THE ECONOMIC SITUATION

HL Deb 18 April 1962 vol 239 cc842-96

2.45 p.m.

VISCOUNT ALEXANDER OF HILLSBOROUGH rose to call attention to the Economic Situation; and to move for Papers. The noble Viscount said: My Lords, I have one very great regret in moving this Motion, and that is that I have to move it instead of our old friend Lord Pethick-Lawrence; I cannot help thinking about him as I rise to undertake this task. My Lords, whatever opinions are now held about the general economic situation in the country, one thing is certain. The Conservative Government, after ten and a half years of office, must take the responsibility for the present economic condition of the country. When I was thinking over who was responsible, my mind flashed back to a speech (which I am sure was made in the hearing of many Members of this House who were then Members of the other place) which was the greatest indictment of a Government I have ever heard in my Parliamentary life. It was made on October 5, 1938, by Sir Winston Churchill against the Chamberlain Government. Sir Winston used these words, which I quote [OFFICIAL REPORT, Commons, Vol. 339; col. 366]: So far as this country is concerned … this was in relation to the crisis of 1938— … the responsibility must rest with those who have had the undisputed control of our political affairs … So whatever I say this afternoon about the situation, I would adopt that first of all.

The country, apparently, is also concerned about it. This morning we can see in the Press the results of the first by-election after Mr. Selwyn Lloyd's Budget, and therefore what the voters think about it. This great and powerful Conservative majority Government receive far less than a quarter of the total votes cast by the electorate in North Derby within a week or so of the Budget—a Budget which was to deal with the economic and financial position in which we find ourselves to-day. I think there can be little doubt about that. If that is so in the case of North Derby, it has been almost continuously so since the first great shock to the Conservative Party at Orpington. Obviously to-day, when we come to discuss the economic situation of the country, the country at large has confidence neither in Mr. Macmillan nor in the Conservative majority Government. They do not seem to be able to use the election opportunities which are given to them.

The Economist newspaper—which I suppose would pride itself upon being a more or less independent paper on financial and economic questions; but which to my mind, at any rate, is often guilty of being especially anti-Labour—has been very interested in our general economic position. Just before Mr. Selwyn Lloyd's Budget there appeared in that paper a particularly carefully drafted article, to which I will come in a moment. Broadly speaking, what they wanted was a loosening up of the economy in order to try to find some remedy for our present difficulties of stagnation in production and repeated crises in exports and balance of pay- ments. But, when they came to write their article last week, they had a comment to make on Mr. Selwyn Lloyd's Budget. I need not quote the article in detail, but two things stand out in it.

The first is that they regarded the Budget as depressing. The other thing—and this, of course, is not a charge against the Government in this case—is that they said the one thing they thought they could praise, apart from the promise of a change in the Schedule A tax in the future, were the taxes to be imposed—now known as "lollipop" taxes—upon children's and old age pensioners' sweets and soft drinks. No wonder,they regarded the Budget of the Chancellor of the Exchequer as depressing, if that is the best comment they could find to make about it!

There was, of course, something to be said for the promise that was made to repeal next year for owner-occupiers the present Schedule A tax, but I think most owner-occupiers would have preferred to have something in hand rather than to wait for it. I would not go so far as to use the words of a Member in the other place, who said, "You might wait till next year, some time, never." I think they would be bound to fulfil this promise, seeing that they are fulfilling the promise they made last year to relieve the sur-tax payer by £83 million. But certainly it does very little to help those who are in just as much difficulty as the owner-occupier; those who, since the Government's Rent Act, have had constantly increasing rents to pay, and who are facing the results of a new assessment and valuation, having already suffered rent increases far greater than the actual amount of the Schedule A tax upon the apartment or house they rent. I should say that, judging by the estimates I have seen, the burden on those tenants and properties would be at least half as much again as that on those involved in owner-occupation, if not nearly double. So there is little hope and help for them there. I think, therefore, that we can pretty well leave out the Budget from anything we consider as being effective in relation to the general economic situation of the country. It means almost nothing in its contribution to improving the situation—almost nothing at all.

But there are some things revealed by a study of accounts, as to how some prophets have come to judgment. I have noticed from time to time in the Conservative speeches in the other place, and sometimes in the country, that they are very concerned about the general state of expenditure under the Conservative Government, and about its effect upon the national economy, so we produced some figures brought up to date with this last Budget. Before I quote them, may I just say this: that during the 1959 General Election tour of Mr. Macmillan, the Prime Minister, he warned the country that if the Labour Party were elected their costly measures would cause Government expenditure to rise by the end of five years by £1,000 million in a year. I would point out that the Conservative Government have managed to get to that position in half the time. I will give the figures if I may.

In 1959–60 the Budget estimate was £4,495 million for Supply Services expenditure the actual expenditure was £4,502 million. In 1960–61 the Budget estimate was £4,907 million: the actual expenditure was £4,989 million. In 1961–62 the Budget estimate was £5,187 million: the actual Exchequer issues for that year were £5,368 million. The Budget estimate submitted for this year is £5,612 million. So, my Lords, instead of being £1,000 million up in five years, they are over £1,100 million up in about two and a half years. That is one prophet come to judgment, anyway. If that is the basis upon which Conservative appeals are made to the country to try to sway the electors' opinions, I should have thought that the sooner they revised their methods the better it would be. I readily admit that gat Election times, when Party feeling is running high, there may be quite wild speeches made here and there; but they should not come in that manner from the Prime Minister.

In the next breath, I should like to refer to Mr. Macmillan's comments in the 1959 Election with regard to something which is in the Budget, the taxation of capital gains. Mr. Macmillan toured about 2,000 miles in the Election campaign, and in his first tour he was opening up at Bradford. After generally attacking Mr. Gaitskell's reliance upon a tax on capital gains and business expenses, he said: The truth is that this vast Eldorado, these vast millions to be found so easily and so painlessly, simply do not exist. The plain fact of the matter is that Mr. Gaitskell has been rattled and is running around in circles.

That was said at Bradford, according to the Daily Telegraph of October 1, 1959—two and a half years ago. This Budget adopts what we on our side believe to be a very unsatisfactory method of taxing capital gains. But it is adopted—another prophet come to judgment.

Then there were references in the same tour of Mr. Macmillan to the stupidity of talking about getting money from taxation of business expenses. I need only say to your Lordships that those of you who have any connection with business know as well as I do that there is already a revision by this Government of the basis of taxation of business expenses, and that they seem to get money from it—another prophet come to judgment. I could go on with quite a number of other cases to prove the same thing, but I will quote only one more speech of Mr. Macmillan, made during his Kent tour. He said, in dealing with Labour's taxation proposals on capital gains and business expenses: Mr. Gaitskell has apparently discovered a new golden path to success—taxation of expense accounts and capital gains. The truth is it is a fake. It is the last desperate throw of people who know they are not going to win the election.

LORD STONHAM

That is why they are doing it now.

VISCOUNT ALEXANDER OF HILLSBOROUGH

But the Prime Minister won the Election, and he has adopted both. Fake business expenses and capital gains! Is it any wonder that the country loses confidence?

These things can be carried to an even later stage than that, beause if your Lordships look at column 821 of the Hansard Report of the other place for April, 17, 1961 you will find that the Chancellor of the Exchequer, Mr. Selwyn Lloyd, dealt with the suggestion from some quarters that remissions on surtax should be accompanied by a capital gains tax. He went on to explain that he had carefully examined it all, and at the end of that particular paragraph he said: I propose to look at it myself again during the coming year. But I am not at present satisfied that what is called a capital gains tax is worth while. My Lords, it has been thought worth while in the Budget which has just passed, although intervening between those two was the occurrence of the "little Budget" last July, when Mr. Selwyn Lloyd said, with regard to this tax: It would involve a new and complicated drain on the administrative resources available. We should find that all the best brains in the country would be concentrating at once on how legally to get round it. We should have a limit, and we should have exceptions We should have to have a sliding scale; and in my view—I look at this from a purely practicable point of view—I do not think it would be worth while". That was what he said even when dealing with the "little Budget", which was to be an interim measure for getting rid of the difficulties that had occurred in the progress of our economic situation. But it is in this Budget.

The only criticism one can make about it at once, perhaps, is that he has gone as far as the can to leave all the loopholes there for those people who want to escape it to do so. For short-term profits they need to hold an investment for only one or two days longer than six months in order to escape it; and on properties, they can also manage to escape taxes of the same character by manipulation. In calling attention to the economic situation, my Lords, I do really think that we might ask the Government to look at their past record in this matter to see whether they could not be a little more certain as to what they are saying, as to whether they can carry it out, and in ensuring that the country will not be misled.

There is one other matter I should like to refer to, which is the tendency nowadays for all political Parties to say, "We are in favour of dealing with this matter by way of planning and controls." There, again, is a most extraordinary change of behaviour and opinion. During the evening of the Stockton by-election I listened in very carefully to all the television shows that were put on and to the opinions which were being obtained from Liberals and Conservatives. One Liberal candidate or past candidate—I think one speaker was the prospective Member and another was a past Member for Middlesbrough—claimed that his Party could present to the country a proper five-year plan to get rid of all the present difficulties. He was a representative of the Liberal Party, which I have always associated in my mind with those in complete support of what is called absolutely free trade, absence of controls: every man for himself and the Devil take the hindmost! The same night the defeated Conservative candidate, speaking I believe from the steps of the Town Hall, indicated that the Government's planning which they intended for the future would of course lead to better times and would be coming to fruition in time for the Tory Party to be returned at the next Election. They are all in favour of planning now.

When the Conservatives came to power in 1951 on the basis that it was necessary to set the people free from planning and controls, you would never have believed that they would come to the situation that they have reached now. First of all, they often complain of our referring to the league table, but they stand practically at the bottom of the league table in production, especially industrial production. In that regard, there were two boom years—strangely enough, they were the Election years, 1955 and 1959. Nevertheless, taking an average over their whole 10½ years in office, production has not expanded more than an average of 2 per cent. But in the case of the Election years, it was 4 per cent. or nearly 5 per cent. in 1955, and that figure was boosted to 9½ per cent. in 1959. That was brought about largely by Budget manipulation and also by increasing productive output, not so much for export or to correct our balance of payments, but by providing, in advance of production, more spending money for the people for the time being in the Election year. No wonder that even some Conservative Members of Parliament say that they are tired of seeing Governments offering bribes to the electorate! That is the state of the nation, which we want honestly and sincerely to see improved.

One reason Why we want to get back to a sound basis of planning and control is that there can be no shadow of doubt that one of the great handicaps to keeping up a steady growth of production, which is what this country needs, has been the "Stop-Go, Stop-Go" policy of this Government over the last ten years. This has led to very great anxiety and a great lack of confidence in various of the industries concerned. I should say that the actual direction of investment has probably been greatly handicapped by the lack of an adequate lead or of fiscal measures to support investment in the right industries for the right purpose, together with a guarantee at the same time that these would be no restriction against the bolding of skilled labour in certain districts where it ought not to be held because it is required elsewhere for the general economic benefit of the whole country.

