THE ECONOMIC SITUATION

HL Deb 18 April 1962 vol 239 cc896-962

Debate resumed.

6.15 p.m.

LORD STONHAM

My Lords, I got almost halfway through exchanging a pleasantry with the noble Lord, Lord Mills, in that I commented on the fact that in his economic report on the nation he had been far more than a mere ray, indeed was a positive shaft, of sunshine. It so happens, however, that I this morning received The Times Review of Industry for April and this records that Lord Mills on May 7 will open the new engineering and building centre at Birmingham. Unfortunately, the headline of this report on industry in the Midlands says: Gloomy outlook in all sectors ". So I most sincerely hope that the noble Lord will convey to our manufacturers in the Midlands that happy outlook which he has tried to pass on to us to-day.

We all have to examine, and no doubt we shall continue to examine, these official reports, and extract from them just those figures which suit our own case, but I submit that, no matter how one juggles the figures, the Government cannot escape responsibility for the proven fact that over recent years Britain's industrial and economic record is worse than that of any other major industrial nation in the world. I give it as my opinion that there are two reasons for this. The first is stubborn adherence to doctrinaire beliefs long after they have been proven false, and the second is the major dependence by the Government on a wide variety of distinguished economists who have only one thing in common: they have no practical knowledge of industry.

I must confess that I myself was trained at the London School of Economics and naturally have a great affection for my contemporaries. Indeed, I have a great admiration for the fact that they now command the attention of the nation, and no doubt large fees, in expounding views the exact opposite of those which held us in thrall 30 years ago. But I myself, for the last 35 years, have been responsible for the day-to-day running of a small manufacturing business, and therefore, to some extent, have worked the L.S.E. out of my system. I hope, therefore, that such theory as I assimilated which is unstable has been replaced by basic practical truths.

One of these is that maximum output tends to lower costs per piece, whereas restricted output raises them. This basic truth is, in fact, confirmed in the Economic Survey. In paragraphs 11 to 13, for example, it is recorded that in 1961 demand slackened, total production fell, but prices continued to rise. The Survey also records that, although home demand fell, there was no increase in exports or in output per head. In the Survey this last is attributed to a reduction in the working week; but practical experience would have told the experts that it was nothing of the kind. Every manufacturer knows the psychological effect on his workers of full and not-so-full order books. It does not matter how much you exhort them; it does not even matter if it means less earnings for them: the chaps do not work so well and output is not so good if they know—and they always do know—that the order position is not so good. In my own firm, for example, recently, because of the good order position, output has increased with a shorter working week.

Unhappily, although correctly stating the facts in the Economic Survey, the experts have apparently persuaded the Government to draw the wrong conclusions from them. Because the Government are proceeding on what I regard as the false assumption that if you cut down home demand it is easier to sell abroad. They speak of regulating home demand so as not to compete with exports. Then, in the same breath, they declare that export opportunities will be missed if export goods are not competitive. How can they be when the Government, by their policy, deliberately increase manufacturingcosts?

In paragraph 23 of the Survey there is the blind declaration that our foremost aim must be to maintain conditions in which United Kingdom exporters can take advantage of the opportunities open to them. Speaking as a manufacturer, I say that we do not need any incentive to sell where the opportunity really exists. For the manufacturers know, if the Government do not, that the prime objective in any business—and this comes before profit—is to keep plant working at the most efficient level; and then, if you have done your other sums right, your profits will come.

I say that it is for this reason that all experience shows that you get maximum exports when you have maximum home production. In the Economic Survey the Government put the cart completely before the horse by insisting that exports must be increased before home demand is allowed to rise. I know the other difficulties, and no doubt the noble and learned Viscount, if he does in any way comment on anything I say, will point them out. I am aware of those other difficulties; but, as the T.U.C. so rightly point out, we must first have expansion as a foundation for an export drive.

My Lords, there must be stability. The noble Lord, Lord Poole, made a great point of this, and I nodded my head very vigorously when he said it. There must be stability; there must be an end to this policy that my noble leader referred to as "Stop and go"—the traffic-light economy. I should like to illustrate this from the effects of Government policy upon a single important industry which I have studied—the consumer durable goods industry. This is an industry in which, in fact, the Government pursue, not a "Stop and go" policy but a "Yo-yo" policy, because the sharp ups and downs of the production graphs always follow the Government's sudden, panic, fiscal changes.

