising prices again.
I believe the danger ahead for this country is not of a sheer precipice over which suddenly we may fall to destruction. It is something far more insidious. It is the danger of a gradual decline in our performance relatively to that of our neighbours and competitors, and a decline that is masked by the current wellbeing in our own internal standard of living and consumption. I think it was Emerson who saidthe British see more clearly on a cloudy day.668 Looking round the world, there are plenty of clouds about at present, but there are also patches of blue sky in the shape of challenging opportunities. If the nation as a whole really understands—and it is so difficult to get this over—that we have to earn our living in a very hard competitive world; and that the standard of living we shall, in fact, earn is the standard that is justified by our own energies, enterprise and efforts, and that work, saving and investment for the future are more important for our national strength and influence than short-term increases in our current standards of enjoyment, then I am confident that we shall see an upsurge in national spirit and a pride in our achievements which will enable us to give a good account of ourselves in the face of the formidable and rapidly changing challenges with which we are confronted.
§ 5.38 p.m.
§ LORD BOOTHBY
My Lords, there is only one point on which I should like to take issue with my noble friend Lord Amory, and that is when he suggested, or seemed to hint, that he would regard with approval an extension of the tax on television to cover advertising as a whole. Here I must at once declare an interest. One of my occupations, unbeknown to your Lordships, is that of a billposter. Having declared that interest, I should like to say that I regard the imposition of any special tax upon a specific industry as wholly vicious in principle, and I do not think it can possibly be justified. In the case of the television companies, it has been done quite clearly because of the very great and quite unexpected profits that they have made. But this still does not vitiate my contention that to tax a particular industry, and to attempt to put a penal tax upon it, is quite wrong.
In fact, this particular tax will not be paid by the television companies at all; it will be paid by the public, and it would be paid by the public even if it were increased still further. There is only one way to deal with the situation that has arisen in independent television, and that is to create effective competition as quickly as possible against the existing contracting companies which at present enjoy a monopoly. But to say that it is a good idea to tax the advertising industry as a whole, or any 669 other industry as a whole, is, I think, unjustifiable both in theory and in practice.
Having said that, I should like to say a word about the Chancellor of the Exchequer. It seems to me that much the same can be said of him as Mr. James Reston, an eminent columnist in the United States, recently said about President Kennedy:lie is reaching radical conclusions about his problems, but meeting them with traditional methods which still fall far short of the transformations he keeps talking about.But I do not think that this is altogether a condemnation. He has not been there very long, and, to my mind, there are encouraging signs of a move away from purely monetary measures of restraint when the pound is under pressure—the "Stop-Go" policy which, in my view, had had on the whole a deleterious effect on the rate of our economic growth during recent years, though I hasten to say that I do not altogether blame the noble Viscount, Lord Amory, for what he did. On the contrary, he did his best to mitigate what I thought was the disastrous step taken by his predecessor of raising the bank rate to the unprecedented level of 7 per cent. But I do like to see a general moving away from purely monetary measures of restraint, in the direction of fiscal measures which can be held in reserve and applied without delay should the necessity arise.
For my pant, I should have preferred a tax on services to the proposed payroll tax. I think it would have been better. I think there are enormous industrial objections to the payroll tax, but I am fortified in my optimism—because I am by nature optimistic—by the conviction that the payroll tax will in fact never be applied, or at least is very unlikely to be applied. I think that the proposals of the Chancellor, on balance, are a big step in the right direction; because they rule out the probability, and perhaps the possibility, of further credit squeezes, hire purchase restrictions, and abnormally high bank rates, which have been in recent years the greatest dread of industrialists and all those who have o plan for the future. These things, high bank rate, credit squeezes and all the rest of them, may bring temporary relief in a crisis, and have done; but they cannot be any permanent solution 670 to the economic problem that confronts us, because by reducing productive investment and throttling down economic expansion, they must over a period weaken our competitive power in the markets of the world.
My Lords, this is not the end of the story. There is a lot to be done, with imaginative thought and action on the part of the Treasury, in the next two or three years. I think we need a radical revision of the whole system of direct taxation. I should like to see, for example, a single graduated income tax —not divided into surtax and income-tax, but a single graduated income tax for individuals, with an emphasis at every level in favour of earned income. I should also like to see a single corporation tax for companies, to be paid before the distribution of dividends, such as they have in the United States. I think this is extremely important: it really is a vital point.
Together with my noble friend Lord Amory, I regret this addition to the profits tax. I am quite sure that the Chancellor of the Exchequer should give serious consideration to taking off income-tax altogether from companies: and to substituting for income-tax a corporation tax on companies, as they do in the United States, and seeing that this is paid before the distribution of dividends. I am sure that it is a necessary reform, and I hope that my noble friend, Lord Dundee, will be able to say that these matters will be considered. There is plenty of time to consider them before the next Budget.
Our primary objective must surely be to restore the dynamic of the national economy, and thereafter to maintain our economic growth at a stable and satisfactory level; because, whatever else can be said about our present situation —and nobody has contradicted this on either side of the House in this afternoon's debate—our rate of economic growth during the last four or five years has not been at the same level as the rate of economic growth of the countries on the Continent of Western Europe. There can be no doubt about that. In fact, I reckon that it has been about half their rate, and that shows that something has gone wrong.
Now I would give one word of warning, if I may, to the noble Earl, Lord 671 Dundee, and to Her Majesty's Government. I believe that the whole country to-day is disturbed by the fantastic speculation which has been going on, and which shows no signs of ceasing, in land. I do not think that this concern is by any means confined to the Labour Party; I think it goes right through the country. Everybody you talk to is concerned about it; and all these tall tales in the Press, about Mr. Clore and others, upset the ordinary man in the street. I have talked to several country solicitors, who have told me of fantastic profits that have been made within 24 hours by quite small people all over the place, simply in this business of purchasing land and selling it. There is, after all, a great difference between whether you get planning permission or not; and therefore, let us face it, an enormous temptation to planning officers, and to executives of the county councils and even urban borough councils, to grant planning permission, when thousands of pounds are at stake, in profits which are untaxed. After all, our land is limited, it is a monopoly, and I think the Government will really have to give very serious consideration to this problem.
§ LORD WALSTON
May I interrupt my noble friend on that point? Would he not say that that was purely another example of what the noble Viscount said in referring to me: that the people who own this hind are lucky enough to have something that other people want at the right moment, and take advantage of it?
§ LORD BOOTHBY
Not altogether. I would not quite agree with that, because land is a monopoly. Let us face it, there is a monopoly in land because there is a limited amount of it. I am talking about building land, of course, and land for development; and the whole question is whether you can get permission to develop the land or not, which may make a difference of thousands of pounds upon a comparatively small deal. I am only saying that I think it is a question to which the Government should address their minds. I cannot, myself, see the solution. I am personally opposed to a capital gains tax.
§ LORD LATHAM
The noble Lord is aware that the 1947 Act dealt with this particular problem, and the present Government have repealed those provisions.
§ LORD BOOTHBY
My answer is that it did not deal effectively with it, and I have yet to see any concrete proposal that will deal effectively with it. After all, this has been on the programme since the early days of the Liberal Government in 1906. We had Mr. Snowden's proposals for the taxation of land values, and Mr. Lloyd George's proposals before that. They all broke down for one reason or another. I do not, myself, know the answer to this problem. I am against a capital gains tax on Stock Exchange transactions, because I think it is not worth the expense and bother of doing; and a real speculator on the Stock Exchange can very easily produce losses which will more than offset his gains, even in an inflationary market. But if there is no other way of catching the speculator in land then I, personally, would be prepared to say we had better have a capital gains tax applied over the whole field, if you cannot separate the two. All I want to do at this moment is to say that I believe there is great public anxiety about the speculation that is going on in land in this country to-day, and the enormous increase in land values; and that it is not confined to any one Party. I think the Government ought to give it very serious study, and see what can be done in the matter.
Meanwhile, my Lords, so far as our reserves are concerned, the noble Lord, Lord Brand, pointed out so rightly that we are living and continue to live on a knife edge. This will go on so long as our liquid reserves remain around £1,000 million and our short-term liabilities exceed £4,000 million, as they do at the present time. Reserves amounting to only 25 per cent. of short-term liabilities are inadequate for a country which provides one of the two currencies which finance the international trade of the free world. It is not a position that can be sustained indefinitely. We must build up our reserves.
As the noble Viscount, Lord Amory, pointed out, we had a debate in March on the subject of international liquidity, and I am glad to be able to confirm what the noble Lord, Lord PethickLawrence, said in his most interesting speech, that it commanded the interest and attention of President Kennedy's leading economic advisers. I agree with 673 the noble Viscount, Lord Amory, and with the noble Lord, Lord Robbins, that an increase in the reserves of the International Monetary Fund will not itself solve the problem of countries which are in persistent imbalance, or provide the means of investment in the economic development of under-developed countries of Asia and Africa and South America. The latter is the function of the International Bank and not the International Monetary Fund; and a distinction must be drawn between the two.