My Lords, you cannot arrange things of this sort without planning, and you cannot arrange them without control. You can speak and argue and plan all you like about political Party policies for a redistribution of industry into the areas where you can thereby undo unemployment or expand the overall production for the country; but you must also ensure that you stop this continuous and undue flow of people who are enticed into industries in areas such as London and its neighbouring parts, or centres like Birmingham and its nearby districts, which leads to an unequal distribution of labour in relation to the skilled requirements of the nation. It is very important that that should be seen to.

Then, I must complain about the manner in which even the beginnings of a plan by the Government seem to he put into operation. One of the things which has obviously been very much in the mind of Mr. Selwyn Lloyd ever since last July is the pressure of some policy which was called the "pay pause". Of all the stupidity, politically, of introducing it in the way it was introduced at such a time, in the light of relief of surtax, and holding up the legitimate cost-of-living increases which were due, some of them under quite normally operated agreements which made it clear that they were due for reconsideration! And if I may bring your Lordships up to date, there was also that extraordinary answer yesterday by the noble Lord, Lord Newton, with regard to the position of nurses. It is the same thing. Yet all this was suddenly launched arising out of the "Little Budget", and there has been a great deal of difficulty since.

Organised labour in this country is always at the service of a Government, of any colour; and it is asked for its advice, after consultation, upon what is best for the industry of the country. I could quote, if I looked them up, any number of cases where organised labour has been called in on such occasions as that. But then, to set up a National Economic Development Council—which was immediately labelled Neddy "—before there was anything like a basis of agreement as to how it should function between employers, the Government and the employees' organisations, is something I cannot fathom. I certainly cannot admire either the wisdom or the political discretion of those who were responsible for that approach; and up to the moment it has not done any good in this matter. Yet I should like to see an organisation of that kind really succeed, if the matter were soundly approached, with the responsibilities both of labour and employer, as well as the Government, in actual planning to bring about the results we want. But, like nearly everything else this Government have touched, from Suez to "Neddy ", they make unhappy mistakes, rushing when they ought not to and hesitating when they ought to go forward, and going down in history as the Government of continuous blunders. And they blundered on this one.

However, I should like to see an attempt made to get a planning organisation with a proper view as to what is the basis of fair remuneration. On the other hand, I should like to put to the House what is very often said in this country, as if it were only so in this country—that there is not the proper relation between wages and the actual growth of production, which is really at the base of what Mr. Selwyn Lloyd seeks when he asks for a pause. It is not true to suggest that our 'position in the league table of production internationally is due to the fact that higher wages are paid in this country. If you see some of the claims in the United States, you will see that the average wage to-day, for a shorter week, is nearer £40 than £30 per week. We have no such wages in general use in this country as there are in the United States.

Or, if you come to examine the position in relation to the Common Market countries—the Six countries which noble Lords, or many of them, are so anxious to join, so as to get, in some miraculous way, out of the present economic dangers in which the country finds itself—do you find wages there in any better relation to production than here? If you look at the facts, I think it will be agreed that that is not so. What a comment that was in the London Times, when the O.E.C.D. Economic Survey came out! They said: This contains all the information that ought to have been given in our own Economic Survey". But it was not given. They thought very poorly of the Economic Survey in this country. The O.E.C.D. pointed out that the hourly wage earnings in manufacture are as follows. These are the figures from 1953 to 1960 (I have not the figure for 1953–61): in Italy, 137; in the United Kingdom, 155; in West Germany, 158; in the Netherlands, 167; in France, 182. That is the measure of the increase in wages which has taken place. How can it therefore be said that there is an undue handicap to our exports to those countries, when in fact there is not any such obstacle? Because I think that if you watch the export figures (I have not got them with me, but I look at them from time to time) of this country, compared with the Common Market countries in the last two years, you will see that those figures have steadily increased, whereas they have not been increasing in some of our best-known markets of the world. I could quote other examples, but I have not the time to do so.

But I will say to your Lordships that what this country needs at the present time is the right sort of growth. It needs a growth of industry all the way round. I am very much in favour of planning, so that we give all the necessary favours to export industry in order to correct the frequent tendency in our balance of payments, and therefore bringing pressure on the pound. But, my Lords, I am not in favour of so putting on this "Stop and go" that you very often stop something in home production which is, in fact, of very great assistance to our export trade. Any businessman who has been engaged, as I am sure many of your Lordships have, in industries which are vertically organised—and therefore you are in it from the primary production right up to the final distribution—would say that, if it were not for the proportion of overheads on your export goods which are carried along on your home production, you could not get the markets you are getting to-day. And to make these sudden stops and starts, which very often fall penally hard on your home producers, is not right.

I am naturally very interested in agriculture, and I have a paper here which will show what I mean. Let us state the position that agriculture has taken up on this difficult question of balance of payments. It has been of enormous service in holding off the worst aspects of the balance-of-payments crises through which we have been going, involving hundreds of millions a year. Let us take one of the things which has happened in relation to the home industry—the enormous increase in machinery ordered by the British farmer. Speaking from memory, I think it has not been as much in the last twelve months as it was before (some years have been better than others), but there is a continuous purchase of agricultural machinery. Anyway, the value of machinery ordered by farmers in this country in 1961 was £214,500,000, or 17 per cent. of the whole of the agricultural purchases for the year.

Then I look at the exports, and I find that the export of farming machinery in 1961 has been no less than £134 million. How much does the costing of these two parts of trade go together? I must say, for the benefit of the noble Lord, Lord Mills, who just before Christmas drew attention to the Government's view that one cause of our situation had been far too much pressure upon our resources for the home market, that we have to examine all these matters carefully, because to cut deliberately products X, Y or Z in home production may do inordinate damage to their export trade. It needs to be planned and it needs to be controlled—two words which were anathema to the Conservative Party in 1951. I am very anxious to see this put right, whoever does it, because I want to see my country prosperous, I want to see the workers not only employed but also properly paid and I want to see the better spending of money.

In studying the figures of the way in which money is spent, one of the most shocking things I find is the extent to which money is being spent, encouraged by the moral outlook of the Government, on gambling. The Conservative Government have given a special cachet to the people to think that gambling is all right, by a special Bill, by setting up betting shops and by having Premium Bonds, with special competitions arising out of them. The amount spent on these forms of gambling runs into something like £790 million a year. About £440 million is spent or racing. I notice that the money spent on the pools has decreased from £111 million to £100 million. The amount spent on Premium Bonds is £13½ million. The way in which a country can be made to appear as if the people "never had it so good" is fantastic. Everybody is anxious to get more money and will risk anything in any sort of gamble to get it.

I want to see better production and better wages and a better use of the nation's money. I want to see demands being made which will help not only our own country, which is a prime necessity, but also to keep together people who have been under British influence, who have been given British ideas and some idea of freedom and of coming together in future to co-operate for production, trade and development. At present, I am entirely dissatisfied with the state of the national economy, and I am even more dissatisfied with the efforts the Government have either made or not made at all. My Lords, I beg to move for Papers.

3.24 p.m.

THE MINISTER WITHOUT PORTFOLIO (LORD MILLS)

My Lords, I have listened with rapt attention to the skilful political speech which the noble Viscount the Leader of the Opposition has made. I am not going to follow him into the many statements and misstatements in which he has indulged. I am going to ask him to be patient and wait for my noble friend the Leader of the House, who, I am sure, will be much more capable of that task than I am.

LORD SHEPHERD

My Lords, I suppose that the noble Lord thinks that the noble Viscount is more answerable.

LORD MILLS

Your Lordships must draw your own conclusions about what I think. The noble Viscount referred to the fact that the late Lord Pethick-Lawrence was no longer with us. It is nearly a year ago since he opened a similar debate in your Lordships' House. On that occasion my noble friend Lord Dundee said that his criticisms of the Government were always fair, reasonable and consistent. I am not saying that the noble Viscount's criticisms also are not as fair as he can make them, but Lord Dundee's statement was true and we shall remember our late noble friend with great respect and affection, not only for his many qualities but also for the friendly criticisms to which he submitted the Government and the wise advice he gave us.

Last year in the economic debate he said that there had been some bright periods and on the other hand a good deal of cloudy weather. He then proceeded to describe the most depressing factors—first, the balance-of-payments position, and secondly, the growth of the gross national product. Because our noble friend had the faculty of putting his finger on the things that matter, I should like to draw your Lordships' attention to the present position of the balance of payments.

The balance-of-payments position recovered substantially last year. The account as a whole was much better. For the balance of imports and exports alone—because that is what is most important for the years ahead—the visible trade balance improved from a deficit of £391 million in 1960 to a deficit of £135 million in 1961. In the second half of last year, the deficit was only £23 million. The balance improved because imports were lower and exports were higher. But we still have to secure the substantial rise in exports that we must have Ito get the balance of payments on a sound foundation, so that we can meet all our oversea commitments and pay for the extra imports that an expanding economy needs, without falling back into a fresh crisis. Of course there has been a price for the gains we have secured since July. There has been some loss of industrial production, though the latest figures of industrial production, which were produced to-day, show a rise of two points between January and February.

VISCOUNT ALEXANDER OF HILLSBOROUGH

My Lords, should I not be correct in saying that the actual percentage increase for the whole of the year was only 1 per cent.?

LORD MILLS

My Lords, I thought that I had already indicated that there had been a price, in a standstill in industrial production. However, production seems to be coming forward again. But the price in terms of inflationary pressure, both at home and abroad, and in the balance of payments, would have been far higher if we had not made a determined attack on the problem last summer. There is an old saying, Look not into the past: it comes not back. But the noble Viscount invited the Government to look into the past and see what their record had been. I believe that we are entitled to look to the past if only to profit from its lessons, so long as we also look into the future and try to ascertain what it has in store for us. So for a short time I would crave your Lordships' indulgence while I review what has been the record of this Government since they came to power in 1951.

Britain has taken the lead in reducing barriers to trade; the pound has been made convertible, import controls have been lifted, and negotiations have been started for entry into the Common Market, after we had been responsible for forming the European Free Trade Association. We have agreed to reduce import duties on many goods by 20 per cent. in the G.A.T.T. negotiations. Since 1951 the annual value of United Kingdom exports has increased from £2,582 million to £3,682 million in 1961. In volume this represents an increase of over 25 per cent. and has been achieved in the face of growing competition. As a result of Government encouragement and higher savings, Britain is now investing more than twice as much as in 1951 in new factories, plant, equipment, roads, houses and schools. Large-scale modernisation of British industry has been carried out. The net investment by companies has risen from £267 million to £835 million in 1960, and about £1,000 million in 1961.