In these industries, particularly domestic appliances, this is all the more deplorable because they are among those which have the largest growth-potential in the whole economy. They are among the best equipped and the most efficient; and, given the right conditions, they could greatly increase their exports. Yet over the last ten years the Government have subjected them to an unbroken series of senseless actions, resulting in grievous loss and utter frustration. For example, the expenditure on cars and cycles, furniture, radio and electrical consumer goods, accounts for only 8 per cent.—that is, less than one-twelfth of total consumers expenditure—but this one-twelfth of industry, because of the Government's policy, is made the scapegoat for what I regard as the Government's financial follies. Apart from bank rate changes, which affect all industry, and which are, of course, a major instrument of policy, this narrow front is always made to bear the brunt.

We expect industry to have the "know-how" and to provide the necessary capital investment for expanding, efficient production. In turn, industry has the right to expect the Government to provide a stable framework in which it can plan ahead. In domestic appliances, the size of the market is largely determined by the selling price and the conditions under which the industry is allowed to sell. These, of course, are determined by the levels of purchase tax and of the hire-purchase initial deposit. Inevitably, sudden, frequent changes in these conditions have a disastrous effect upon sales and production, and it is thus the Government and not the manufacturers who, in fact, decide the pattern.

Now, my Lords, in the last eleven years there have been no fewer than sixteen complete changes in the levels of purchase tax and hire-purchase de- posits on these goods, thirteen of those changes in the last seven years—an average of one every six months. I have here some graphs which show the result. They show the extreme peaks and the valleys of the "Yo-yo" policy; and against every peak and every depression I have marked the particular change which took place at the time, so one can see cause and effect. Every single, violent change has been the result of the Government's policy—a policy which, for example, during the period, has put purchase tax as high as 66½ per cent. and as low as 25 per cent.; which has put initial hire-purchase deposits as high as 50 per cent. and as low as nothing. The industry has learnt, from bitter experience, to fear the artificial booms as much as they fear the artificial slumps. Yet twice, against their strong advice, there has been no deposit at all. The Government have just ploughed suicidally ahead, regardless of the voice of experience.

My Lords, the resultant upper and lower limits of demand, when you have studied them, are quite staggering—and I shall be pleased to give the noble and learned Viscount these graphs, so that he can check for himself. But, if you know anything about industry at all, imagine trying to plan the manufacture of, say, refrigerators when, largely through Government action, sales in a three-month period can be forced down as low as 20,000 or up as high as 480,000; or of washing machines, sales of which may be as low as 40,000 in a quarter and as high as 340,000; or vacuum cleaners, as few as 80,000 a quarter and as many as 430,000. Those low levels of demands for output are directly attributable to 60 per cent. purchase tax and 50 per cent. initial hire-purchase deposit, and the high levels to no deposit at all. If these things are not recognised or are in any way disputed, I shall be delighted to hand over the evidence, and the noble and learned Viscount can see for himself cause and effect.

In particular, I would ask the noble Viscount to consider the results of the most recent exercise in this field. In October, 1958, for the second time in recent years, hire-purchase controls on these goods were completely removed. Naturally, demand boomed. As a result, to quote one example, in 1958 British manufacturers sold 450,000 refrigerators—twice as many as in 1957. In 1959, demand doubled again, and in 1960 home manufacturers' sales were not far short of a million. That is virtually a four-fold expansion in three years. The noble Lord, Lord Mills, knows something about industry, and he will know the effect of changes like that. Even then, the manufacturers could not satisfy the demand, so imports came flooding in. My Lords, in 1958 we imported 2,000 refrigerators; in 1959, 125,000; and in the first six months of 1960, 152,000. That is a 150-fold increase in imports in less than two years. It was much the same story with washing machines. The imports in 1958 were only 22,000; in 1959, they were 125,000.