What I do hope is that at the next meeting of the International Monetary Fund in September enough elbow room will be provided for the two key international currencies, the dollar and the pound, by means of one or other of the proposals which have already been made. It may be that Mr. Bernstein's proposals will hold the field. I do not mind which proposals hold the field so long as something is done. I think it is bad for the Free World that these two great currencies, quite different from all the others, including the deutschmark, should be under alternate and continuous pressure, They ought not to be subject to this pressure. They now finance practically the whole trade of the free world.
§ VISCOUNT AMORY
My Lords, following the excellent debate which the noble Lord initiated, perhaps I may hope that whatever is done will eventually have the name of the "Boothby Plan".
§ LORD BOOTHBY
It is very kind of the noble Viscount to say that, but there have been so many abortive Boothby Plans in the past that it might be unfortunate; it might never come to fruition. I do not care whether it is the Bernstein Plan, the Triffin Plan, or any other Plan. I think the noble Viscount will agree it is vitally important that something should be done at this forthcoming meeting of the International Fund and Bank. I have recently had encouraging news from Washington that they mean to do something if they can. I want both the International Fund and the Bank to be transformed into an effective force to stimulate and maintain economic growth throughout the Free World; and I do not think there would be any dissent from that in any quarter of the House.
Before I sit down I should like to turn to the question of exports, upon which the noble Lord, Lord Brand, placed the 674 greatest emphasis, and rightly so. I think we are now suffering from a lack of arty comprehensive production plan in this country. We have no targets. The spectacular economic growth of France and Federal Germany during recent years is primarily due to the fact that they have both had comprehensive production plans, and targets for specific industries; and we have had no such things. In neither France nor Federal Germany has there been any need for compulsion. I think that the primary reason for their success is the genius of two men, Herr Erhard in Germany, and M. Monnet in France, who started the whole of the French planning arrangements. But the interesting thing is that compulsion has never been applied to industrial planning either in France or Germany. Mr. Andrew Shonfield, the Economic Editor of the Observer wrote an interesting article the other day in which he said:The French planning organization, now under M. Massé, has no executive authority; it is a small body with a planning staff of only 40 officials. Its effectiveness depends on the arrangements it has made for influencing people rather than ordering them about. It has managed to get rather more than 3,000 of the most powerful men occupying strategic positions in France's business and industrial life into a kind of voluntary planners' club under its wing.The results are there for all to see, because the economic progress of France in the last few years has really been spectacular.
This has a direct effect upon exports, and particularly upon the conduct of East-West trade. It is awfully difficult from a trading point of view, to deal with the countries East of the Iron Curtain if you have no plan on your own side, because they are absolutely riddled with plans; and if you go there with none it is not easy to reach concrete agreements. Take the Leipzig Fair, which I attended the other day. Our steel industry there was in the forefront. In fact, they really had the measure of Lord Ogmore's "friend" Herr Krupp. I thought they beat him to it. They put up a marvellous show. Why? Mainly because the steel industry is the only major industry in this country which has, of its own accord, produced a five-year production plan, which is now in print; and without 675 undue assistance, I may add, from the Government.
British industry at the Leipzig Fair, which is a great shop window not only for East Germany but for the whole of the East, and Africa as well, had a great success; and I must tell your Lordships that the West German Government did not like this at all. So far as trade with East Germany is concerned their philosophy is quite simple; they want the lot. They hold very strong views about the political side of East Germany and what should be done with Herr Ulbricht; but, so far as trade is concerned, they want the lot; and they want nobody else to get in. It may not be generally known that they have weekly meetings in Berlin, first in East Berlin and then in West Berlin, to discuss trading relations with the East German Government; and West Germany, at this moment, still do about 70 per cent. of the total trade with East Germany. They resented the intrusion of British industrialists at Leipzig, and even more the intrusion of British politicians. Indeed, there was a rumour emanating from Bonn that I was paid £1,000 by the East German Government to go to the Leipzig Fair. All I can say to your Lordships is that I only wish it were true.
This question of planning, I think, affects very much the trade that both France, and still more West Germany, are about to do with the Soviet Union. I would point out to your Lordships that the recent West German-Soviet trade agreement for 1961–3, the terms of which have just been published, envisages the doubling of exports of machine tools from West Germany to Soviet Russia, from 10 million Dm. to 21 million Dm.: an increase in the value of exports of chemical plant from 63 million Dm. to 272 million Dm.—more than fourfold; an increase by about six times in the value of exports of ships, ships' equipment and ship repairs, part of which we should surely be doing, from 22 million Dm. to 235 million Dm. by 1963; and a doubling of the export of light industrial equipment from West Germany to Russia for the building industry.
I should like to quote one extract, because I think it is important, from the report of the Institute of Directors dele- 676 gation to the Soviet Union in June last year, which was led by Mr. Harold Drayton, Treasurer of the Institute, in which they say:On various occasions the Russians emphasised what they considered to be the advantages from a trading point of view of their longterm plans. Mr. Kosygin said they knew what they wanted even for 15 years ahead, and they knew what they could produce in those years. If not to-day, the Soviet Union could within two or three years provide Britain with materials and in return take in kind what Britain had to offer. Britain could produce any kind of equipment, and they were interested in equipment in a very broad sense.This is encouraging, but if we are to do an expanding trade with the East—and I think we can and should, and that there is more to be done in the field of trade and culture East of the Iron Curtain than in the political field, and likely to be for some years to come—it will involve planning, not merely on the Communist side but also, to some extent, on our side.
I suggest to your Lordships that another thing that wants a pretty sharp look at is the list of so-called "strategic" goods, because now they really make no sense at all. When I was at the Leipzig Fair was taken to the Soviet pavilion and shown their exhibit of ball-bearings. I know nothing about them, but the engineering experts told me they were probably better than any in the world. Ball-bearings are still on the list of strategic goods which we are not allowed to export to the Soviet Union. This sort of thing simply does not add up.
Now I should like to say a word—perhaps I am expected to do so—on the subject of the Common Market. Last week the Prime Minister told the House of Commons that there was no question of our joining the Common Market but that we might have an association with it. This week he said that we might join it, subject to a protocol. I do not know what it all adds up to, and I do not think that anybody else does; but of one thing I am absolutely certain: this continued uncertainty about our attitude towards the Common Market cannot do us any good whatsoever, and must have a bad effect upon our exports to Western Europe. Indeed, there was a letter In The Times on Monday from Sir John Wedgwood which brought out that case very clearly. He said that until we get some settlement in regard to this matter there is going to be little or no buying; 677 and implied that it would almost be better to say that we are not going to have anything to do with the Common Market than to go on in this uncertainty, which has lasted for quite a considerable length of time.
What are the alleged great difficulties? First of all, there is the Commonwealth. We can surely accept a common external tariff, subject to special arrangements regarding certain imports from the Commonwealth. I believe that this would be accepted by the Common Market. The Commonwealth itself has everything to gain and nothing to lose by closer association with the richest market in the world, which our entry into the Common Market would give it—and that includes access on their part to the development fund of the Common Market, which will certainly be greater than we could produce in this country by ourselves.
Secondly, it is held that we cannot let down the European Free Trade Association. I have always thought that we made a great mistake in rushing into the E.F.T.A. Agreement. We did it in a panic; we were frightened. For a long time we never believed the Common Market would become a reality. Then, suddenly, we woke up one morning and found that it was a reality, that we were in danger of being shut out of the European market, and we created E..F.T.A. in a great hurry. I do not believe from the news that has been coming recently from Sweden and other countries, that there are anything like the objections to the Common Market that are alleged on our part, particularly on the economic front. It may be that Sweden, with its neutral tradition, may not wish to have as close an association on the political side as we should; but I do not believe the economic difficulties are great.
Then there is the question of our own farmers and our own agriculture. Upon this I should like to say that I do not believe that this country can go on indefinitely for another decade or so subsidising both the farmers and the consumers on the present scale without becoming very nearly bankrupt. I believe that the only alternative is to give our farmers the measure of protection which those within the Common Market at present enjoy and to have a good reciprocal exchange of agricultural products; and even if it did mean as I think it 678 undoubtedly would, a moderate rise in food prices, I think that would be very worth while from the point of view of the British taxpayer. I do not believe that there is here an insoluble difficulty. I believe we can get round this one.
Finally, there is the question of sovereignty, which was raised by my noble friend Lord Clitheroe, and has been raised by others. In a letter to The Times newspaper which was published last Monday, I said that so far as sovereignty was concerned we had already accepted obligations under the North Atlantic Treaty Organisation greater than any we should need to assume if we entered the Common Market. I was taken up upon this point; but it is in fact precisely true. We have placed—in the most vital field of all, the field of defence—our armed forces under international direction and control to an extent hitherto undreamed of in time of peace, or even in time of war. We have done it without, as yet, achieving adequate political direction. N.A.T.O. does not yet possess an effective central organ of political decision. The Common Market does, where we could thresh out all these matters in conjunction with our friends, and arrive at agreed decisions.