So far as production is concerned, in the past eleven years it has risen by more than 30 per cent. The emphasis of industrial production has of course shifted from the old to the new industries. One of the fastest growing industries, as your Lordships know, has been the motor industry, in which production of motor vehicles has risen from under 500,000 in 1951 to over 1 million in 1961. Steel, engineering, electronics, plastics, electricity and television have all shown great expansion. The aircraft industry's exports have more than trebled since 1951. I would remind your Lordships that the first nuclear power station in the world was opened at Calder Hall in 1956, and eight more nuclear power stations are being erected.

Full employment has been maintained even when the world recession reached Britain. Unemployment has not reached the 3 per cent. figure which Mr. Gaitskell defined as full employment. The number at work to-day is 1¾ million greater than it was in 1951. The noble Viscount referred to the question of the distribution of industry. I would remind him that special measures have been taken under the Distribution of Industry Act and the new Local Employment Act to deal with pockets of unemployment. As a result South-Wales and Merseyside are being transformed into flourishing industrial areas.

The average standard of living in this period has risen by over 30 per cent.—more than in all the previous 40 years put together. There has been a big rise in the consumption of practically all types of goods. By far the greatest increases have been in motor cars, motor cycles and other durable goods. Allowing for the rise in prices, we are spending to-day about seven times as much on motor cars and motor cycles as we were eleven years ago. On other durable goods expenditure has risen by 50 per cent. and weekly earnings since 1951 have risen by 85 per cent.

I should now like to say a word about taxes. Despite the cost of greatly improved social services, the Government are taking only about 26 per cent. of the gross national product in taxation compared with 32 per cent. in 1951. The standard rate of income tax, as your Lordships know, has been reduced in that period from 9s. 6d. to 7s. 9d.; the personal allowances have been improved; and special reliefs have been given to those on fixed incomes and to encourage savings. Even this year, when the Chancellor of the Exchequer had to introduce a Budget which really offered no rewards—I could almost call it a tough Budget—he extended the tax reliefs, to the benefit of nearly 500,000 people, in his proposals for the age exemption and the small income relief. Purchase tax has been reduced several times, and the maximum rate is now down from 100 per cent. to 45 per cent. The entertainments tax has been abolished, and the duties on beer and wine have been cut. In 1951, 52½ per cent. of companies' undistributed profits and nearly 75 per cent, of their distributed profits went in income and profits tax. To-day the figure is about 54 per cent.

Then we have record savings. The return of the Conservative Government in 1951 restored confidence in the future. There has been a remarkable increase in personal savings. In 1961 alone we saved over £2,000 million. I suggest that these are achievements which are worth consideration when we talk about the record of this Government. Since the war British investments in and aid to under-developed countries have totalled well over £2,500 million. Since 1956 Government aid has more than doubled, increasing to about £180 million in 1961–62.

But, in the face of these substantial advances, there have been great improvements, too, in the social field. Retirement pensions have been raised four times by over 90 per cent. The real value of the single pension is 15s. more than it was in 1951. With regard to education, we have built over 5,000 new schools, and provided 2,750,000 more school places. On housing, over 3 million houses have been completed, including over 1 million for home ownership. Almost one family in five has moved into a new house since 1951. Then on the health side there has been a fourfold increase in the amount of money spent on hospital building. It was £9 million in 1951, £36 million in 1961 and, as your Lordships know, a new £500 million ten-year programme has been launched. There has also been a big expansion in local authority health and welfare services.

In the face of these great achievements, why have we been faced with balance of payments difficulties, inflation and higher costs, in spite of the great scientific and technological advances which have characterised recent years? During and after the war inflation was analysed in terms of excess demand—too much spending was pulling up prices and incomes tried to keep pace. We tried to deal with this problem—not only the Socialist Government but the Conservative Government too—by fiscal means. Now it is recognised that inflation is also caused by a rise in costs not primarily due to the pull of excess demand, but by increases in incomes not justified by events. The pay pause and the incomes policy, which the noble Viscount mentioned and which are set out in the White Paper, represent an attempt not only to grapple with the problem itself but also to bring home the fact that an incomes policy which goes beyond fiscal controls is essential if we are to be competitive and really to improve our standards.

I suggest that we have made a good start on this incomes problem. Since last July the index of hourly wage rates has risen by less than 3 per cent., and much of that was due to pre-pause commitments. In the same period in 1960–61, the increase was nearly 5 per cent. This is a real gain and there are fairly clear signs that we are already seeing some benefit in the trends of prices, apart from food prices which have been hit by the bad weather and the comparative shortage of potatoes. But this is only the beginning and it is crucial to get money incomes into a proper relationship with production.

Now as to the future. I said that we must look to the future and try to assess what it holds for us. Let us look at both the short-term position and the longer term. First, what are the prospects for the next financial year, 1962–63? Though our exports have risen comparatively little for some time, the conjunction of conditions both at home and abroad is favourable now. Exports to Europe and to North America have been rising strongly. Indeed, between 1960 and 1961 our exports to the members of the Common Market rose more quickly than did their trade among themselves, and there seem good prospects of a recovery of demand for imports by the primary producing countries, who take about half our exports. Generally our casts are now more competitive. We believe there is a prospect of a substantial rise in exports as a whole in the course of this year. Indeed, the latest figures suggest that it may have begun. Exports have increased in the last three months and in March they were some £312 million. Plainly, we must safeguard the opportunity if we are to increase our exports; we would not foster it—on the contrary, we should damage it—by trying to boost our home demand too fast. We need to get the economy more export-minded and to be less tempted by an easy home market. That was the theme to which the noble Viscount referred and about which I was talking last December.

To look ahead over the coming year, there is in prospect not merely rising demand from overseas but more demand from home. In the public sector, investment is rising at an annual rate of 5 per cent., and current spending on goods and services by Government, both central and local, is rising at about 3 per cent. In the private sector, though there may be further falls in investment by manufacturing industry after the immense boom up to the third quarter of last year, the level of investment will still be high. There is also an increasing investment in distribution and in the service trades. The pattern of events suggests that stockbuilding may well be low this year. It seems likely to rise, however, before the end of the year and we must allow for such a demand on current output.

I have given your Lordships a pretty cheerful picture. Let us assume that events do not turn out as we foresee. The Government have now a wide range of powers, both monetary and fiscal, at their disposal to adjust the course of demand. We have developed new tools in the last few years—notably the system of special deposits and the indirect tax regulator for which the Chancellor of the Exchequer is seeking renewed powers. Such new powers, added to the existing more conventional powers, provide the way of adjusting the economy to changing events more flexibly, more quickly and in a less discriminatory fashion than in the past. I suggest to your Lordships that this is an important step forward.

Now, the longer-term prospect. We have made a good start towards establishing the conditions which are necessary if we are to achieve and sustain a higher rate of growth. I would just refer to the National Economic Development Council. I do not think the noble Viscount has given it a chance yet. I think actually it has had one meeting; but its staff are working hard to get the information upon which they can make judgments.

I should like to highlight four points for the future. The first is the need for a sound balance of payments. I think now there is a growing appreciation that we need a steady and significant export rise as the dynamic element in economic growth. The second point is the balance of claims on resources. We need a better balance between the demands made on the economy and the resources we have to meet them. Too sudden and rapid an upsurge in demand, outstripping the rate of growth in the capacity of the economy both in equipment and in manpower, leads to delay in deliveries, rising costs and damage to our balance of payments. It leads inevitably to restraints to get the economy back in balance. I believe there is a growing appreciation of these factors. We want a steadier course, fixing our policy in the light of prospective developments so as to avoid the "Stop and Go" type of economy and to avoid abrupt changes of direction.

The third point is incomes policy, but I do not propose to add anything to what I have said about that. The fourth point is investment. There has been a considerable rise in the proportion of our resources devoted to fixed investment over the years. The ratio of fixed investment to the gross national product has risen from 17¼ per cent. in 1958 to just over 19 per cent. in 1961. Though the share of our resources devoted to investment at home remains rather lower than, for example, the proportion in Common Market countries, it seems to me clear that over the last decade we have been increasing our share, despite all the other claims on our resources, more quickly than they have. In manufacturing industry alone investment last year was 40 per cent. higher than in 1959. Manufacturing investment accounts for only about 28 per cent. of all fixed investment. It will remain at a high level, and other investment, for example in power, road and transport, also continues to rise.

Now just one word about the Common Market and then I shall be finished. In opening the debate last year on the economic situation Lord Pethick-Lawrence referred to the Common Market and said that if proper terms were found it might be to our great advantage, both economically and politically, if we took part. That is the view of Her Majesty's Government also. We have never disguised what our views are in this respect. We have entered into negotiations with the Six because the opportunities in a market of a further 170 million people should be very great for our industries. With no tariff barrier on British goods we should be able not only to sell more but to increase our share of this expanding market. Whatever develops, we shall find ourselves in a new society. To hold our own in the domestic market and exploit the chances across the Channel will be a major test for our industries.

VISCOUNT ALEXANDER OF HILLSBOROUGH

My Lords, I am sorry to interrupt the noble Lord, but I think it would be very interesting if the noble and learned Viscount later on would say something about the reports which have appeared, in The Times especially, of Dr. Erhard's defence of his Budget and reports of difficulties in the economies of other countries in the Common Market. I did not think the Common Market would be discussed in quite so much detail, but what these countries have done in increased production over the last few years has been boosted up so much and there has been no mention of what view is taken of the pause in the economies of those countries in the Common Market.

LORD MILLS

My noble friend who has just listened to the noble Viscount has murmured something about the "league table". so no doubt he will enlarge on that.

Finally, the future offers opportunities on the economic front, provided we adjust ourselves to the changing circumstances of world trade. We must not think, or continue to think, in terms of what we have known; we must think in terms of what is actually happening and is likely to happen.

3.58 p.m.

LORD SHACKLETON

My Lords, the noble Lord, replying to the noble Viscount the Leader of the Opposition, said that my noble friend made a skilful political speech. I will not throw any such gibe at the noble Lord, but his speech makes me absolutely despair. It is a tragedy that, year after year, we hear speeches from those Benches—although there are some warning voices from time to time, pointing to the fact that all is not as well with the British economy as it might be—yet the noble Lord's speech was apparently a record of achievement. He said we have lowered trade barriers, we have achieved convertibility, and we are talking about going into the Common Market. The position so far as the security of this country as a base for expansion is concerned is that it is still as weak as it was when, for instance, the noble Viscount, Lord Bruce of Melbourne, and others were criticising the Government for the same sort of complacency as we have had to-day. Despite the blinding light that appears to have flashed with regard to inflation—it had flashed a little earlier among some Government supporters—the fact remains that this Budget and Government policy still make no real attack on the basic problem of maintaining a balance in our economy so that we can go forward to expansion.