My Lords, with imports increasing at this rate, and encouraged—virtually invited—by the Government, we naturally ran into balance-of-payments problems, so in April, 1960, hire-purchase restrictions were reimposed, requiring a 20 per cent. deposit. Overnight the manufacturers discovered the deposit had risen from nothing to 20 per cent. From beginning to end the whole cruel, stupid tragedy was manufactured entirely by the Government. There are some who say—and this has been mentioned in the debate to-day—that the Government created an artificial boom deliberately in order to win the 1959 Election. I cannot believe that any British Government would, for such a reason, deliberately jeopardise British industry. But then we are faced with this dilemma that if the Government are acquitted as knaves, they stand convicted as fools. I do not think there can be any argument about that.

Just think what they have done to this particular, quite important, consumer-durable industry. Although they counselled against "no deposit" trading, the 1959 demand induced manufacturers to increase, at great cost, their production capacity. Apart from the capital outlay—and these people do know their business—the "know-how", the obtaining of money, and the additional factories and machines, it takes at least a year to build up output. Therefore, by the beginning of 1960 the manufacturers were geared to cope with the increased demand. It was precisely at this point that the severe hire-purchase restrictions were reimposed, largely, as I have said, because of foreign imports, which Government policy had encouraged. Demand fell dramatically. The "Yo-yo" fell; and for the last two years this industry has struggled with all the extra costs which have arisen from a capacity greatly in excess of demand, and from rising production costs. The industry has done all it could, but stocks are much higher than they should be; and even so the industry has had to resort to short-time working.

Unhappily, also, the increased costs arising from decreased production have affected the industry's ability to export. I know that my noble friend Lord Walston made some suggestions to the Government about increasing exports, but the absolute first essential is costs. A very important factor in getting costs down is the level of your production, and the extent to which, and the efficiency with which, you are using your plant. There cannot be any argument about that. But the Government still stick to the fallacy that if they make it more difficult to sell at home they make it easier to sell abroad. Usually, and certainly in the industries about which I am talking, it is just the reverse.

These are the facts. In 1960, when the industry was still under the influence of phenomenal demand at home, it exported £8 million worth of refrigerators. Last year, with savagely reduced home demand, exports were down to less than £6 million; and so far this year they are lower still. And this despite the fact that the manufacturers have reduced the prices of export models, and, in the hope of holding export markets dearly won, are actually selling at less than cost. The exports are shown on these graphs in front of me, and they are selling at less than cost. "Such fun", says the Prime Minister. And the right honourable Member's son, Mr. Maurice Macmillan, says of exporters: "Give them more stick". In this particular industry, I think, they had had "stick" enough from the Government. It is about time they were treated with common sense and some regard was had for the important contribution they make to the economy and to the exports of this country. Even now, when they are hanging on by their eyelids, Mr. Erroll, who helped to create their difficulties, tells them—as did the noble Lord, Lord Mills, to-day—that 1962 export prospects are great. It is just like telling a drowning man: "This is a good time to learn to swim". These people are selling at a loss in order to hold the markets, in the hope that eventually they will be able to increase production, get their costs down, and so sell under more favourable conditions. I often think—

LORD MELCHETT

My Lords, I wonder whether the noble Lord could help me. I am very interesed in what he has been saying about the volume of exports, but I understood him to say that, now these manufacturers have reduced their prices in the hope of maintaining their volume of exports sales, nevertheless the volume is down. I do not quite follow him in saying that if there had been a bigger home demand this would have helped them in keeping up their volume of export sales, since their prices are down in any case.

LORD STONHAM

My Lords, that is an extremely important point, and one with which I am going to deal. It is an example of the kind of thing that my noble Leader mentioned in opening the debate, of industries whose exports are carried on the home market. In many industries—perhaps where the situation is not quite as bad as this—I think the noble Lord will find, as will anyone with experience, that once your plant is working you are quite likely to be able to obtain export orders even if the prices are below those which would be acceptable for your whole business. In other words, you can, with a comparatively marginal sale of perhaps 10 per cent. of your total sales, afford to have them carried by your home market. But if your home market is very much reduced, or your bulk sales are very much reduced, then your overheads percentage goes up and your costs rise. That is the point. I am bound to say that if I try to expound that at greater length, my speech will be of intolerable duration, and I therefore hope that the noble Lord will excuse me from going into it further.

I realise the great experience of the noble Lord, Lord Mills, and the noble Lord. Lord Poole. Many a time I have thought, when reading some of the speeches which are made and the things that people in high positions in the Government say, "If only one member of the Government spoke and acted as if he knew what he was talking about!" When we come to exports, and the things politicians say about them, as a manufacturer, and as one who for 35 years has had to bear the heat and burden of the day and assume responsibility, that is the kind of feeling I get.