The Common Market organisation will get more effective as tune goes on, not only in the political field, but also in the economic field. If we can give up such sovereignty as we have already done to N.A.T.O. in the field of defence, without an effective central organ of political decision, I should have thought we ran far less risk in going into an organisation where there are central organs of political and economic decision, and where we could make our views heard and reach joint decisions. Almost a year ago I said to your Lordships that for us the European tide was ebbing arid that the time had come to jump. For a whole year the tide has continued to ebb, and if we do not jump soon it will really be too late. We shall be stranded.
§ 6.7 p.m.
§ LORD SALTER
My Lords, we are once more, as so often before, indebted to the noble Lord, Lord Pethick-Lawrence, who introduced this debate to-day, not only for the reasons so justly given by my noble friend Lord Amory, but also for choosing this particular season of the year. This particular 679 season is one in which public policies are being framed and discussed which may substantially affect our future economic development. But it is also one in which there is a great danger that policy may be so immersed in technical complexities and statistical argument that a general perspective and sense of proportion may be lost. Here I think your Lordships' House is particularly well qualified to bring out in their proper proportion the most important factors in our general problem.
I am glad that in the debate to-day, as in the Chancellor's general statement, the dominant importance which it deserves has been given to our external balance. So much has been said, both in the other place and here to-day, to emphasise the very grave weakness in our present external balance, and also the reasons for thinking that it may in the near future become even worse, that I will not cover that ground again. I would only suggest to your Lordships that it is not only a matter for the immediate future: there are certain longer-term dangers and possibilities which I think we should also take into account which may prove most serious unless we can adopt some corrective measures. It is a rather frightening calculation to reckon how much the items on the assets in our external balance have consisted in the products of countries, whether in Africa or Asia, such as Malaya, with cocoa and tin, and have accounted for our dollar and foreign exchange earnings. All these countries are countries which are changing their political situation. I do not think we can be sure that that political change, however necessary and desirable, will have no effect upon the amount and the proportion of that particular item in our balance of payments. In addition, there is, of course, what will be a very serious adverse factor, if we do not enter the Common Market—that is, the completion of the development, which is now well in hand, of the Common Tariff.
I would add one or two further comments on this subject of the external balance. One is that we must not delude ourselves that this is just a question of extra reserves. I agree it is extremely desirable that we should have extra reserves, and it is quite possible that we may get a very substantial supple- 680 ment to our own national reserves from the International Monetary Fund. But do not let us delude ourselves that this solves our problem. Reserves are required to deal with downward fluctuations. They do not deal with a chronic and possibly increasing weakness at the heart. And that is what I think we have to guard against, for the reasons given both here and by the Chancellor of the Exchequer in another place.
Let us remind ourselves for the moment of what would happen if we were unable to deal with this crucial danger. First of all, of course, it would become impossible for us to continue external investments; still more, external aid to under-developed countries and, therefore, to maintain either our proper participation in the problems of the world or our proper influence upon the world situation. Soon it would begin to affect our standard of living; and if then we went on that way, beyond that, we should find we were unable to pay for the raw materials upon which the full employment of our industrial apparatus and plant depends. That, in turn, would mean serious unemployment, and is perhaps the only serious danger confronting this country—of such mass unemployment as has been known in the past. What this comes to is, of course, that it is not merely desirable but essential that we should greatly expand our exports; that we should give every possible impulsion and that we should remove every possible handicap to that expansion.
Of course, we have to face the fact that one of the greatest handicaps to expansion is that so much of our potential exporting industry has found a shelter both on the managerial side and on the side of labour: on the one hand, by having a soft option in an inflationary domestic market, and, on the other, in conducting wage negotiations on the basis of full employment and, sometimes, a surplus of available jobs over available labour. That is of the essence of our central and crucial problem. We must not delude ourselves, either, that other measures which are very desirable and which have been discussed, such as increased world liquidity, will give the answer to this particular national and domestic problem of our own. It will not. We are 681 faced with these very great dangers which, in the absence of remedial measures, may increase rather than be reduced.
What are the measures that are being considered? I think it is quite clear that the Chancellor of the Exchequer was right to look for other means of regulating the economy beyond those we have known in the past—such as, for example, the effective but very expensive and damaging sudden increase in the rate of interest. That does indeed have an effect of the kind desired but, in addition, it involves enormous expense on the Exchequer, does a great deal of unintended damage, and gives a sense of illusory and dangerous relief by attracting hot money that soon goes out again. I am therefore very glad that he has looked for other regulators. I am happy about his objective and general diagnosis of the situation. I am not so happy about the specific measures he has proposed.
Take, for example, the surtax changes. I should like to discuss all the issues of direct taxation, surtax and ordinary income tax, but it would require a speech in itself and I could not venture to ask your Lordships' licence to take the necessary time at this moment. I will only say, without regard to other considerations, that I think the extent to which this new surtax incentive really operates to secure an actual increase in exports will be relatively small. Secondly, he has suggested a surcharge, sometimes put on, sometimes taken off, upon Customs and Excise. I agree that that may be of some use. But I think the limits within which it can work are pretty narrow. They are set by existing international Agreements, by the fears of international repercussions: and they may be further restricted by relations with the Common Market. I do not think we must put too much reliance upon that method having very much result. In the third place. of course, there is the payroll tax. I will not add to the exposition of the doubts expressed by my noble friend Lord Amory, which I share, with regard to that remedy.
What other suggestions are there that one can make? There is one point on which I venture to differ from my noble friend Lord Boothby. I think that a good deal more use should be made of turning on and off, making more restrictive and less restric- 682 tive hire-purchase arrangements. After all, what is the hire-purchase system? It enables and encourages people at a time of boom and prosperity to purchase and use production to an extent greater than their current earnings. As a counterpart to that, when a depression comes we suddenly have an aggravation of that depression by the overhanging mass of these hire-purchase engagements. I should like to see much more resort to restriction during periods of inflation and to easing up at times of deflation.
§ LORD BOOTHBY
My Lords, may I ask my noble friend a question? Does he not think that it would be very complicated to put on and take off these restrictions? Would he not consider a general sales tax easier and quicker?
§ LORD SALTER
I think, that a general sales tax might operate. But there are complexities there, too. I am now concerned with the fact that, while it is true, as I think the Chancellor of the Exchequer said, that this is putting a very big proportion of the burden of regulatory measures upon a few particular industries, it is also putting this disproportionate burden, by comparison with the present situation, upon just those industries which have been able to increase their market by financial measures which other industries have not had at their disposal and which, cumulatively, have had the effect of first increasing an inflationary boom and then increasing deflation and depression when they come. I agree altogether with what my noble friend said about land, and I will not add to it.
Here I am going to make one suggestion which, if it were put forward with authority and power, would, I am sure, make every Chancellor of the Exchequer, past, present and prospective, shiver; and his Department behind him. I think it is highly desirable that we should be able to increase actual savings even more than we have done. I think it is miraculous, having regard to the way in which investors in fixed sterling bonds have suffered over the last few decades, that those responsible for stimulating savings have done as well as they have done this last year. But I am quite sure that there is a great deal of potential saving by people who desire, above everything else, that, if they lend their money, they 683 can do so with security; that, however small the intermediate return there may be by way of interest, they will be able to get back in real value what they put in.
I need not remind your Lordships how sorry their experience has been in that respect. I wonder whether a Chancellor of the Exchequer would have the courage to try the issue of some constant-value bonds, in the sense that when they are ultimately repayable they should be repayable in such a way as to return to the investor the same purchasing value as he had lent, based upon an index of commodities at the time of repayment. I will not press that suggestion further now; but I think that it would not only tap a great source of saving by people who do not want to risk their money—people who want safety for their money, and real safety; not merely a fictitious sterling safety—but would also be a very useful form of self-discipline for Chancellors of the Exchequer and for Governments.
§ LORD PETHICK-LAWRENCE
May I interrupt the noble Lord? Of course he is aware that in savings certificates you have what he is asking for, except that they do not give any interest. They do not yield any interest that is paid out, but, in effect, they are what the noble Lord has been suggesting. They attract interest, but it is not paid to the investor until he sells out his savings certificates.
§ LORD SALTER
I do not quite follow that. When you get the money back which you put into national savings, you do not get it increased in terms of pounds sterling to the extent to which the purchasing value of pounds sterling may have depreciated in the meantime. That is what I am anxious about. I am anxious to save the investor from getting back ultimately so much less in real value than he has put in—and. even more, to save the investor who has to sell his bonds in the meantime from the fearful loss, even in terms of a depreciated pound, that he then suffers. However, do not propose to do more now than mention what I know is a highly controversial proposal.