Ever since the War we have been afflicted by the modern successor of the old trade cycle, namely, a cycle, sometimes of two or three years, of an excess of demand in regard to currency and an imbalance in regard to exports and imports; and we are nowhere nearer solving it now than we were five or, indeed, ten years ago. The situation that precipitated the particularly acute crisis in 1950–51 was, of course, the change in the terms of trade. For the last few years the Government have had a pretty easy time with regard to commodity prices. There has been none of the disturbance that almost overnight turned the favourable balance from one year to another by several hundred million pounds.

When we analyse the situation—and I am sorry that the noble Lord did not do it—we find that there have been certain changes, some of which are certainly not the fault of the Government, but which they have failed to take into account in their planning of budgetary policy, in their presentation of the economic facts to the country. Certain of these difficulties have arisen, I think, from good intentions; I think the intentions in this country in regard to the export of long-term capital have perhaps exceeded our capacity. I think we all applaud the fact we are doing this, particularly in regard to under-developed areas. We have had, especially lately, the acute problem, a new one in recent years, of the balance of payments in regard to the maintenance of our Forces in Germany. We have, in recent years particularly, the decline in trade in the sterling area; and when the Government boast about our achievements in the Common Market, it is worth noting that it is met by a decline elsewhere; perhaps our Common Market competitors were busy in that area. We shall know better about this when, as I hope, we go into the Common Market. My noble friend and I are perhaps not in full agreement on this.

Against this also we have the decline in invisibles. I am staggered that we had no explanation of this. In the past our invisible earnings have been one of the most important parts, the saving grace, of the balance-of-payments situation. We find a really shocking decline in invisible earnings in the last two or three years, sometimes by as much as nearly £200 million, in one year, and we see that the earnings from shipping, which used to be such a standby in this country, declining at a quite deplorable rate. Again, that is, to some extent, affected by the world trade situation and the fall in freight rates and so on. When we look at this position and see the difficulties—and these are genuine ones, not all of the Government's making—we are bound to wonder how it is that the noble Lord can come to make a speech full of easy optimism without any suggestion as to the course we should follow.

It really is not good enough to give a list of the improvements in this country without comparing them with those in other countries. I do not doubt that the noble Viscount, Lord Hailsham, may wish to murmer "league tables again". I am sorry that we do not have visual aids in this House so that those of your Lordships who have not read the report of the Organisation for Economic Cooperation and Development—and I do not doubt the Government will give a sigh every time this document is mentioned—could look at the relative position of this country; and I urge noble Lords who have not done so to look at page 10 of this document. We see that over the last ten years the increase in the gross national product, averaged year by year, has been exceeded by practically all the countries, indeed all the main industrial and other countries in the West except Ireland. When it comes to increase in individual productivity per man-hour we are at the bottom the Irish beat us with regard to this.

I really fail to see how it is that the Government can be as content as they appear to be. In looking at our export position and at the difficulties we are in in this country and then at the achievements of other countries, we see how unfavourable is the comparison even allowing far the basic insecurity that we have always recognised because of our dependence on raw materials from abroad for imports. I have the figures here in the United Nations digest; I will not bother your Lordships with them. When we look at the achievements of countries like Germany and France and other countries, we see how their exports and imports have risen at a prodigious rate in, comparison to ours. And they appear to have achieved it with only minor disadvantages, although I agree that there are warning signs at the moment as wage rates rise so fast in Germany. When we look at the growth of our economy, then it is certainly worth quoting what this document says: The rate of growth of gross national product in the United Kingdom was about half the rate achieved in the member countries of the European Economic Community. It is probably reasonable to have expected a greater rate between 1950 and 1955. There was the tremendous rate between 1945 and 1950, during the days of the Labour Government. I am not claiming the credit for that; it was part of the post-war recovery which came later in Europe. The growth of gross national product per head of employed population was nearly three times faster on the Continent up to 1955 and twice as fast subsequently.

The noble Lord boasted about investment. But the figures on investment are pretty depressing. We have referred before to this 'matter, and particularly to the failure of the Government to provide the right circumstances for stimulating confidence among private investors. Certainly, except when the Government have seen fit to cut them off rather suddenly or to cut them back—or, as they say, to delay completion—there have been investment programmes in the nationalised industries. The position in private industry is worrying. I think the noble Lord, Lord Ritchie of Dundee, has been rather maligned, particularly by his supporters on my side of the House when they said the City was at the end of its tether. It has not been purely a question of whether or not the Government taxed the rich too much; it has been the absence of any clear-cut Government policy on any long-term approach to the problem.

The Government have very largely ignored the advice of the Radcliffe Report, which I admit was not as clear as it might have been. They have used precisely those instruments they were advised not to use. They have gone in for excessive use of the bank rate, variations of which may be of slight significance in industry but they have an effect on confidence and, among other things, attract a large amount of short-term capital of a very dangerous kind to match our long-term capital invested. It is no wonder that those people who are concerned with the future progress of this country begin at times to despair. The balance-of-payments problem is not one that is going to be at all easy to solve. It seems to me that the Government, confronted by this basic dilemma, confronted by the problem of rising costs and the pull of home demand, can find only one solution, and that is restriction; their analysis of the problem always leads them to apply the restrictive solution instead of an expansionist one. Yet the surprising thing is that from 1956 to 1958 the yearly rise in industrial production was little over 1 per cent. more than was achieved in 1955. Home costs per unit of output rose by 16 per cent. and the volume of exports by only 4 per cent. Then in 1959–60, when the Government took the lid off (I will not say whether it was connected with Elections, but, at any rate, they did) the economy was allowed to expand and industrial production rose by 13 per cent., home cost nor unit of output by 4 per cent., and exports increased by 9 per cent.

Our criticism is that the policy of the Government, and their Budget in particular, is quite irrelevant—I am not concerned with questions of a confectionery tax—to the needs of our present situation. It fails to provide encouragement for economic growth, even among those who believe most passionately in private enterprise. The Government are rightly concerned with wage levels. To-day no Government can ignore incomes as a factor. It is worth noting that in the last year profits have risen 25 per cent. more than wages, and since 1957 they have risen twice as much. It is against this background that we look at Government policy. They introduce the pay pause; they ignore Radcliffe; last year they introduced a pay roll tax which they quite clearly did not understand. A pay roll tax could, as a long-term instrument of planning, be of some use; but the Government brought it in with the idea of its being a short-term regulator, until they were laughed out of it and, quite properly, dropped it this year. Their sole contribution during the last two years, to a proper and relevant understanding of the problems of this country and the urgency of raising our standards of living as a basis for the security of the Western world has been the introduction of commercial television. This seems to me to be the height of irrelevance and frivolity against the real needs of the part that we ought to play.

When considering what has gone on in the by-elections, I would say only that it is quite obvious that the country is now wanting another lead. Whether or not they want the Labour Party I do not know; but I am quite sure they will not, when the time comes, want the Liberal Party. However, it is quite obvious that the people of this country would like something rather more in the way of leadership; and while we do not want to go back to that sort of austerity and controls, at least in the day of Sir Stafford Cripps there was some leadership, some purpose and determination to arrive at proper priorities. This Budget is no stimulus to invention, to exports, to output or to consumption. In fact, the only thing the Government are achieving is perhaps a limitation on consumption.

Here we find their figures confusing, because they talk about an increase in productivity and that income and consumption must not exceed that increase; yet they are expecting a bigger increase in consumption. What they have done now is to decide that they will "pass the buck", and will hide behind the National Economic Development Council—"Neddy", as it is called. I am entirely in favour of this Council, and am delighted that the trade unions have gone into it. The fact that they did not go into it before was because the Chancellor of the Exchequer refused to talk to them, except on one issue—namely, control of wages. If we are to have a national policy we need much more stimulus, much more direction and a new climate of opinion. The trade unions and employers, with the Government, since the Government themselves refuse to govern, need to look and see how this problem of incomes and production can be tackled.

There are some things that could be done. The O.E.C.D. Report—I will not bother your Lordships with reading it in detail—again refers to the need for long-term solutions as opposed to the short ones that we have to-day. Clearly, there is a need to get labour rather more mobile. The Government do little to stimulate mobility. Here, a lead for the introduction of rational redundancy arrangements for industry would be of real help. Few firms have them. Some of the most progressive provide them, but they are pathetic in comparison to the real need to get people moved out of an industry. This is going to be even more necessary if we go into the Common Market.

Secondly, and perhaps most important, we in this country need rather more of an atmosphere of social justice. Although noble Lords may have laughed at some of the remarks of my noble friend and Leader with regard to the " gambling State ", the fact is that most people to-day are looking for the easy way to make money. The speculative gains tax, although of some significance—I would not write it off entirely—is still small in comparison to the need for achieving a proper taxation of that section of earnings, namely, capital gains, which, at the present moment, are untaxed. I cannot, for the life of me, see how a Conservative Government who have not normally suffered from doctrinal restraints can find themselves unable to introduce this tax which would have a really considerable effect in changing the atmosphere within this country.

There are two or three things that could be done urgently now. The time has come when we must stop playing around with mere exhortations to exporters. Other countries have gone further. The Labour Government in the past, and now the Conservative Government, refuse to give real incentives. I think it is necessary that finance should be available—I do not mean export credit guarantees, admirable though they are for their rather limited purpose—at low interest rates. It is no good our worrying about the fact that there are exporters who do not directly export, and therefore will probably go out. Somehow, we have to improve the very poor performance in comparison to that of other countries of the exporters of this country. It is poor because it is more difficult to export. There are all sorts of dangers and hazards in it. I think that if we are to have an incentive society, and have to rely on incentives, some incentives should be given. There are other things that could have been done again this year. We could at least have had some improvement in depreciation allowances in industry.

I hone that we shall not think of this discussion simply in terms of an attack on the Budget. This is a fundamental problem that is affecting our country. The country is tired, and it will remain tired until some leadership is provided. We have such vast commitments, both internationally and at home, that we must get at least somewhere near the promise (which does not seem likely to be fulfilled) of Mr. Butler, when he talked about doubling the standard of living in 25 years. Whether or not we double our standard of living, certainly we have to increase our production at a much higher rate. At the moment we are noticeably failing to achieve this increase.

4.18 p.m.

LORD POOLE

My Lords, I listened with the greatest respect to the speech of the noble Viscount, Lord Alexander of Hillsborough, who initiated this debate, and also to the speech we have just heard from the noble Lord, Lord Shackleton. I hope they will not think me discourteous if I say that I disagreed with almost everything the noble Viscount said, and with a good deal of what the noble Lord, Lord Shackleton said. I shall confine myself to certain other aspects of our economic problem which have not been fully dealt with this afternoon.