My Lords, what is to be done? I would say that the first essential is to restore shattered confidence. If we are to increase exports, the industry must be given a firm guarantee that, if it invests in research again, in the development of new products, and in the development of overseas markets, which is a long and expensive business, history will not be repeated. Because you cannot go out abroad and sell if you have one eye looking behind you, waiting for the stab in the back at home, as these people have had. Secondly, the Government must act in the knowledge that, when you restrict the expansion of these growth industries, you create inefficiencies and high costs, thus reducing their ability to compete in world markets. In these goods, price is the barrier to export sales. Frankly, we are about 5 per cent. better in quality and performance, but about 20 per cent. higher in price, than are the Continentals.

If we are to reduce costs and prices and use the large plants to the full—and we cannot reduce costs without doing that—we must increase production. That requires an increase in home sales which, in some lines, are now the lowest for six years. It is beyond dispute that the 20 per cent. deposit on hire purchase is too high to allow sales to reach a level which will permit the industry to operate efficiently and to reduce prices. Although the 25 per cent. purchase tax is a burden, frankly, it is not a major deterrent to home demand. It is the size of the deposit which is the dominant factor in influencing demand and it is urgently necessary to reduce it to 10 per cent. and promise to keep it there, for this is an important industry and it cannot carry on much longer making little or no profit at home and losing money abroad. It is imperative that this change is made soon, so that we can recover lost ground and get ready for the challenge of the Common Market, whether or not we go into it. I submit that the facts are beyond dispute and I hope that we shall at least be given a promise that the case will be urgently considered.

I have dealt in the main with one industry, but I believe that the lessons to be drawn from it apply in a major measure to nearly all. The greatest need is for a settled and stable policy. The restraints from which this and other industries are suffering are the direct and inevitable product of the past excesses permitted by the Government, of the 1959 excesses and the 1954 excesses which 'preceded them. I think that the Government have made so many mistakes that they are afraid to move; but, for Heaven's sake! let there be an end to this miserable and hopeless 1 or 2 per cent, production advance. Restricted production increases costs and reduces exports. Let us at least be equal to the Continent and plan for a 4 to 5 per cent. production advance every year. I submit that, as a priority, the N.E.D.C. should consider setting up subcommittees for each major industry, and that each sub-committee should decide what it must do to achieve its share of the target; and, when they have decided, let them get on with it, with the guarantee that this time they will not be ordered to stop as soon as they have started to go.

6.43 p.m.

LORD CONESFORD

My Lords, perhaps as a Back Bencher I may add, at the outset of my remarks, my tribute to the noble Lord, Lord Pethick-Lawrence, who so often initiated our debates. He had for long been my friend in another place and here, and it was in a debate which he initiated that I had a chance of making, my maiden speech rather over six years ago.

The all-important question of the Budget is that which was put by my noble friend Lord Poole, to whose speech we listened with so much interest. That is: what is the general nature of this Budget and ought it to be inflationary, deflationary or neutral? As my noble friend said, this question is much disputed by the experts. I do not profess to be an expert but, so far as I understand the various comments, I certainly should not be prepared to say that my noble friend's view that, on the whole, the Budget in this respect was right was not a correct view. Certainly I do not mean to dispute it. I do wish, however, to comment on a few of the proposals in the Budget.

First of all, I shall deal briefly with two points of which I approve: the taxing of sweets and the taxing of soft drinks. It seems to me obviously wise of my right honourable and learned friend the Chancellor of the Exchequer to tax sweets. As a result of the medical reports on the effects of smoking, particularly of cigarette smoking, and the speech of my noble and learned friend the Leader of the House the other day, we must certainly contemplate as a possibility that in due course there will be a much diminished yield from the existing taxation on tobacco. In those circumstances, I think that the Chancellor of the Exchequer would have been extremely negligent had he not put some tax on sweets. I also think that an incidental advantage is gained because excessive consumption of sweets is deleterious to the teeth and health of our children. I also think that there were good reasons for putting soft drinks within the scheme of purchase tax. I do not take the view that the Chancellor of the Exchequer imposed this tax because he thought that this was the sort of thing that Liberals drank.