§ LORD SALTER
Not quite. I do not regard gold itself as being as certain a measure of purchasing value, whether in one direction or another, as I do an adequately constructed index of commodities. But I am now merely throwing out this idea. I realise the complexities. I should be very glad to discuss it on another occasion, but it would take too long now.
§ LORD LATHAM
If I may just put this point to the noble Lord, would he also agree that the rate of interest would have to reflect the guarantee that was given?
§ LORD SALTER
I think the actual rate of interest, from the point of view from which I am now speaking, is very much less important than the preservation of the real capital value of what was lent. I am quite prepared to argue this point on another occasion, but it would take too long this evening, and at this late hour. I want to say this further. The Chancellor of the Exchequer referred to the necessity of subjecting a considerable proportion of our industries to keener competition by, possibly, freer trade and lower tariffs. That is a principle which I warmly welcome; but, of course, it was not followed by any practical illustration or application.
We are brought back to the subject with which, like my noble friend Lord Boothby, I should like to conclude—that is, the Common Market. I do not think the Government's record an regard to this has been very creditable. A few years ago we were in a very strong negotiating position. Those in the Common Market were very uncertain as to whether they were going to succeed, and would have felt a great attraction in having us in with them under what they would regard as fair conditions. What we did do, however, was what seemed to them to be asking for the best of both worlds: full and complete entry within the Common Tariff and complete freedom to deal as we liked with our own tariff. We were inflexible in that demand. In spite of our superior bargaining position at that moment, it was, as we might have anticipated, refused. We then proceeded, as my noble friend Lord Boothby has said, to jump into the creation of E.F.T.A. which, on the one hand, does not offer an adequate alternative to the Common Market and, on the 685 other, does not, as it was at one time hoped it would, serve as a bridge. It is now rather a barrier to our association with the Common Market.
Now, my Lords, at this present time I cannot believe that the sense of proportion and perspective of the Government is right in considering this question. They put this tremendous emphasis upon Commonwealth Preference and upon the complexities in our agricultural subsidy system, which are much less important, if you are thinking not of political psychology but of economic and political realities, than the factors which should determine the position. Much more important are the considerations which should determine policy—the economic consequences and the political consequences of joining the Six: the economic consequences of being inside this great and rapidly expanding market instead of being shut out by an increasing tariff harrier, and, I would add, the stimulus to just those industries that most need it of the direct and immediate prospect of competition with those already in the Common Market, which I think would have a very salutary effect; and then the political considerations, not all of which are indeed on one side. There are certain ultimate political consequences which I think, if anything, have perhaps not been adequately considered in this country but, against any which may cause hesitation, there are also enormous political advantages.
I think, therefore, that it is of the utmost importance that the Government should put an end to this long shilly-shallying process, and should make up their mind what they are going to do, and act quickly. Not only is the balance, in my view, very much in favour of their making a real and genuine attempt at once to join the Common Market, but I think that, for the reasons which my noble friend Lord Boothby gave, the period of delay is one in which we may well get the worst of both worlds.
§ 6.30 p.m.
§ LORD PEDDIE
My Lords, I did not anticipate participating in this debate, but I am glad of the opportunity presented to me to pay tribute to my noble friend Lord Pethick-Lawrence for drawing attention to the important matter of the economic situation of this country. 686 Unfortunately, unavoidable circumstances prevented my hearing all the speeches in this debate. Therefore, I must endeavour to avoid any repetition, and the best way to achieve that, I think, would be to exercise brevity on my part.
To my mind, there are two important factors which are bound up in this question of the economic situation to-day. There are two important pointers to which we must pay attention. The one is the present state of the export trade; the other is the overall national productivity of this country. Our export performance, in spite of efforts in certain directions, gives no ground for confidence in the future. When we examine the recently published figures concerning production, we find they indicate that the index for March is at the same level as that for the previous months. The average for the first quarter of 1961 is the same as that for the first quarter of 1960. In short, there has been no significant increase of national productivity over the past twelve months. These are the two predominant fundamental factors which determine our economic position.
So far as I can see, no positive steps are being taken by the Government: there is no indication of constructive planning that can remedy the situation. One would expect that capital investment would be some guide as to the prospects for the future, but when we compare the capital investment taking place in British industry with that in almost any other European nation, the examination is at least disconcerting to the average British investor. Figures which were published quite recently showed that in Western Germany 23 per cent. of the gross national product was devoted to fixed investment, compared with 15.5 per cent. in Britain. When we examine the overall position of this country, we find that essential enterprises, like the railways, have been starved of capital. We find very little activity in the development of one aspect which has probably already been mentioned to-day—that of the provision of educational facilities which will do something to develop our own competence and ability to stimulate production. We are in desperate need of a greater number of technicians; yet our educational system, controlled by the 687 Government, is not geared at this particular moment to produce those extra technicians on which the productivity of this country depends. It seems clear to me that the general economic situation of this country to-day makes the reference to the "affluent society" a tragic joke.
The noble Lord, Lord Boothby, mentioned the speculation which is taking place in this country to-day, particularly with regard to land. If he keeps on with expressions of opinion of that sort, he will, before long, be speaking from these Benches rather than the Cross Benches. Without doubt, we are finding indications there of a form of affluent society which is providing opportunities for fantastic speculation and individual confidence, which is not in any way, or in all ways, related to the increased productive capacity of this country.
I believe—and I feel sure that this point must have received some emphasis during the debate—that what is desperately needed in this country, more than any other, with its limited economic resources, is direction and planning in the deployment of our economic resources. But at the moment it has been left to indiscriminate private decision. I would suggest that the economic position to-day indicates that we have gone well beyond the time when we can afford to have that indiscriminate kind of decision, based upon personal profit and not collective good. Therefore, the whole secret, in my opinion, is the necessity for the Government to recognise the need for far more constructive planning in the determination of our productive capacity and our prospects for the future. Again I would make reference to the comment of the noble Lord, Lord Boothby, when he asked the Government to restore the dynamic in industry. He will obviously agree with me that at one time we had it. I am not asking your Lordships to turn the clock back ten years, but I hope that we shall learn some lessons from the experience of ten years ago.
§ 6.36 p.m.
My Lords, we have already had a very long debate, and your Lordships have listened to a number of important and expert speeches. I shall therefore try to avoid 688 re-covering the ground that has already been thoroughly debated, and just emphasise two matters which I think are of very special importance. Before doing so I should just like to comment that, particularly in the early part of this debate (and I think we returned to it just recently), there was a particularly gloomy note struck by a number of noble Lords who spoke. I should have thought that it was quite an unwarranted note.
The noble Lord, Lord Brand, was extremely depressed about our balance-of-payments prospects. The noble Lord, Lord Grantchester, announced from the Liberal Benches that he was sounding an alarm. The noble Lord, Lord Lucas of Chilworth, is greatly concerned about the level of Government expenditure and the volume of taxation, although I think he rather unfairly omitted to mention that, as a percentage of our gross national product, the trend is in the right direction. The Government are collecting and spending, on the whole, a little less this year than in recent years. Then the noble Lord, Lord Peddie, I thought, was trying to paint a picture of the conditions in this country, and the general state of prosperity—or lack of prosperity—which simply does not match up to the facts when we look round the country and see the standard of living which people enjoy and the level of trade sand prosperity in general.
Having said that, I would add that there is no doubt we are faced with some very real problems—and I quite recognise that fact. But I think I am more optimistic than most of your Lordships who have spoken this afternoon. I believe there is much greater resilience in the people of this country than they have been credited with in the course of most of the speeches I have listened to; and I believe that we have much greater flexibility in our industries, both in their management and in the outlook which many of the leading companies are displaying. We were warned earlier that it was dangerous to make comparisons with other countries, but it is a matter of fact that during the last eight years (I think the noble Lord, Lord Boothby, said five years, but I think we can go back eight years) we have been expanding and increasing our production at a very much slower rate than the Common Market area. I believe the noble Lord 689 mentioned that it was half; and I think, if we go back eight years, it is only about half the rate of expansion. This is a very salutary thought.
I think that there is no doubt that our relatively poor performance in this recent period, as compared with the Common Market association, is generally recognised now to be influenced by the constant use of monetary controls to control our own internal inflation and protect our balance-of-payments position. I believe that Her Majesty's Government have made an important step forward in introducing the so-called economic regulator taxes, as an alternative or supplementary means of controlling our own economy. As the noble Lord, Lord Boothby, has pointed out, they enable a control to be kept on our internal situation without having to resort so drastically to monetary controls, to a high bank rate and other forms of credit restriction. I am frankly surprised that your Lordships, with the notable exception of the noble Viscount, Lord Amory, have not seen fit to give the Government greater credit for this. It is a major development and, I should have thought, a most important step forward, which should do a great deal to redress the lack of balance between our own performance in recent years and those of other leading industrial countries.