The noble Viscount is quite right to consider the economic situation to-day against the background and light of the Budget which was introduced last week, and to consider the extent to which it meets the immediate economic demands of the country without, as I am afraid has happened in the past, prejudicing the long-term position. But it seems to me that, before we can really assess the effect of the Budget, whether it meets the needs of the country at this time, we must be clear in our own mind whether the Budget should have been an inflationary or a deflationary Budget.

Here, I find myself in complete disagreement with the noble Viscount, Lord Alexander of Hillsborough, and also I think, with the noble Lord, Lord Shackleton. For the ordinary people in this country it is extremely difficult to determine, when the economy is fairly nicely balanced, what should be done. For example, the noble Viscount quoted the Economist—and I am very glad he should have done so, because, as perhaps some of your Lordships know, I am associated with it. But Mr. Wincott, in the Financial Times, said this: … the one way to have ensured yet another crisis for Britain before 1962 is out would have been to pump another £150–£200 million of purchasing power into the economy. Last Sunday, Mr. Lawson, writing in the Sunday Telegraph, said: But perhaps the most extraordinary Treasury decision of all was that the British economy on 9th April, 1962 required a dose of disinflation. It is therefore very difficult for the ordinary reader to know which to follow. The only conclusion to which one can really come is that they cannot both be right. I take the exact opposite view to that taken by noble Lords opposite. I believe that at this time what was needed was a Budget that was deflationary, and I do not agree that the Budget was irrevelant, because I think it was a great deal more deflationary than some people have been led to believe. If I come to this conclusion, I am greatly influenced by the fact that, in my opinion, inflation is endemic in the whole economy of the free countries of the world, particularly in Europe and the United States; and whereas it is fairly easy to inflate the economy, it is extremely difficult and laborious to have to deflate, should that be necessary.

As the noble Lord, Lord Shackleton, said, we have the advantage of having the O.E.C.D. Report to guide us. I have it here, too. I hope that he will forgive me if I quote from it, and perhaps the passages I quote will not carry quite the same connotation as those he quoted. This, of course, is always likely to happen. Contrary to what was, I think, the general impression in the newspapers—and certainly contrary to what has been said to-day—my general conclusion from this Report is that it completely supports the Chancellor of the Exchequer in the view he has taken. If your Lordships will turn to page 30. in the Conclusions (I usually find it easier to read the Conclusions because, as a rule, they are shorter than the rest of the Report), you will see that paragraph 47 says: But it is equally important that full advantage should be taken of the breathing space thus provided to set on foot the more fundamental adjustments the economy requires. I maintain that that was exactly what the Chancellor intended to do in this Budget.

LORD SHACKLETON

Lollipops!

LORD POOLE

I will argue lollipops with the noble Lord if he wishes, but I thought he said he did not want to do so.

This Report gives the most thorough examination of our present economic condition, but there is nothing very new in it: there is nothing that has not been said before and is known to most people. It gives (and noble Lords opposite are quite justified in calling attention to it) rather depressing comparisons with the economic situation and growth in other European countries. But I do not think one can ignore all the factors that have led to it. I feel that it is perhaps a danger of debates on economic situations that one tends to confine oneself entirely to economic matters, when in fact there are many matters, which are not purely economic in themselves, but which have a very great impact on the economic life of the country. For example, few people in this country think that economic conditions are really the be-all and end-all of what we are trying to do, and the objectives of economic policy must be consistent with other objectives, such as the maintenance of personal liberty, social justice, freedom, in regard to all of which I should have thought Great Britain has an excellent record, under any Government during the last 25 years, in comparison with many other countries in the world.

Nor is the raising of the standard of living the only objective of economic policy. I think that full employment (and the noble Lord, Lord Mills has drawn attention to this) ranks with many people in this country as high as greater wealth. It certainly does with people like myself, who started work in the early thirties. I do not think that this should be forgotten. Unemployment in Britain has varied between 1.1 and 1.2 per cent. over the last few years, and it has never been up to 3 per cent., whereas in other European countries—which we have had quoted as to their productive success—unemployment has been consistently at a level of 5 per cent., or more. I think that noble Lords opposite, when they quote these figures and are stoning current productivity, should say whether they would be prepared to accept that level of unemployment.

LORD SHACKLETON

My Lords, I am sorry to interrupt the noble Lord, but may we be told which countries have had consistent unemployment of 5 per cent.?

LORD POOLE

Yes.

LORD SHACKLETON

Portugal?

LORD POOLE

I am quite prepared to be quoted against myself, but I have not these figures with me. I had in mind Italy and France.

LORD SHACKLETON

No.

LORD POOLE

Yes.

BARONESS WOOTTON OF ABINGER

My Lords, would the noble Lord explain the high level of unemployment in Northern Ireland?

LORD POOLE

I am merely saying—and I am not going back on my point—that these countries, whose productivity is considered to be so superior to ours, have in most cases a level of unemployment greatly in excess of ours. If I have made a miscalculation I will apologise to the noble Lord, Lord Shackleton, and withdraw. It does not, however, alter the purpose of my case.

LORD STONHAM

My Lords, is the noble Lord aware that under the Labour Government we had much higher productivity than the other countries of Europe, and also a lower level of unemployment?

LORD POOLE

My Lords, I think that if the noble Lord had listened to Lord Shackleton he would have heard him mention the different circumstances which obtained at that time. I consider that these are very important points.

Another objective, I think, is the avoidance of great inequalities of wealth; and although no one would say that has been completely achieved in this country, nor would it be argued that inflation does not cover up great patches of poverty. I do not believe that there is anybody who would say that the situation in this country does not compare very favourably with many other countries. I am glad the noble Lord, Lord Shackleton, referred to our contribution to the under-developed countries. I would say that Britain has contributed as much—I was going to say more, but I do not wish to be corrected by the noble Lord again—in relation to its resources as any other country.

LORD SHACKLETON

Will the noble Lord allow me to intervene again? France has made a bigger contribution.

LORD POOLE

I said "as much as" other countries. We should remember these points, and we should emphasise these achievements. The great problem—I accept this from noble Lords opposite—is that it is difficult to do this and strike the right balance without appearing to be complacent, for which there is no possible justification.

There is another great illusion, I think, and that is that economic and productive growth is influenced only by economic factors. It is a mistake, in my opinion, to assume that there is a direct relationship between capital investment and productivity. I think the O.E.C.D. Report makes this mistake on page 18. For example, Norway has invested a larger proportion of its national income than most other countries, and has in fact a rather lower than average growth rate. Mr. Odd Aukrust, who has made a detailed study of the economies of Norway, Finland and the United States of America, concludes in his article in the Productivity Review for February, 1959, that the human factor—better organisation, better management, better labour relations—matters more than mere additions to capital or size of the labour farce. I would agree, inasmuch as this was said by the noble Lord, Lord Shackleton, that these factors are just as important as making a capital investment or having statistics which are drawn from one book or another.

But, my Lords, having said all this, having achieved so much, we must seriously ask ourselves: what has gone wrong? I agree With the noble Viscount, Lord Alexander of Hillsborough, that the factor which has hindered us most is that When the economy has expanded as rapidly as it did in 1953 and 1958 we have almost at once run into a balance-of-payments crisis or, as in 1957, a speculative run on the pound, and the Government have been obliged to take restrictive action. I believe that the reason for this is rather different from What has been suggested.

It is wrong to underestimate the difficulties of managing a currency like sterling, which, like the dollar, but unlike the European currencies, is an international reserve currency. As an example of this, in 1938 the ratio of the sterling area's reserves to trade was 72 per cent.; in 1955 the ratio was 25 per cent. Put in another way (and this is referred to in the O.E.C.D. Report), in 1959 Britain's foreign liabilities were more than three times its reserves, where- as the reserves of the European Six were five times their liabilities. I think that this fact simply cannot be overlooked.

I am convinced that we are never going to solve this problem—and the noble Viscount, Lord Alexander of Hillsborough, rightly criticises this "stop and go" economy—unless there are very real adjustments made fairly soon to what is loosely called "world liquidity". A start has been made, but not nearly enough has been done. The results of the discussions in Vienna were, to me, extremely disappointing. We have had the views of Mr. Tryffin, Professor Bernstein and Mr. Stamp; and I will say at once that I am in no position to put forward the merits of any one of their views, because I do not fully understand them. But they are authoritative proposals, and, so far as I know, none of them has been adopted by any Government concerned.

I would urge Her Majesty's Government to give immediate and serious attention to this problem. Because, my Lords, however much we increase exports, it is an absolute illusion to think that we can increase them so quickly, so much, that this vast gap which I have disclosed will be filled—at least in any circumstances which we can foresee. In fact, it can be demonstrated that an increase in exports, without an increase in reserves, makes us temporarily more vulnerable to fluctuations and, particularly, to delays in settlements made from overseas. We are in exactly the same position as a company which is consistently and regularly over-trading, which is being exhorted to over-trade more; and I think that no one can view this situation without the very gravest concern.

LORD SHEPHERD

My Lords, I hope that the noble Lord is not suggesting that we must not increase our exports at the present stage.

LORD POOLE

No, my Lords, but I am suggesting, and I am suggesting quite seriously, that it is quite wrong to assume that in the circumstances as we see them, or are likely to see them, we can increase exports indefinitely, without equally bearing in mind that we are running exactly the risk which I have described. This must be borne in mind. The Government can help exports, and I certainly agreed when it was said that the Government should not do so only by exhortation. There is really nothing more infuriating than that. But various things can be done, such as the provision of medium-term credits, as has been suggested, and of additional finance. But all of these things are extremely difficult to do when, in fact, our resources are inadequate.

It has been suggested that the Government should give direct incentives to help exports. I find it difficult to make any such recommendation myself because I am hesitant to know what exactly the Government should do. Do the people who make these suggestions say that we should have a turnover tax, as in France and Germany, and replace our taxation system? Do they suggest that we should perhaps ignore, or appear to ignore, some of the arrangements which are made at G.A.T.T.? I really do not know. But, in my opinion, there is no doubt that anybody who lightly makes suggestions of this kind, bearing in mind the effect they are bound to have—and I certainly do not say this regressively—should have a very clear idea of what exactly he is proposing.

I would suggest that Her Majesty's Government might consider urging our Embassies abroad to be a little less aloof on trade. If you try to sell, particularly in Latin American countries, you find that your principal opponent is only too often the accredited representative of some other country; whereas our own Embassies appear—at least, to those of us who struggle—to take the rather high attitude that it is beneath them to help. I believe that, if that point could be taken up, it would be helpful.

But far and away the most important thing the Government can do to help exports, is to keep our precarious economy on an even keel; and they must do this by the use of the Budget. Fiscal and financial measures are no real alternative. If the Budget does not restrain the inflation which, in my opinion, is endemic in our situation, and is generated to a great extent by Government expenditure, whether above or below the line (and when people talk about expenditure rising let them say quite clearly which they would like to see cut), then tighter monetary controls and higher interest rates are no alterna tive. My Lords, I would end where I began. In my opinion, this is exactly what the Chancellor had in mind; this is exactly what he has done. He had to create conditions under which the National Economic Development Council could start to function.