I come to the Budget proposal of which I do not approve and which strikes me simply as foolish; that is, the short-term gains tax. Let me say at once that of course I agree there are serious arguments for and against a capital gains tax. These arguments were well stated some years ago by the Royal Commission on the Taxation of Profits and Incomes. On a point on which I agree with Her Majesty's Government, I much prefer the Report of the main body of Commissioners to the Minority Report of the three Commissioners who dissented.

Nevertheless, there are serious arguments for and against a capital gains tax. The tax of my right honourable and learned friend as imposed in this Budget is not such a capital gains tax, on his own admission, as was there discussed.

In my opinion, the result of the Budget proposal is to produce a tax which can please no thinking person at all. The tax will be immensely complicated. It will involve many people in a great deal of work. And apparently it is not expected, even by Her Majesty's Government, to produce much revenue. In fact, the Chancellor of the Exchequer said that he was comparatively indifferent about whether it produced revenue or not. I take the old-fashioned view that, in proposing taxation, the Chancellor of the Exchequer should, on the whole, desire to raise revenue by it. It may be an old-fashioned doctrine, but I think it is a good doctrine.

Nevertheless, one must be fair and deal with the argument on which the Chancellor of the Exchequer advocated this tax. He advocated it on the ground of fairness among taxpayers. I confess that a question of fairness or justice always makes a great appeal to me. I have always had a feeling, I hope, for justice, though I have never understood what precisely was meant by social justice. On the whole, I have come to the conclusion that social justice bears the same relation to justice as social credit does to credit.

Let us examine the argument of fairness put forward in justification of this tax. Under the Budget proposal, if a very rich man whose income is taxed at the highest level buys shares and sells them at a profit within six months, he has to pay 17s. 9d. in the £ on his profit; but if he retains them for one additional day, he pays nothing. I should be grateful if somebody who has been able to detect the great principle of justice behind this astonishing proposal could explain it to me. The tax will not, of course, injure any investor very much. Its principal effect, in my opinion, will be on the efficiency of the market. It will reduce turnover and make the market, particularly the gilt-edged market, less efficient. That will slightly raise the price for every borrower on the London market, and that is not, I should have thought, a very good thing for a trading nation to do on the eve of possible entry into the Common Market.

But the real damage done by this proposal is through its appalling revelation of the Government's capacity for irrelevance. This may be the last Budget before we enter the European system and the Common Market. If ever there was a time in which every new tax proposal should have been judged on its real merit, this is that time. It seems to me that Her Majesty's Government have preferred to abandon a great principle—because the difference between capital and income is a great principle—and to do so for no compensating advantage whatsoever. I believe that the explanation of this tax is quite simple. It is intended to please those who regard all profits, except, of course, those derived from the football pools, as basically immoral.

That brings me to the constantly repeated request by Her Majesty's Government for restraint in profits and dividends, which was made last, I think, in paragraph 14 of the February White Paper on Incomes Policy. Whenever I see this request I am reminded of a character in a book by the late G. K. Chesterton, who remarks to another character: It may be a literary prejudice, but I feel that you must mean something ". I feel precisely the same towards the Government when they call for restraint in profits and dividends. I wonder whether Her Majesty's Government ever pause to consider with precision and clarity what precisely they mean by this request. May I ask the House to consider the matter in a little more detail? Clearly we must consider profits and dividends separately, for they are not the same thing. Let us take, first, profits. Let me explain (I have often done so before) my own attitude about profits. I have always been opposed to inflation. I have always wished the Government to get rid of inflation and thus to make profits infinitely more difficult to gain. I have also always thought that profits were a proper subject for taxation. But is it right to tell people not to try to make profits, or to restrain their efforts to make them? I should have thought that was the precise opposite of what was in the public interest.

The noble Lord, Lord Shackleton, mentioned invisible exports, and I agree entirely with him about their great importance: they used to make, and I hope they will make again, a great contribution to our balance of payments. Think of how we benefited by the earnings of our shipping companies and our insurance services. Are the Government really frightened to-day that the P. & O. may make too big profits? Is that what keeps them awake at night? Is it not a fact that Her Majesty's Government, in their saner moments, wish very much that the profits of our shipping and insurance companies and our earnings from the rest of the world were much bigger than they are now? Of course they must have such a wish. If, however, they wish that profits were much larger, is it not rather unfortunate that they are always publishing statements to say how they wish people would use more restraint in earning profits? They really cannot desire simultaneously that profits should be larger and that they should be smaller: that should be impossible, even in the Treasury.