No doubt these new regulatory taxes will be used in conjunction with a vigorous monetary policy. I think that the Chancellor of the Exchequer has made this clear. I should like to emphasise that it is quite useless having a vigorous monetary policy and a wise budgetary policy, both working in concert with each other, if at the same time we cannot prevent wages rising faster than production. I believe that it is of equal importance that managements—and I include the managements of the nationalised industries—together with organised labour, should find a method of preventing incomes rising faster than production and therefore once again putting up prices.
I have come to the same conclusion as the noble Lord. Lord Walston: that we must think in terms of a national wages policy, though I would not go so far as as he goes. He indicated that a national wages policy might be used to influence the movement and supply of labour. I 690 should be content to try to get increases of wages somewhere in step with the increases in production and productivity. If !that could be done, in addition to the proposals which Her Majesty's Government have already in hand, of keeping consumer expenditure under control and using monetary restrictions when necessary, then this combination could have the desired effect of maintaining stability of our currency and keeping prices at a stable level, thereby enabling us to compete better in the export markets.
I do not think it is any good exhorting people not to negotiate for higher wages and trying to put over to them that they have a general responsibility towards the economy. The noble Viscount, Lord Amory, said earlier how difficult it was in his experience Ito put this idea across. I should have !thought that, to all intents and purposes, it was impossible. For this reason, I think that a wages policy which must be agreed by both sides is going to be an essential ingredient. If we were to accept a wages policy, I think it goes without saying that we ought to have a profits policy. I do not see how we could ask people to exercise restraint in the amount which they claim of the increase in national production, if we do not have some agreement about how much is claimed by capital and distributed in profits.
No doubt this would be a very controversial matter and difficult to achieve, but we have to face the fact that we are competing with other industrial countries, some of whom are only emerging as industrial countries. I have in mind countries like Japan. Japan is now the fourth largest industrial nation in the world. If we do not provide as good incentives for our people to give of their best, to work and save and plan ahead, as other systems will provide, then it goes without saying that our competitive power will become less and not greater, and our balance-of-payments problems, to which the noble Lord, Lord Brand, drew your Lordships' attention this afternoon, will become worse and not better.
The second point I should like to emphasise is that we not only have to compete with other manufacturing countries, but have to work with them. I think it was the noble Lord, Lord Boothby, who pointed out to your Lordships that we are already committed in 691 defence and politics to an enormous extent. The noble Earl, Lord Home, in the last major debate in your Lordships' House on foreign affairs made it perfectly clear that Her Majesty's Government are committed, in all their thinking and planning, to a policy of interdependence. And if we are committed to interdependence from the points of view of defence and politics, which we surely are, then it goes without saying that we shall be more and more involved in interdependence economically. I think that there is a tendency for us to be much too insular in our economic thinking. We ought to be more outward-looking.
I agree with everything the noble Lord, Lord Boothby, said about the Common Market. I believe that in the end we shall have to go in, and the sooner we get to grips with the problem and make an arrangement with the other Rome Treaty countries, the better it will be. But I think that we should look beyond Europe to some other countries farther afield. We see that Japan is now the principal exporter of textiles in the world, and that India is the second largest. There is great concern in this country about the future of our textile industry. But how much better it would be to make joint arrangements with some of these other countries, particularly those in the Western camp!
Other industries, like shipping and shipbuilding, spring to mind. It is clear that we cannot compete in shipbuilding, which is a big employer of labour and is not a very skilled business, relatively to other modern engineering processes. It is nothing like so complicated as building aeroplanes. The Japanese now build very good ships, and their wage rates are lower than ours. We must face the fact that in some industries we are going to be uncompetitive, and we should seek opportunities of going into joint manufacturing agreements. We should think of the position of our aeroplane-manufacturing industry. How much better it would be for us to join up with some of the big American concerns, instead of trying to compete in our small market at great expense and with uncompetitive equipment! After all, we are absolutely involved in the American Alliance for defence and other purposes. Why not collaborate more closely with them in 692 the economic field? This is not a very novel suggestion, and I apologise to your Lordships for it, because many enterprises and big companies have been doing this very thing.
In Japan, we see 50–50 companies, half owned by enterprises in the United States and in this country, with plant put up to manufacture for the local market and for export into South-East Asia. They are not complaining about the loss of traditional trade and of trying to protect established positions. They are trying to establish new trading associations in order to get a share in the markets of these new emerging countries. It is my view that this whole field could be greater given encouragement by the Government. The more it can be brought out that associations, right down into individual companies and businesses, should be made with other countries abroad with whom we are in political and defence associations, instead of our trying to fight a rearguard battle to protect some situations which are bound to be more and more difficult, the better it will be.
§ 6.50 p.m.
§ LORD LATHAM
My Lords, we are near the conclusion of a widely ranging debate on a vital subject—namely, the economic state of the nation. The debate was introduced by my noble friend Lord Pethick-Lawrence, as always, in an admirable, succinct, clear and moderate way, in a speech which dealt with many of the important aspects of this subject. I propose to commence my remarks by quoting from a statement made by the Prime Minister in September, 1959, which happened, quite fortuitously of course, to be in the middle of the General Election of that year. The Prime Minister said:The British economy is sounder than at any time since the First World War. Sterling has been re-established as a strong and respected currency. Our balance of payments is strongI suppose that statement was made to justify the fact that at that time we were really living on the brink of a monetary crisis. The bank rate was raised within a few months of the Prime Minister's making that statement, and we have been living on a knife-edge of crisis ever since. The statement of the Prime Minister was, I suppose, the synthetic euphoria of the Election, and charity almost restrains one from questioning its 693 truthfulness. I propose to let subsequent events tell the story, which is not a flattering one, of inaction and of shilly-shallying by the Government in this important respect.
In effect, as I have said, we have been, and we are, on the edge of an impending monetary crisis. The present position is precarious. Anxiety is prevalent not only in the City but in industrial and commercial circles widely spread; and the future is uncertain. Responsible people are perturbed, not only at the delicate touch-and-go position, but more so because the Government have no comprehensive, planned policy to deal with what has become, under their mishandling, a chronic state of crisis and of sudden expedients—tinkering with the bank rate; fumbling with hire purchase terms; footling about with bank credits and bank deposits, all to no permanent purpose. The breaking out of the crisis is postponed, but the innate causes remain to manifest themselves again whenever it may profit the manipulators of vagabond money which a higher bank rate has brought here—money we do not need; money we cannot use; money which is withdrawn precisely at the moment when we do need it, and which is here in order to earn (and it is only here for this purpose) a higher rate of interest if that be not available elsewhere.
There has been the inept and the unedifying spectacle of our competing with the United States in interest rates to attract "hot" money, and with Germany taking a hand, too. It has been pretty humilating, I suggest, that we had to go cap in hand to beg concessions and assistance from West Germany in order to avoid a crisis at any time during the past few months. This I suppose we can interpret as the outward and visible sign of the re-establishment of sterling stated by the Prime Minister to have been effected in September, 1959. Germany has been helpful; she has obliged and consented to the revaluation of the Deutschemark; she has paid in advance £67½ million; she has agreed to leave £25 million on deposit at the Bank of England, and to hold sterling instead of gold on her reserves, which seems pretty near to impinging upon the much-boosted convertibility recently partly established.
694 And all this was not enough. So serious was the loss of gold from our reserves during the past few months that it is estimated that the outflow of money from London has been about equal to the loss of £200 million of gold. Here was the making of a first-class crisis. But the loss did not take place, for the central banks, at the instance of Germany and mainly with her support, are holding pounds sterling without converting into gold. But how long the central banks of Western Europe will be willing to hold sterling instead of gold remains to be seen. It is stated that conversations are taking place in some quarters, at the instance of the United States, in order to secure some co-operative international action with regard to currencies, especially the dollar and sterling. But why did we not move earlier? Must we always wait for the United States of America to take steps before we consider these problems or the methods by which they can be resolved?
How comes it about that West Germany is so prosperous, with so large a credit on the balance-of-payments account that it was, and still is, disconcerting for her, for the United States of America and for ourselves? I believe it is because West Germany, as well as other countries in free Europe, has gone forward in expansion of industry and commerce: she has been dynamic and virile, whilst we have been stagnant relatively since 1951, with one or two sporadic spurts of expansionist activity, which oddly enough, by some sprite of chance and good fortune, occurred near enough to a General Election to be recognised. So much for tinkering with the bank rate; for buying the presence here of money we do riot need, only to find it leaving us when we do, and costing about £35 million a year extra in interest, Which of course, pro tanto, diminishes our reserves.
We must rouse ourselves from this obsession of the balance of payments, notwithstanding all the doleful predictions of the noble Lord, Lord Salter. Opinion is moving away from this point of view. We must energetically pursue discussions to stop this competition between allies to attract money by offering higher rates of interest. The International Monetary Fund should be a convenient agency for this. In N.A.T.O. we do not compete for munitions: why should we compete for currency, especially when we know 695 that it is insufficient for the expanding trade of the world?