I am extremely glad that the noble Lord, Lord Mills, referred to Europe. I was a little disappointed that in the debate in another place last week there was not much reference to Europe. It is surely a matter that is in the minds of most of us, whether we are in agreement with it or not; and some of us expressed our views on that on another occasion. But it is certainly a primary duty of the Chancellor of the Exchequer at this time to have our economy in a form that will enable us to enter the Common Market in the most advantageous circumstances possible. I consider that the Chancellor has done this. It is considered in some quarters that what he has done is dull. It is always dull to tell people that there is no easy panacea which can be brought in to solve all the problems; and, of course, so far as the Press are concerned it is more exciting to have tremendous pieces of news. I believe, therefore, not only that this was a Budget conceived in exactly the right terms, but that in the present circumstances—which have been much referred to by noble Lords opposite—it was, on the part of the Chancellor. a courageous Budget. I hope that it will have the support of the majority here in your Lordships' House.

4.40 p.m.

THE MARQUESS OF READING

My Lords, in rising to address your Lordships for the first time, may I start by requesting you to extend to me the indulgence which is traditionally shown on these occasions? Your Lordships are, of course, aware that there are certain occupational hazards which confront anybody who rises to his feet in your Lordships' House. In my own case, there is an additional and, I venture to suggest, unique hazard to which am liable to be exposed: for, my Lords, I may confidently assert that none of your Lordships (nor, indeed, of your Lordships' predecessors) has been liable, on rising to his feet, to find himself subjected to step-grand maternal surveillance from the Cross Benches. It so happens, my Lords, that the noble Baroness, Lady Swanborough, left the country by air this morning. This was entirely coincidental, and was arranged long before she or, indeed, I myself had any idea that I should be speaking this afternoon.

My Lords, the noble Viscount opposite who opened this debate depicted the economy in what appeared to me to be somewhat sombre hues, and I am not entirely persuaded that this sombreness was justified. Surely over the past decade there has been a considerable improvement in general standards of living throughout the country, despite the onerous burdens imposed upon us by the sacrifice of our overseas investments and the heavy additional obligations incurred during the war, upon which is now superimposed the high current level of expenditure upon defence. This, surely my Lords, is no mean achievement in the circumstances. But, of course, the stresses and strains developed in the process have erupted in the form of inflationary pressures which have not only introduced serious distortions in the home economy but also played havoc with the balance of payments. So it is that, every time there has been an attempt to expand the economy, sooner or later—and it is usually sooner—drastic restrictive measures have had to be introduced for the defence of the pound.

My Lords, if poverty in the midst of plenty was the tragedy and paradox of the pre-war era, might it not be true to say that prosperity in the midst of crises is the distinguishing feature of more recent times? We have had to endure for some years the disconcerting experience of riding upon this monstrous economic switchback. It so happens that, at the present time, we are being granted a respite and breathing space, while the driver seeks to determine whether the next stage requires an upward or a downward movement of his regulalator. Meanwhile we can be thankful that he has resisted the temptation to release the brakes immediately; for your Lordships do not need me to remind you that on previous occasions, when other drivers have prematurely released the brakes, their subsequent and abrupt reapplication has proved singularly uncomfortable.

I confess that, contemplating the last decade or so, and the monotonous regularity with which the same treatment of credit restriction, high bank rate, and so on, has been prescribed time after time, I find myself irresistibly reminded of a phrase from the saga describing that famous amphibious expedition which I suppose would nowadays be designated "Operation Snark". Perhaps I should make it clear at this stage that in what follows no direct or indirect reference to my noble and, learned Leader is implied. The verse that keeps recurring to my mind is the one that goes: This was charming no doubt, Though they shortly found out That the Captain they trusted so well, Had only one notion for crossing the ocean, And that was to tinkle his bell. My Lords, it is surely high time that we devised some new notions. The stock treatment has proved no more than a palliative, and the basic disorder remains to be remedied.

Any doubts which may linger as to the accuracy of this diagnosis should have been dispelled by the O.E.C.D. Survey, which has been mentioned by more than one of your Lordships, and I shall not risk inducing any sighs by quoting further from it. But, my Lords, I should like, if I may, to say this. I can think of no more complete vindication for my right honourable friend the Chancellor of the Exchequer's insistence upon the supreme importance of a national income policy than the analysis and conclusion presented in this document. Moreover, there is an unmistakable note of urgency underlying the recommendations, which state that it is imperative that a start should be made at once if the temporary respite, gained as a result of the measures introduced last July, is to be turned to more lasting advantage. This crucial problem has been submitted to the National Economic Development Council, and if that body can evolve, with reasonable despatch, a policy which conforms broadly to the recommendations of the O.E.C.D. Survey, and proves acceptable to the country, it will have rendered a conspicuously valuable service.

I warmly welcome the formation of this important body, and my right honourable friend surely deserves the greatest credit for the initial proposal and for the patience and perseverance which he displayed in what was undoubtedly a difficult and long-drawn-out accouchement. My only regret, and it is a mild one, is that this important body—I suppose as a result of our passion for initials and portmanteau words—is now familiarly known as "NED"—a name which, for all its charm, is more generally associated with a domesticated, but asinine, beast of burden. This is both inappropriate and somewhat unfortunate.

Last summer, my Lords, an outstandingly informative and constructive Report was produced, on the Control of Public Expenditure by the group presided over by the noble Lord, Lord Plowden. Among other things, it lays great stress upon the importance of building up an informed body of public opinion. May I quote from the penultimate paragraph of that Report? It says: The best system and most up-to-date techniques will succeed only if public opinion is actively stimulated and enabled to take a balanced view of the alternative uses of national resources that are posed, and to bring to the consideration of public expenditure and resources the same qualities of common sense and realism that the average household shows all the time in handling its own financial affairs. This is an important aspect of the economic scene which perhaps has not received as much attention as it deserves, for there is a considerable way to go before public opinion arrives at the stage at which it is able to fulfil this important function.

My Lords, I make no claim whatsoever to be an economist, but I frequently find myself verging on despair after reading some of the comments upon the economic situation and upon economic questions which appear in the newspapers. I am not talking about editorial views; I am talking about the reporting of views expressed by various individuals and groups in this country. Not only do they often appear to reveal a staggering ignorance of the most elementary economic facts of life, and thus are frequently irrelevant, but they also reflect an archaic approach to these subjects.

My Lords, I cannot see how we, as a country, can ever develop our full earning power so long as these mental attitudes remain so widely prevalent. It may well be that the rather abstract nature of the principal threats to economic stability in this modern world—such things as inflation and balance of payments—makes them appear far removed from most people's daily lives, so that the danger is not taken seriously. This may, perhaps, explain the depressing predilection which I have noted of certain economic "Don Quixotes" to dissipate their time and energies in furiously tilting at notional windmills, thereby distracting attention from much more real and pressing dangers.

A basic and popular misconception which must be removed is the suggestion that profits are disreputable, and, indeed, even immoral. My Lords, where else can we find the means which are required to double the standard of living of the people of this country? This is getting near to advocating capital punishment for the goose that lays the golden egg, and represents a truly appalling confusion of thought. I do not underrate the need for an equitable basis of distributing profits; nor do I overlook the relationship between this important consideration and the extent to which the economy can be expanded. I therefore accept the basic proposition that short-term gains should be brought within the ambit of the tax authorities, although I have serious reservations about the further and future implications of the specific proposal, and also about the powers which it is proposed the authorities should be given to obtain information from banks and other agents.

My Lords, how can we get the basic priorities right, when fundamental misconceptions, such as those that I have tried to outline, are so widely, and often so vociferously, held? The noble Lord designate (if that is the proper way of referring to him), Sir Oliver Franks, in his last statement as Chairman of Lloyds Bank, drew attention to the dilemmas that may result from attempting to pursue ethical and economic objectives at one and the same time, and to the tendency to judge proposals, not by whether they will increase production, but by whether they are fair. Sir Oliver stated, of course, that he is all for fair play, and that distributive justice is a vital part of social morality. He proceeded to observe: There has been too general an acceptance of the idea that the economic system exists to produce jobs rather than goods ". This may not be an ideal state of affairs, but surely we must, at all costs, face up to realities and avoid emulating the posture of the ostrich in these matters. Our constant endeavour must be efficiently to deploy the resources that are at the country's disposal, and to ensure that our economic policies and our fiscal arrangements, at least, do not hinder the employment of these resources to the greatest advantage of the community. I wonder whether we are doing all we can in this direction. Could not greater incentive be provided, for example through depreciation allowances, to install the most up-to-date and efficient productive equipment available in our factories, thereby assisting industry to maintain and strengthen its competitive position? And in this context, surely the continued existence of the tax on fuel constitutes a deplorable blot upon the fiscal landscape.

I also cannot help wondering whether, in surveying our resources, sufficient thought is given to improving our sadly depleted invisible account. The highly developed financial and trading machinery of this country, and the experience and skills which exist in the City of London, are immensely valuable assets. They have the great advantage that, since they make minimal demands upon manpower, and virtually none upon other resources, they must have the highest conversion factor that it is possible to achieve. To what extent, my Lords, are we directing our thoughts to preparing for a European financial community, parallel with the Common Market in goods? May there not be immense opportunities for us in these directions if we are ready to grasp them?

A small, but discouraging, omen is the absence in the Budget proposals of the repeal of the 2 per cent. stamp duty on transfers of securities. I should declare my interest as a member of the London Stock Exchange; though I hasten to add, particularly with my noble friend Lord Ritchie of Dundee sitting almost next door to me, that I do not presume to speak in anything other than my personal and individual capacity. The existence of this tax is now literally driving away business, particularly from Continental countries, which would otherwise come to London; and perhaps I might add that it seems somewhat at variance with the principles of a property-owning democracy.

My Lords, I hope that in what I have said I have not made myself appear pessimistic about the economic prospects of this country, because I am very far from being pessimistic on this score. I believe that, given the right leadership and the right forms of organisation, we can establish our economy upon strong and sound foundations, that we shall do so, and will proceed to create steadily improving standards of living throughout the country.

5.0 p.m.

LORD WALSTON

My Lords, it is a particular pleasure for me to follow upon the noble Marquess, Lord Reading, and be the first to congratulate him on his maiden speech, because many years ago he was my fag, and I should like to take a little credit for the admirably restrained and disciplined manner in which he spoke to-day. We both started our debating career in the same debating society, which was the nursery of such ornaments of your Lordships' House as the noble Earl, Lord Arran, whom I saw look in and look out again a little while ago, and the noble Viscount, Lord Stonehaven. I feel that he has not only maintained such reputation as there may be for that place, but has greatly enhanced it.