LORD STONHAM

My Lords, is it not the case that the Government are always urging restraint on the payment of dividends?

LORD CONESFORD

No.

LORD STONHAM

Is it not also the case, in regard to shipping that in the Budget the Government have introduced a measure which it is expected will benefit shipping companies?

LORD CONESFORD

If the noble Lord who has just intervened had listened to me he would have heard me point out that the Government were urging restraint in profits and dividends; I went on to say that these two things were not the same, and that, therefore, I was dealing with them separately. At the moment, I am dealing with profits, and I say it is most unfortunate that the Government are always urging retraint in making profits if what in their saner moments they desire is that profits should be much bigger. That is a quite simple thought. It may be that I have gone mad; it may be that there is an overwhelming answer. But it seems to me wrong at one and the same moment to say that you want profits to be bigger and that you want profits to be smaller, because that cannot be.

My next question to the Government on the subject of profits is a quite simple one. I want to understand the policy of the Government so as occasionally to be able to advise one of my friends in industry who asks me what the Government mean. What is a company to do which wishes to obey the Government's request for restraint in profits but fears that its profits are increasing? What do the Government desire that it should do? Of course, one obvious way in which it can comply with the Government's request is to make itself so much less efficient that instead of making a profit it will make a loss. That would be one way of getting restraint in profits. I give the Government credit for not desiring that. I want my noble and learned friend to tell me precisely what a company is to do which wishes to comply with the Government's request for restraint in profits and fears that its profits are increasing. It is not, apparently, to make itself deliberately less efficient. Somebody may say: "Why not reduce the prices charged to the consumer?" That would be a possible answer. But, of course, it is no answer: because what would happen if the only effect of reducing prices to the consumer were to increase trading profits, as it might well do? If my noble and learned friend has studied the history of the first Henry Ford, I think he will agree with me.

VISCOUNT ALEXANDER OF HILLSBOROUGH

My Lords, the only way to follow that last argument would be to look at the present situation and the price cutting going on through the consumer service, which means putting the cost back on the consumer. The consumer would get on his bus to a centre, serve himself, carry it back and destroy all the service given. There is no other way of making profits out of price cutting.

LORD CONESFORD

I did not say there was. The noble Viscount the Leader of the Opposition will realise that I was putting a question to the Government. I was considering the possible answers. I do not know the answers. I remind the noble Viscount that the problem is this oft-repeated request of the Government for restraint in profits. I am asking how the Government themselves desire that this request shall be met in the case of a company that wishes to do what the Government want, but fears that its profits are in fact increasing. That is my question. I suggested the possible answer of reducing prices, but I do not differ from the view of the noble Viscount the Leader of the Opposition that that will not necessarily have the desired effect at all.

LORD PEDDIE

My Lords, can we assume from that that the only way of dealing with higher industrial profitability is by the paying of higher dividends? Are we right to assume that the only way is to pay higher dividends to shareholders?

LORD CONESFORD

I have not made any statement of the sort. If only noble Lords opposite would do me the honour of listening to what I say, they would realise that I have not yet reached dividends. I started by saying that I was dealing with the Government's request for restraint in profits and dividends. So far I have been dealing with profits, and have put a perfectly definite series of questions to Her Majesty's Government.

Now I will come to the distribution of dividends. Let me say that there may be admirable reasons for not paying out dividends, or for paying out smaller dividends, or for not paying out bigger dividends. There may be excellent economic reasons for building up reserves, or for modernisation or re-equipment. There may be all those admirable reasons for not paying dividends, or not paying bigger dividends. But, if none of those considerations applies, it is, to my mind, a complete illusion to think that any public purpose is served by not distributing dividends which are not needed in the business. I wonder what advantage anybody, whether he is a Socialist, a Liberal or to whatever Party he belongs, thinks will result from having a company retaining profits which it does not need, and which it could distribute to the shareholders.