As regards bank advances and hire purchase restrictions, it is doubtful whether they are effective in any case. We have the authority of Sir Oliver Franks, the Chairman of Lloyds Bank, for saying that the importance of bank lending is over-emphasised. Its effects percolate too slowly, and there are competitive alternative sources of credit. The Radcliffe Committee reached the same conclusion. Hire purchase hit the consumer durable trades, but most of the money was spent on other things, and it is doubtful whether the volume of purchasing power was significantly reduced by the sixteen changes in purchase tax and hire purchase which have taken place in the last ten years. So the methods followed by the Government to ward off balance of payments difficulties are, I submit, ineffective. They are sporadic, almost erratic, and do more long-term harm than short-term good.
The credit squeeze is unselective and bristles with inequities and irregularities. It is born of the mentality of "conventional wisdom", to quote the author of the Affluent Society. The real reason is that the Government resolutely refuse to recognise in their full amplitude the fundamental changes in our economic society introduced by the Labour Government in 1945 and onwards—changes which replaced a society based on low wages, low cost and cheap food, and a permanent pool of unemployed reaching to over one million, by a society based on full employment and, therefore, higher wages and the Welfare State.
The Tory Government understood the wretched squalor which existed between the wars, when scarcity was organised and destitution abounded. With a pool of unemployment they could control the system, with all its inequities and its savageries. This they understood. This the present Government understands. They reluctantly tolerate the Welfare State. They recognise that a return to unemployment would explode society, but they do not like full employment. They have no enthusiasm for, or faith in, our society as it is to-day. It is so different from that of the second "Norman Conquest" and making the pound look the dollar in the face, with all the 696 misery which flowed from that tragic and calculated blunder. It is so different, and so much better, than before the War; but yet they do not like it. It does not fit into their social philosophy, and that is why the Tory Government since 1951 have sedulously chipped away at the Welfare State—and in the Health Services only within recent months there has been some further chipping—with the Rent Acts, the repeal of the protective legislation on land values (which have been referred to in such powerful language by the noble Lord, Lord Boothby) and town planning. In all those respects, as well as others, the Government have chipped away and eroded the Welfare State.
A society based on full employment and the Welfare State needs growth and active, planned expansion in order to maintain and improve the standard of living. The Government do not understand that this new economic system cannot give its full fructifying output unless it is planned. Nor are we alone in this. The Federation of British Industries organised a conference of leading industrialists recently, which suggested that the Government should give top priority to economic growth and should produce a five-year plan of expansion. In January, two of those persons who attended the Conference, to wit, Mr. Lionel Fraser, the Chairman of Herbert Wagg & Co., and Mr. Hugh Weeks of Truscon, both wrote to The Times advocating a five-year plan for Britain. Sir Roy Harrod, by no means a member of the Labour Party, writing in the Director of February, under the heading, "Prosperity without Inflation; a time to shed old Ideas", pointed out that ex-factory prices, retail prices and standard wage rates all rose more in the years of stagnant production than they did in years of increased production.The British economy is sounder than at any time time since the First World Warsaid Mr. Macmillan in September, 1959, in the face of what I have just said in regard to the deterioration that had taken place. Let us examine some of the relevant elements of this alleged soundness. Take production. We lag behind our competitors in almost every respect. Between 1953 and 1959, industrial production rose in Germany by 62 per cent., in France by 52 per cent., in Italy by 58 per cent., and we increased production 697 by 21 per cent. In 1950, when we had a Labour Government, Britain exported 25.5 per cent. of the world's total of manufactured exports. Ten years later, in the third quarter of 1960, this share of world exports was down to 15.4 per cent. Sir Roy Harrod wrote in the Financial Times as follows:It is perfectly obvious that productivity could have risen year by year in the three years prior to 1959 instead of being stagnant. The almost complete stagnation for three years was the effect of policy"—that is to say, the policy of the present Government.
They have pursued a policy of stagnation. There has been no increase in the last three quarters of 1960, and no increase in productivity in the first quarter of this year. The improvement in the trade balance for April, announced to-day, shows that this is more due to a fall in imports than to any significant increase in exports. The Times to-day says that the figures are not as good as they look, and in my submission they look pretty bad as it is, especially as regards exports. This comparative falling away in exports, and our share in world trade, is all of a piece, I submit, with what has happened in the past ten years. In 19.50 when the Labour Government were in power there was, as I have said, an export of 25.5 per cent.
Nor can it be said, as has often been the case, that the difference is due to the burden of wages and welfare. The labour costs per hour in Germany are 5s. 6d, including all the marginals; in this country the figure is 5s. 7d. The hours worked by the Germans are, on the average, less than those worked in this country. Taxation is not lower. In West Germany it is 34 per cent. of the national income, as against 29 per cent. in this country. So none of these excuses avails. As I have said, it is Government policy, or rather the lack of policy, which is responsible for the parlous state of our economy in comparison with other free nations. If this State is sound, as the Prime Minister boasted, one would like to know what degree of decline would be regarded as unsound. Or perhaps, going back as he did in September, 1959, to the First World War, he was comparing it with the state of our economy between the wars. This, to apply one of the Prime Minister's clichés, I suppose, is "the 698 opportunity State"—the opportunity to decline and wither; the opportunity to slip back to third place, or below, in the list of the world's exporters of manufactured goods.
The Government have no patterned comprehensive policy to restore the health of our economy; nothing but gimmicks; a series of expedients; no consistent long-term policy; encouragement to-day and discouragement tomorrow; encourage boom conditions at one time and then clamp down almost before the effect of the previous squeeze has been overcome. Exhortation by the mile. Even that is unplanned, so that one Minister says one thing and another Minister something quite different; indeed, the same Minister may well himself have a different story on different days. That has been notably and embarrassingly the case as regards the relation of this country to the Common Market; a classic example of confusion between Ministers; an infirmity of purpose which has made this country almost a laughing stock in many countries of Europe. It is an engaging subject, but it is too late for me to go into it now. Lord Pethick-Lawrence and other noble Lords have made reference to this important question.
I should now like to refer to two of the regulators, which have been introduced for the first time by the Chancellor of the Exchequer. The first is the surcharge or rebate on revenue duties and purchase tax. I have little to say in regard to that. It can quickly reduce or increase purchasing power, but to the extent that it applies to foodstuffs, or as regards purchase tax to necessities, it can, I submit, be a hardship upon the poor and upon the aged. A large part of this surcharge, of course, would be paid out of taxed income. There is one item where I think there will definitely be hardship, and that is the proposed surcharge upon paraffin oil. It can be a real hardship where pence count as much as shillings do to others who may be more fortunately placed.
With regard to the payroll tax, as noble Lords have said in the debate, there seems to be a confusion of function, as the noble Lord, Lord Clitheroe, stressed in his interesting comments. If it is aiming at a reduction of spending power, it is difficult to see how that 699 reduction would be effected. One must bear in mind that the yield of this tax would not be, I submit, £200 million a year, because it would be subject to income tax. It would be a deduction from expenses, and the income tax with profits tax (from which, of course, it would be also deducted) is estimated to represent something like 53½ per cent. So what would be received would be less than £100 million, which, of course, would come out of taxed income.
If, of course, this tax is intended to secure an economy of labour, it seems to me to be misconceived. It would be most indiscriminate and unfair in incidence on local authorities and Government Departments for them to be subject to this payroll tax. Is it to be applied to the police, for instance? There is a great shortage of police, and recruiting is most difficult, notwithstanding the substantial increases in pay. Is it to be applied to local authorities in respect of the teachers whom they employ? There is a great shortage of teachers, not only in the secondary schools, where it perhaps receives more attention than otherwise, but in the primary schools which are the basis of technical schools and of further education. Is it to apply to them? Is it to apply to a concern which is manifestly short of labour, which has kept up to date with regard to introducing labour-saving processes, devices, methods, and equipment?
There is also the other point made by the noble Lord, Lord Clitheroe, that the labour constituent in the cost is such a variable factor; and this tax could represent a serious additional charge without, it seems to me, achieving the purpose (if that be the purpose) in mind—namely, economy in the use of labour and the installation of labour-saving equipment and machinery, In a recent issue the Banker says as regards this payroll regulatoras a flexible regulator of demand the payroll tax is a delusion.The British Employers' Federation, having examined it in several paragraphs, say this in their penultimate paragraph:In what circumstances would the surcharge be imposed? In time of rising demand prices tend to rise. If applied then, the surcharge would send prices still higher. In time of falling demand some temporary unemployment might occur. Would the surcharge be 700 applied then, increasing the number of workers to be declared redundant? Once imposed, shall we ever see the surcharge taken off?My Lords, those are considerations which must be taken into account. There is the danger, a very real danger, that this payroll tax could be an instrument for securing unemployment, as a result of employers' seeking to minimise the number of 4s. a week they would have to pay—4s. a week less tax, of course.