I do not think that the noble Marquess will expect me to agree with every word he said, and I certainly do not, but I did agree with the emphasis in his speech upon the need for expansion in our economy. I think that that really is the king-pin of the whole debate. What we have to face at the moment is that the policy of this Government is a policy of failure. One can produce figures of one kind and another which will substantiate or minimise that, but it is not a happy thing for anybody to do, because it is not only the Government who have failed but the country which has failed also, and that is far more serious. No matter what paper one reads or what expert or ordinary person one listens to, one realises, however ardent a defence the noble Lord, Lord Mills, put up and I am sure the noble and learned Viscount will also, that there is not a single person in the country, let alone in your Lordships' House, who is in any way satisfied with the economic situation of the country to-day.

No reference has yet been made to some significant figures which have just appeared in to-day's paper and which underline that point. I refer to those of industrial production. It is perfectly true that the figures in the Index of Industrial Production for February rose by two points over the figure for January—from 111 to 113; but, without going into any statistical details, the important thing to remember is that the figure for the three months. December, January and February, are exactly the same as they were for the three previous months, September, October, November. In other words, there has been no improvement, no increase in our total industrial production during that period, and that is an extremely sad and serious fact. What is even more serious is that if we compare the industrial index for December, January, February, 1961–62, with the same months in 1960–61, we see that we are now one point lower than we were at that time. That should be sufficient to convince any doubters that all is not well with our economy.

At this point, I should like to take up something which the noble Lord, Lord Poole, said, even though he is not in the Chamber at the moment. He quoted, perfectly fairly, from the conclusions of the Economic Survey of O.E.C.D. Perhaps the noble Lord was a little over-honest when he said that he found it easier to read the conclusions than the whole document. Sometimes, when you read the whole document, you find that you do not agree with the conclusions. On page 30, in paragraph 47, it says: It is equally important that full advantage should he taken of the breathing space "— that is, the pay pause— thus provided to set on foot the more fundamental adjustments which the economy requires. The experience of the economy in the 1950s suggests that the restriction of domestic demand is not a sufficient condition for achieving the desired combination of a more rapid rate of growth, stronger external position and a more stable price level, I think that that is the significant part of the conclusions of that document. We cannot continue as we have been in the past, carrying on at this low level of production, maybe going up one point, maybe coming down one point. We have to make use of the breathing space which the pay pause was supposed to give us in order to make some radical overhaul of our economy. I was going to quote some more figures from this document which have not been quoted yet, but the gist of them has been given, so all I will say on that score is that, by comparison with other countries in Europe, we have been doing extremely badly. And that is not a happy thing for any Englishman to have to say, either in public or in private.

In looking at the future, may I remind your Lordships of some figures in today's Times newspaper concerning the issuing of industrial development certificates, which should be some indication of the amount of industrial development that is likely to take place in future? For the three months, January, February and March of this year, 474 certificates were issued for schemes covering an area of 10 million square feet. That may sound an impressive amount, but if we compare it with the three previous months (October, November and December, 1961) we see, in place of 474 certificates, 487; so we have dropped in those three months, and the area has also dropped from 11.5 million square feet to 10 million square feet. It might be said that this is purely a seasonal matter. One would naturally expect a smaller number of schemes to be initiated in the first three months of the year. But if we compare the figures I have given with those for the first three months of last year, we find the difference is even greater. There were 640 schemes then in place of 474 and the total square footage was 17.6 million in place of 10 million. So the prospect does not look any rosier, to put it mildly.

Turning to the most important problem—which is, the actual amount of production, whether for export or not—I would at the outset remind your Lordships of another factor which has not so far been mentioned—that is, that in spite of our bad showing in international trade over the past ten years, we have been enjoying what we refer to as favourable terms of trade during that time. Again I have some figures but I do not want to overload your Lordships with them. If we look at the last three years, 1959 to 1961, and compare this country with other industrial countries of the world, we see that the export of manufactures from the other industrial countries has risen by 10 per cent. per annum, quite a substantial rise, whilst ours has risen by only 5 per cent. I admit that our exports have risen, but they have risen only half as fast as the exports of other countries. When we turn to the share of this country in world trade in 1955, we find we had managed to retain 20 per cent., but to-day it is down to 15 per cent. Again, that is a sorry picture.

Why is it that we have experienced this general failure all through over the past ten years in the whole of our economic efforts, whether it is at home or in exports? The fault primarily must be laid at the door of the Government; it must be a failure of Government policy. But it is not entirely due to Government policy, because, after all, in industry, in manufacturing and in exporting other people beside the Government are concerned. There are the manufacturers, the exporters themselves, those whom one might call management: and there is labour. Unless they all play their part we shall never achieve success. It is always easy to throw blame about, and there are certainly exceptions to any general blame, but I suggest to your Lordships that a large measure of the blame for this failure must, in fact, lie with management.

If your Lordships look back over the years, it will become clear to you that there are scarcely any managers in industry to-day (and I refer to "management" in the widest sense) who have had really tough experience, particularly when it comes to dealing with labour. During the 'thirties we had unemployment and there was always a large reservoir of labour waiting to he employed. That is not a good training ground for getting the best out of labour if you are a manager. So long as you know that there are other men waiting to take the jobs which some men may not be doing properly you do not have to study the technique of management so carefully as if there were not this reservoir of labour. There was the period before the war when there was little need to work hard at this and give thought to it, and little opportunity for gaining experience at it. After the war there was no reservoir of labour. But there was a large reservoir of unfulfilled demand, and when demands were made by labour for higher wages or better conditions there was no problem there for management: all they had to do was to put up wages, put up the prices and pass it on to the consumer, because there was this large unfulfilled demand. That, again, meant that management was not forced to meet the challenge of its job. To-day I believe we are suffering from that lack of training over the past twenty or even thirty years. We find that also in our exports—again with honourable exceptions, as there are, of course, in what I have already said. But there is no real incentive to go out and find fresh export markets.

However, it is not only management that is at fault; labour also has many things to answer for—though I should always put the blame more on management for having failed to create the right conditions for labour than the other way round. And, above all, the Government have failed. They have failed because they have not established the right atmosphere for read co-operation between management and labour, and the feeling that it is something that the country needs, as well as simply something from which the individual may benefit. The I'm all right, Jack" slogan is not without significance here.

But when one talks about this question of establishing the right atmosphere the question arises: what have the Government done, or failed to do, in order to accomplish this? Many of your Lordships have received an extremely interesting, useful and very nicely prepared document called Interests and Dividends upon Securities Quoted on the Stock Exchange, London, 1961. If your Lordships look at that document you will see that dividends in 1959 amounted to £715.9 million, and in 1961 to £956.3 million. In other words, taking 1959 as 100, by 1961 they had risen to 133. If you look at wages (this is in the Annual Abstract of Statistics, the official figure) you will find that, taking 1959 as 100, by 1961, wages had risen to 107. So that you there have the picture of wages going up 7 per cent. and dividends going up 33 per cent. in the last three years, then, on top of that is the imposed wages pause, on the one hand, and, on the other, the surtax concessions in the last Budget. I suggest that when that sort of thing is going on it is extremely difficult even for the best management in the world to maintain the right sort of relationship with labour, or for the most effective, efficient and co-operative trade unions in the world to tell their members that the national interest must come before their own personal interest.

Therefore it is not surprising, when one looks back over the last ten years of Conservative Government, to see what has been happening in industrial disputes. Again (and I think this is the last set of statistics with which I shall weary your Lordships, but they are not without their significance), in the years 1951 to 1955, the annual average loss from industrial disputes was 2,362,000 days: and in the next period of five years, 1956 to 1960, that figure nearly doubled, to 4,450,000 days. In other words, it has become increasingly hard to persuade the workers of this country that they are receiving justice: and from that the country itself has suffered. I suggest to your Lordships that this is one of the main reasons why our actual industrial effort has been [putting up such a poor show compared with the industrial effort of all other manufacturing countries and other countries in Europe.

But why has our export market been doing so badly at the same time? I do not think there is any need to tell your Lordships, who have much greater experience in this than I have, that exporting if, not, as some people say, just "fun". Exporting is an extremely arduous job. There is no doubt whatever that it is much easier for any businessman or manufacturer to sell at home; and he much prefers to sell at home, provided he can get rid of his products.

What the Government do, in over-simple terms, when we have trouble with our balance of payments, is to say that we must export more, and therefore they restrict home demand by various fiscal means. But the effect of that is not immediately to push into the export market all production that otherwise would have gone on to the Home market. This cannot be built up in a matter of weeks or months. If it were going to be a really long-term policy, and if the Government were prepared to say: "For the next ten years we are going to have austerity in this country, and we shall restrict home demand by various means ", I believe that manufacturers would know that it was worthwhile making an effort to go out into the export markets themselves. But they know perfectly well—and the experience of the last ten years has shown us—that this restriction on home demand is a purely temporary thing. Whether it is relaxed because of economists' theories, or because of by-elections or General Elections is another matter. But after a matter of eighteen months or two years, at the most, the restriction on the home market is relaxed, and back will come the demand surging in; and the manufacturers know that perfectly well.

So the only effect of this "stop—go" policy is not, as the Government would have it, to divert efforts into the export market, but to make sure that a certain amount of necessary and desirable capital investment is postponed—which is bad for the country—and that such money as has been invested already is not fully used; that we have surplus industrial capacity but, because the market at home is not there, and the market abroad has not been built up, we are not using our previous investment to the full. It further has the highly undesirable effect of encouraging manufacturers to hoard labour. They know, as I say, that this is not a long-term policy over the next ten years and there would be no demand for that particular line of goods unless they switched to export. If that were so they would either switch to export or they would get rid of labour, which would go into more potentially productive export. As it is, they know that they have only to wait for a few months, or a year. They put their labour on to short-time: industrial production falls, and nobody benefits from this policy.

I submit that, in spite of the comforting directors' report which the noble Lord, Lord Mills, has already given to us, assuring us that the country is in a fine position and that there is nothing we need worry about, we have had long enough of this particular prospectus over ten years to be quite certain that it cannot work. We are not getting our increased production, and we are not getting the exports we need. We must have a policy of expansion, but we must also have a policy which ensures that at least some of that extra production is channelled into exports.

It is not very difficult to devise an expansionist policy at home. There is no need to dwell on that at this stage. It is much harder to devise a policy which is going to encourage exports. My noble friend Lord Shackleton put forward some suggestions. Other noble Lords also have done so, and the noble Lord, Lord Poole, made mention of them in broad outline. I myself do not see how any form of preferential tax on exports is likely to work. I do not think it can in itself, and I think it would be grossly unfair to many of those industries, including agriculture, which are import savers. So I should not like to see that so far as I am concerned. General tax relaxation, while expansionist so far as the whole economy is concerned, does nothing to direct our products into export.