And so, to conclude, notwithstanding what has been said of a different order and character, I still submit that our economy is in a precarious condition and we are entitled to ask the Government to say, through the voice of the noble Earl, Lord Dundee, what they propose to do to tackle this problem. We ask them to approach it and tackle it in the spirit and in the conception of modern economic thought, and not in the conception of those surviving thoughts of the Manchester School which prevailed so much between the two wars. What are they proposing to do? Are they going to wait until the next crisis blows up, until the vagabond money starts to go back to its owners or to some other destination where interest rates are higher, or what do they propose to do? We hope that the noble Earl will be able to give us some relief from the contemplation of this serious situation.
§ 7.22 p.m.
§ THE EARL OF DUNDEE
My Lords, for two and a half years now I have had the pleasure of replying to the noble Lord, Lord Pethick-Lawrence, in our debates on economics and on finance. His criticisms of the Government are always fair, reasonable and consistent. Although I do not agree with all he says, I always learn a lot from listening to the noble Lord. Last year the noble Lord told your Lordships that in trying to prevent inflation we ought not to depend so heavily or so exclusively as we had been doing on monetary methods—that is to say, bank rate, the special deposits rule and hire purchase control—but that we ought to follow the advice of the Radcliffe Report by using non-monetary methods at the same time.
We have since then tried to do something to follow the noble Lord's advice. I did not expect that he would wholeheartedly approve of the manner in which we have done it. Last year he told us that at one moment we had let 701 our chariot horses run riot and the next moment pulled them up with a terrible jerk; now that we have tried to arrange things a little better he says we are walking round the golf course with our opponent, putting him off the stroke with loud boos, or rather with the uncertainty of whether we are about to boo when he is making a putt. We will try again next year, having listened carefully to what the noble Lord said this afternoon, and I hope we may be a little more successful. Meanwhile I am grateful to him for the qualified approval which he has given to these, as he called them, optional taxes for the purpose of controlling the economy, and we will go on doing our best to listen to his advice, even though we may sometimes do it in a clumsy and inefficient manner.
I was glad to hear the noble Lord, Lord Latham, say that we ought energetically to pursue co-operative measures with Germany and other of our neighbours through the International Monetary Fund in order to remove temporary imbalances in foreign exchange accounts. I entirely agree with him on that. And I was also glad to hear him acknowledge the readiness which Germany has recently shown to co-operate with her allies in mitigating this source of economic difficulty, Which may affect all the countries in the free world. I shall not try to compete at this late time of night with the slightly bilious exercise in Party polemics with which the noble Lord presented us, but I must strongly refute his suggestion that the Government, and the Party which supports it, are not enthusiastically keen on full employment. On the contrary, full employment is one of the basic parts of our economic policy and it will certainly continue to be one of its chief objectives.
May I try to summarise very quickly and as objectively as I can the main outline of what has been happening in 1960 and 1961 in regard to production, in regard to investment, in regard to purchasing power and in regard to our export trade, which I think are the points on which your Lordships have all shown the greatest amount of interest this afternoon? I think your Lordships are generally familiar with the position already. Since April, 1960, industrial production, which had gone up by 12 per cent. in the preceding fifteen months, has remained about the same, but there 702 has been very little slack in our economy. When the motor trade had a temporary setback last year the demand for labour in other trades was so pressing that the motor manufacturers kept on their redundant labour on short time, which seems to have been justified by the event, because since January there has been a very sharp reduction in short time; it is now down to very small proportions. If the surplus operatives had been paid off last year it may well be that most of them would have got permanent jobs elsewhere and it might not have been possible to re-engage them.
Making every allowance for conditions in the development districts, it is undoubtedly true to say in Great Britain there is an overall shortage of labour, especially skilled labour. During these last twelve months, since April, 1960, wages per head have increased by 5½ per cent. unaccompanied by any rise in production. As a result of that, prices have already begun to rise. In the Economic Survey the December figure increase of 1¾ per cent. was quoted. Now it is 2.7 per cent. higher than it was a year ago. And the inflationary wage-price spiral which was stopped three years ago in 1958, and which has been the curse of our economy since the war, now shows signs of beginning its evil movement again. At the same time investment has happily increased a great deal.
Manufacturing investment was 20 per cent. higher in 1960 than in 1959, and in 1961 it is expected to be 30 per cent. greater than in 1960, or rather, I should say, the investment demand will be 30 per cent. greater. Whether there will be quite enough materials and labour available to satisfy this demand in a year may be doubtful, but anyhow manufacturing investment in 1961 will be running at the highest rate which is physically possible. This growing investment will lead in time to increased production; indeed, we expect some increase this year. But meanwhile, domestic spending power is running dangerously ahead of production and, as we know from all our experience since the war, that is likely to cause lengthening delivery dates and rising prices, with adverse consequences to our exports.
703 As for the volume of our exports, they actually increased in 1960 by£200 million—£3,530 million compared with £3,330 million in 1959. The year 1959 was a boom year in world trade, whereas in 1960 a recession in world trade began about the middle of the year, and it has not quite ended yet. But, in spite of that, if you take the quarterly figures for each quarter of 1960, our exports were greater than for the corresponding quarter of 1959, and this trend is continuing in 1961. The export figures for the first quarter of the present year are £927 million, compared with £915 million in the first quarter of 1960 and £783 million in the first quarter of 1959.
At first sight those figures seem good, but I think your Lordships understand why we are dissatisfied with them. One reason is that some of our competitors in Western Europe and Eastern Asia are doing better. Another reason is that this great volume in exports, although it is growing so fast, is not great enough to pay for our rising standards of domestic consumption, which require large imports of consumption goods; for our capital investment programme, which needs some imports of capital goods; for our defence commitments overseas which, as I think the noble Lord, Lord Grantchester, pointed out, are a heavy drain on our foreign exchange account unbalanced by any receipts; and finally, for our large commitments of aid to under-developed countries, partly in gifts which are not requited at all, and partly in loans which cannot be repaid for a long time.
I am speaking here entirely of Government aid. My noble friend Lord Amory mentioned our growing volume of private investments abroad. That is quite true; but of course, some of that private investment may earn a return much more quickly. If you take these two items, Government aid to under-developed countries and our overseas defence commitments, and add them together, they come to considerably more than our trade deficit for last year. Without them, it may well be that we should be adding substantially to our reserves. I am sure your Lordships will all agree that we cannot contract out of our obligations for the defence of the free world, although 704 it is quite reasonable that we should ask other countries which are not incurring similar unrequited expenditure overseas to do something to redress the imbalance in the foreign exchange accounts which is bound to result from it. I am sure your Lordships would equally agree that it would be a tragedy if we had to stop giving Government economic aid to those countries to whom we have taught political freedom but most of whose people, compared with ourselves, are still in a condition of great poverty. If we want to go on paying so much, as we have to do, for overseas defence and also to help the Commonwealth, we must earn more foreign exchange by our exports than we earned in 1960, even although 1960 was a record year for exports in all history.
I think there is no reason why the full and satisfactory discharge of our responsibilities to the free world and to the Commonwealth should not be accompanied by a gradual rise in our own domestic consumption. But if the rise in consumption is so fast that it outstrips the capacity of our economy to supply the demand created by the increased spending power, then we can neither give help to our weaker friends nor shall we be able indefinitely to go on paying for our own high standard of domestic consumption which so many people are far too apt to look on as if it were secure and established for all time.
When Lord Boothby was young, excessive domestic spending power was usually checked either by an automatic gold standard or by someone like Mr. Montagu Norman, who was not a politician and was not responsible to Parliament. When that happened it nearly always resulted in under-production and unemployment. Now that we have abandoned these old regulators it is the responsibility of every Government—that is, the responsibility of us politicians—to keep prices stable as well as we can without frustrating sound economic growth, and I do not think that any of us has a right to be dogmatic about the best way to do it. We can try to do it by physical controls, or by monetary controls, or by fiscal controls, or by a combination of any two or all three of them.
The simplest means of physical control, the most direct way of getting at 705 what we want, would of course be Government regulation of all wages and salaries. But in a free country, in time of peace, that is not possible. I have often said, and I think my noble friend Lord Amory would agree, that this Government would be perfectly willing again to use any of the physical controls which were gradually abandoned in the 1950s, if we found the situation required it. We have no dogmatic prejudice.against them. The only reason why we do not use them is that, in present circumstances, we think they would do more harm than good.
VISCOUNT ALEXANDER OF HILLS-BOROUGH
Oh! But surely, if I may just interrupt, the kind of controls that the Government have imposed from time to time—the "Stop" and "Go" type, as my noble friend referred to them—
§ THE EARL OF DUNDEE
I am talking about physical controls; the noble Viscount is talking about monetary controls.
VISCOUNT ALEXANDER OF HILLS-BOROUGH
You have not put on any physical controls. You say it would have been worse; but the highest factor for our imbalance, as was mentioned by the noble Lord, Lord Grantchester, to-day, is the cost of what we all want to see maintained, our contribution to the defence of the free world. We are now contributing such a small amount in actual forces to the defence of the free world, with an enormous increase in their cost. In the whole of my Parliamentary life I have never seen such a situation. It all stems from the lack of proper economic control of the nation's finances.
§ THE EARL OF DUNDEE
My Lords, all I am trying to point out is that there are different methods of controlling the economy which can be used either singly or together. I am saying that the only reason why we are not using physical controls at the present time is that we think they would do more harm than good. That seems to me to be a perfectly good reason for not imposing them.
A year or two ago some of our critics were telling us that we ought to introduce building licences again. Others were saying that we ought to impose a more selective control of imports; or that we should revive the powers of the 706 Capital Issues Committee, which are at present in abeyance. I have heard very little or nothing about these proposals in the last twelve months or so, and I am not sure whether the Party opposite think they would be desirable at the present moment or not. The interruption of the noble Viscount leads me to think that perhaps they do. But nothing has been said about them in either House for a long time and they have not been advocated by a single speaker in our debate this afternoon. I should have thought that if the noble Viscount thinks they are so important and desirable, someone speaking on behalf of his Party might have said so in our debate.
However, until this year monetary controls, through the banks and hire purchase companies, have been our chief instrument, but not our only one. Last year my noble friend Lord Amory increased both tobacco duty and profits tax—he will correct me if I am wrong —not, I think, primarily to raise revenue, but with the purpose of moderating spending power. One difficulty which, of course, we always had in using the fiscal weapon has been that when you have (as both the noble Lords, Lord Grantchester and Lord Lucas of Chilworth, pointed out) such a very high rate of taxation as we have here—I think that Lord Lucas of Chilworth said it was 37 per cent. including local rates; 37 per cent. of the gross national product, that is—that does not leave you an awful lot of room in which to manœuvre.
But this year the present Chancellor of the Exchequer, in view of the grave danger of some inflation, has gone a great deal further than my noble friend Lord Amory did last year. He has budgeted for a surplus of £500 million above the line, compared with Lord Amory's £360 million last year. In addition, he is asking for authority to use these two new regulators, one the 10 per cent. variation, which can be either up or down, in Customs and Excise, and purchase tax; and the other the payroll tax. Neither of these can be brought in until the Finance Bill has received the Royal Assent, which is usually somewhere towards the end of July. After that they need not be applied at all; they need not be applied, if they are applied, to the full extent; and they need 707 not be applied for more than a limited number of months. But, on the assumption that they were applied to the fullest extent for a period of twelve months, they would each produce an estimated yield of £200 million. That should be added to the £500 million above-the-line surplus in the Budget. That is the extent to which we are asking for, at the moment, optional powers to reduce consumption in this country and so to prevent inflation.
§ THE EARL OF DUNDEE
Yes; in so far as it was subject to tax. And another qualification, of course, is that that part of it which falls upon Government employees would be paid by the Government. But they are both very powerful weapons in reducing excess spending power in the country as a whole.
My Lords, the object of taking this power, together with the Budget surplus, is that if industry should pay more than is desirable in dividends, wages, salaries, or any other way in which purchasing power may be increased, the Chancellor of the Exchequer can then quickly take back some of this purchasing power with the object of preventing inflation. As my noble friend Lord Melchett said, this will, of course, continue together with the former monetary controls, although, as your Lordships will remember, the hire purchase restrictions were somewhat moderated a short time ago and the bank rate has been brought down to 5 per cent. However, it is still high, even for these times. The special deposits, of course, are still continuing.
With regard to the measures necessary to stimulate exports and to do something about the international credit base, we have already had two most excellent debates on these two subjects, one on a Motion by my noble friend Lord Bess-borough and another on a Motion by my noble friend Lord Boothby. I have nothing to add to what I said on behalf of the Government on those two occasions. But I was most interested to hear from Lord Boothby that the debates appear to have interested somebody else outside your Lordships' House.
I have listened carefully to all the criticisms which your Lordships have 708 made. On the two proposed regulators I note that there have been no, or scarcely any, criticisms of number one, compared with the criticisms of number two—that is, the payroll tax—which is what we might have expected, I think. My right honourable friend the Chancellor of the Exchequer has conceded that it is not in its present form a perfect instrument and if it is continued next year it will need to be revised. But, imperfect though it is, he thinks it is necessary to have the power to use it this year in case of need. He thinks that an imperfect instrument for this purpose may be better than none at all. I have also noted your Lordships' criticisms on the various ordinary taxes: television advertising, oil, and the further increase in profits tax. I shall say nothing about these now. We shall no doubt have an opportunity of debating the Finance Bill in July and those proposals are now being debated in Committee in another place, whose unconscionable loquacity has already deprived us all of one week of the Whitsun holidays, and I sincerely hope it will not be emulated by your Lordships.
I am grateful to my noble friend Lord Amory for his speech, which he made almost entirely in favour of the Government's policy. My noble friend compared himself to a cook who has retired and who wishes to be as nice as possible about his successor's masterpieces, although his own concoctions were sometimes treated with rather faint praise. My noble friend may perhaps remember the observation of Saki:She was a good cook, as cooks go; and as cooks go, she went.We are all sorry that my noble friend went so soon; we should have liked him to have a very much longer term of office. But, my Lords, people who live in the same house as a retired cook sometimes get gratuitously much more delicious things to eat than she ever made in her professional days for her employers; and that is a privilege which your Lordships all now enjoy.
My Lords, I do not think—or, at least, I rather doubt—whether the economic problems which are exercising us all at the present time will ever be entirely solved in our lifetime, because it seems to me that the conditions which create them, one of which is full employment, 709 are continuing conditions and we want those conditions in many respects to continue. I would suggest that, while we must not take a light view of the grave consequences which might follow failure to deal with these problems, it is at least better to have to deal with difficulties which are created by growing prosperity and full employment rather than difficulties which are created by poverty, unemployment and under-production. It is preferable to wrestle with the problems of prosperity than with those of adversity.
My noble friend Lord Melchett, in, if I may say so, a very interesting and useful speech, suggested that there might be a wages policy by general agreement throughout industry. We cannot, of course, have a wages policy imposed by law—or, at least, in my opinion we can never have a wages policy imposed by law. That would be unthinkable. But I was glad to hear his advocacy of a sort of agreed wages policy among different sections of industry, if only industry could arrive at some convention by which, in general, money would not be paid out in excess of our increase in production. That would relieve us of a great many difficulties indeed, and it would be a very fine thing. I do not know how far an idea of that sort is practicable. What we all agree, I think, is that we ought to have a steady rise in real wages and, I would also say, a rise in profits. I think they are both good things; but neither of them should be allowed to get ahead of our earning capacity, otherwise, they will defeat their own object, especially in a country like ours, which depends so much upon its foreign trade. But so long as there is no such practical agreement, any Government, from whatever Party it may be formed, must fulfil its responsibilities and its duties, as we intend to do, in protecting the value of our currency and the future security of our economic life.
§ 7.52 p.m.
My Lords, I am sure I shall fulfil the wishes of those noble Lords still present if I do not make any long reply to the debate. I will say only this in the first place: that 710 I thank all those who have taken part in this discussion. I think that, between us, one and another, we have found a great many points in common. We have discussed a very large number of difficult questions with good temper and with some good results. And so far as that is concerned, I am happy to have been able to initiate this debate.
With regard to the speech of the noble Earl who has just sat down, I should like to say only this. He is such a very accurate man that I feel sure that, when I read carefully what he has said, I shall find his figures are correct, but I confess I could not follow them. It seemed to me, offhand, if I understood him aright, that he said something in his figures that I could not accept. Apart from that, I do not necessarily agree with all his points—and he would not expect me to. He did, however, make a challenge, and I should like to answer that. I do not want to run away. He said that he had heard no one in this debate advocate what he called physical means of control which differed from the plans of the Government in the shape of the hank rate and other things. The fact that we have not talked about that to-day is because I have talked about that matter a very great number of times previously, and I certainly did not want to weary your Lordships. But I do not want it to be said that my King Charles's bead is the bank rate. That would not be true. It is, I think, on occasions, worth while dealing with that subject, and I did mention it to-day. Further, of course, as the noble Viscount who sits behind the noble Earl knows quite well, I am a very great opponent of inflation and, therefore, if I say that the method which the Government are using for inflation is not a suitable one, I must obviously have views as to how it should be done otherwise. But at this later hour, certainly, there is not the opportunity to deal with that. Therefore, I shall simply say that I have greatly enjoyed the debate. I enjoyed the speeches of both the noble Earl and of the noble Viscount who sits behind him, and of others. I now ask leave to withdraw my Motion.
§ Motion for Papers, by leave, withdrawn.