We have seen over these years that the laissez-faire policy of the Government, coupled with bank rate, surtax concessions, credit squeeze, and all the rest, has got us nowhere. The only way we are likely to get anywhere in this crucial problem is by abandoning any doctrinaire abhorrence we may have of such things, and by considering in all seriousness a policy of allocation of raw materials to our essential industries based on their export performance. It is not an easy thing to set up. It has been done under a Labour Government, and it had considerable success. It need not be in any way restrictionist; it can easily be expansionist. I believe that, by such means, we shall be able to make sure that our economy increases, and increases as rapidly as that of any of our competitors, and at the same time our exports will also go up, and the home market will not absorb everything.

We were told that the pay pause—and the noble Lord, Lord Poole, reminded us of it—was there to produce a breathing space. But a breathing space is of no value whatsoever if nothing comes out of it except hot air. I am very much afraid that that is what has been happening since it was introduced last July. The National Economic Development Council has been set up. It is a good thing; but again, as my noble friend Lord Shackleton said, it must not be a cloak for the failure of the Government or the Chancellor of the Exchequer. The Government and the Chancellor between them have the responsibility for running the economic affairs of this country. If they cannot do it, then they should get out and leave somebody else who can to do it. They cannot set up a new Council simply to take over that responsibility from them. Let it advise them by all means, though they have plenty of advisers already. Let it co-operate with them if the Government are doing the right thing, but it can do no more at all than that. I hope the Government will now make progress not only with a wages policy but also with a whole incomes policy, which is an essential if we are to proceed in any orderly way without the law of the jungle supervening.

Then, one short word about the Budget, which, as noble Lords have said, should be the means by which our national economy is annually directed, The recent Budget must be regarded as a lamentable one if we consider that expansion is what this country needs; there is nothing of any kind in the Budget which encourages expansion. Certain emergency powers were taken last July, and those powers have now been incorporated into our general Budget, simply raising the cost of living, raising the cost of exports and, above all, as the noble Marquess, Lord Reading, said, increasing the cost of fuel. Not only has that been incorporated into our Budget as a permanent part of our tax system, but further power has been taken to superimpose a further 10 per cent. in the next year on whatever the Chancellor may wish. That is not a great encouragement to expansion; it is surely a restrictionist attitude.

The speculation tax, or whatever it is called, is derisory. It can have no effect either on raising revenue or on satisfying those people who have been asked to submit to a pay pause and restrict their wages and their wages claims. As for the Schedule A announcement, that can be nothing more, surely, than mortgaging the future—giving away money of which a future Chancellor of the Exchequer might have had the disposal, before we have the money there. Finally, there is the sweets tax, which, rightly, has received practically no attention at all, because it can have no effect on the expansion of our economy. If a target for the Budget should be, as I am sure is, expansion, you do not hit the bull's eyes by taxing them.

5.28 p.m.

LORD BALFOUR OF INCHRYE

My Lords, I should like at once to associate myself with the remarks of the noble Lord, Lord Walston, in congratulating the noble Marquess, Lord Reading, on his humorous, well-delivered and forceful maiden speech. I am sure it is the wish of your Lordships in all quarters of the House that we should hear the noble Marquess on many occasions in the future.

I take up at once the point which was made by the noble Lord, Lord Poole, which is that there can be no reality to any economic debate at the present time unless it bears some relation to the greatest economic issue which faces our country at the present time, our possible entry into the Common Market. Let me hasten to assure your Lordships that it is not my intention in any way to debate this evening the merits or demerits of such entry, because we shall do that at a later date on more appropriate occasions when we have in front of us information which is at present lacking. The Chancellor of the Exchequer in another place, I think rightly, avoided giving any view as to whether we shall or shall not join in the future, admitting only that, whatever the circumstances, we must be competitive. But, apart from the Chancellor of the Exchequer, I think the position is becoming increasingly confusing, both economically and politically, when we read the speeches of various Ministers, and particularly the sayings and speeches of the Lord Privy Seal. And we must ask ourselves, "Are we or are we not at the present time virtually committed to entry into the Common Market?"

I understood that the position was as stated by the Prime Minister, that we as would make the Party opposite look had applied for entry, and were now negotiating, but that we had laid down certain unalterable conditions which must be met for Commonwealth trade, both present and future, and for British agriculture. It is on the basis of these unalterables that many of us wait to see further details, and there is no need at the present time to campaign fiercely as would be necessary if the unalterables were amended. But some of Her Majesty's Ministers do not seem to have that open view; they do not seem balanced in their considerations, but have become most ardent propagandists and appear to assume that we are virtually already in the Common Market. They certainly assume the successful outcome of negotiations and talk as if they do.

On the one side, we are offered a glorious new vista, often described in picturesque language. I note that the Observer of last Sunday, alluding to a speech of Mr. Brooke, said: If Britain stays out of the Common Market our economic troubles will multiply and our ability to help the Commonwealth will dwindle if we join 'the prospects ahead will be more exciting and rewarding than we yet conceive '. Referring to a speech of the noble and learned Viscount on the Woolsack, the reports says: if Britain joined the Common Market 'a great new field of opportunity would be open to our industry and commerce.' but that if we stayed outside ' our economic growth would be faced with much greater difficulties …. They may or may not be individual views of Ministers, but I feel that Her Majesty's Ministers, having told us that there are certain unalterables—and we do not yet know whether these unalterables will be achieved—are ardent propagandists. On the one side the great vista; on the other side gloom and trouble. If I may say so, they over-painted the picture of the difficulties that lie ahead if we cannot negotiate.

As the Prime Minister and Chancellor of the Exchequer have both said, it may be that the price will be too high. We must face that possibility. It seems to me, then, that one of two courses is open to us. Either we reduce what we have hitherto been told are the unalterables—and if that occurs there would be such a political split in both Parties like a band of brothers out for a Sunday march; the alternative would be for us to buckle to and re-look at our economic policies with the Commonwealth and refuse to be daunted by, or afraid of, a Common Market tariff, because it may well be that the Common Market countries want us rather more than we want them.

THE LORD CHANCELLOR (VISCOUNT KILMUIR)

My Lords, as the noble Lord has mentioned me, and in view of the form his speech has taken, I think it ought to be made clear that in the speech of mine which he quoted I said that our joining was subject to three conditions: one, safeguards for the Commonwealth; two, safeguards for agriculture; and, three, safeguards for our partners in the European Free Trade Association. I do not know about Mr. Brooke's speech, but I have never made a speech without stating that. The House heard me speak on the Common Market last July and I do not take back a word of what I said then. I have always said that in every speech I have made on the subject.

LORD BALFOUR OF INCHRYE

My Lords, I am more than grateful to the noble and learned Viscount on the Woolsack. I was, of course, quoting only what the newspaper had said and, of course, many newspapers take particular points of view that suit them. Therefore, I am sure that the House and the whole country will take note of the inadequate report which I have quoted of the speech of the noble and learned Viscount on the Woolsack.

If the price is too high, economically or politically (and I am not arguing that question politically at all tonight), such Ministers as are committed to Europe as a great new vista and, What I will term, the "gloomsters" for a life of this country outside Europe will all quickly have to go into reverse. But some of them, such as Mr. Heath, Mr. Thorneycroft and Sir David Eccles, according to their speeches, are deeply committed. I think it is pretty hard on them, because it will be too much to expect them to continue serving a policy Which they have damned and continue in the disappointments of a policy that they have not succeeded in putting across. I feel that it will be tough on them. They would probably feel it incumbent not to continue. We should say: "We don't want to lose you, but we know you want to go." They really must be cautious about this assumption that we already have a commitment. I suggest that some Ministers take a few steps backwards from the unjustified, and, I must say, irritating, bland assumption that entry is a foregone conclusion.

The only other point that I want to make is this: whether we do or do not go into the Common Market, we are told in general terms that we must be very competitive. I hope that the noble and learned Viscount the Leader of the House, in his reply to-night, will be so good as to tell us how we become more competitive. Is it by lower wages? No. Is it by working longer hours? No. Is it by lower raw material costs? We cannot see that happening in the world at the present time. Is it by lower industrial taxation? I do not see any prospect of that from the present Administration. Is it by special export incentives? Those have been rejected by the Chancellor of the Exchequer. Moreover, general talk of working harder is not of any use. Let us be told then, clearly and concisely, how we can make ourselves more competitive, because I think it is a question which merits a simple answer.

No Government can prosper unless it gives a lead. As the noble and learned Viscount the Leader of the House so clearly said, in a speech to the Conservative and National Union Association at Church House: You cannot lead the Conservative Party from behind, like the Duke of Plaza Toro; and you cannot lead it in bad English rich in platitudes and violating every principle of good grammar. How right he is! I agree with him. And I think the country is showing that it is tired of a diet of a mixture of what I would term economic pap and political bromides, such things as "As a nation we tried to do too much too quickly", or "As a nation we are consuming too much"; and then "We must export more"; and finally, and worst of all, "Exporting is fun"—that really was the worst we have ever had. How right the Leader of the House is when he says that the country will respond to a clear and definite call; and that, whatever difficulties the country is faced with, so long as it is told frankly, harshly, and maybe dramatically, the country will respond.

I entirely agree with the noble Lord, Lord Poole, and others, that the Government's economic policies are sound—I am thinking of the pay pause, and the Chancellor's income policy, which has been so well endorsed, not only in this country but in the O.E.C.D. Report. They are the right policies, though the presentation is sometimes dull, drab and unimaginative. I hope that Her Majesty's Government may feel that their good works have been too much hidden hitherto, and that in the future they will make very clear, in terms we can all understand, the economic policies that are justified for the present, and the economic policies, at present unknown, for the future, for which we wait with considerable anxiety.

5.43 p.m.

LORD STONHAM

My Lords, the noble Lord, Lord Mills, in his speech, which I think we might call the economic state of the nation, was far more than a ray of sunshine; he was a whole shaft of sunlight. While listening to him I glanced at The Times Review of Industry for April.

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

My Lords, I am sorry to interrupt the noble Lord hut, as he knows, there is to be a Royal Commission in a short time. It is, of course, for the House and the noble Lord to say whether it is more convenient for them and him for the noble Lord to make half his speech before and half afterwards. We should be delighted to listen to him in that form. Otherwise, if the House would prefer to take it, if I may so put it without disrespect, in one dose, I suggest that we should now adjourn during pleasure till the Royal Commission.

LORD STONHAM

That, of course, would suit me very well and would be much better, and that is what I thought had been arranged through the usual channels.

VISCOUNT HAILSHAM

They are rather blocked.

LORD STONHAM

That would suit me very well.

House adjourned during pleasure.

House resumed.