VISCOUNT ALEXANDER OF HILLSBOROUGH

The employees might get some.

LORD CONESFORD

In my maiden speech I ventured to quote to the House the considered conclusion of the Royal Commission sitting under my noble and learned friend Lord Radcliffe. I will read the passage again. It is paragraph 536 of the final Report of the Royal Commission on the Taxation of Profits and Income, and it says: The mere retention of profits cannot be rated as an economic advantage; on the contrary, it would better serve the public interest that the company should be encouraged to distribute those profits which it cannot put to fruitful use, in order that there may be a chance that they may be invested effectively elsewhere. Nor is it advantageous for the economy that the level of dividends should be kept down. Whatever other considerations bear upon the problem, the market value of shares in industrial and commercial enterprise is artificially depressed and an obstacle placed in the way of raising new capital. I believe that those considered words of the Royal Commission—and these were words with which nearly all the Commissioners agreed; there was only one, I think, who dissented from that paragraph—deserve some attention by Her Majesty's Government. If they think that my noble and learned friend Lord Radcliffe and the Commissioners did not know what they were talking about, surely they should give us some reason for taking that view.

The only explanation I can see of this extraordinary attitude to the payment of dividends on profits already made and not needed by the company in question is that the Government, in a fit of absentmindedness, share the view expressed by a former Socialist Chancellor of the Exchequer—now alas ! no longer with us—who complained of profits being "dished out to the shareholders." That reminded me very much of a legal story, which will be familiar to my noble and learned friend the Leader of the House, of a complicated will case involving many parties which was being tried in the Chancery Court. At the end of the third day, while two practitioners were walking hack together to Lincoln's Inn, one was heard to remark, If this case is settled, the whole estate will be frittered away among the beneficiaries." That seems to be the attitude of Her Majesty's Government to the payment of dividends.

Since I am giving my own views which perhaps do not command universal assent, although I think they command a good deal, may I say a word about the suggestion, which so often is made, that if the Chancellor of the Exchequer says that he desires no increased distribution of dividends, the directors of companies in this country are under some sort of obligation to obey him? Taking the view that this country is a democracy which believes in the rule of law, I would say that the duties of a director are to be derived from the Statutes passed by the Sovereign Parliament; they are to be derived from a study of the Companies Act, and the duties that are stated by judges in decided cases. They are not to be decided by the wish or desire of any Minister. I am not saying for one moment that a director of a company is not entitled to pay great attention to a request by the Chancellor of the Exchequer. But he must make up his own mind bona fide as to its wisdom, and if he comes to the conclusion that the advice of the Chancellor of the Exchequer is foolish and he does not share that view, then he should be governed by what he understands to be the company law and the duties of directors as defined in the courts, and he is under no duty whatsoever to obey the wishes of Her Majesty's Government.

VISCOUNT HAILSHAM

My Lords, whilst it is obvious that directors of companies are not bound to observe expressions of opinion by any Minister, does my noble friend consider that part of the duties of directors of public companies is to pay some regard to the public interest, or what they conceive to be the public interest?

LORD CONESFORD

Certainly I agree with that, and if I did not make it clear before, I make it clear now. I say it is certainly their duty to make up their minds principally as to the public interest. I am in complete agreement with my noble Leader on that. But it must be their own genuine opinion of the public interest, and the view of a Minister is not decisive.

VISCOUNT ALEXANDER OF HILLSBOROUGH

My Lords, I take it that the noble Lord would agree—I am not being hostile—that at the same time as an expression of opinion is being put up by a Chancellor of the Exchequer, the same freedom should be given to the leaders of the trade unions. If you are proposing a pay pause and proposing a more conservative policy in "dishing out" dividends, then there must be freedom to both sides, both on the labour side and on the directors' side.

LORD CONESFORD

I have never questioned for one moment that every trade unionist must make up his mind where the public interest lies, but if the noble Viscount the Leader of the Opposition thinks I am admitting a direct connection between wages and dividends, then let me say I am not. I will tell him why straight away. No wage earner would be content to make his right to wages contingent on the profits of the company. Of course not. He demands and gets, subject to the bargaining of the market, wages in accordance with his work. He would demand that wage, quite rightly, if the company made no profit at all. There may be a case on profits and dividends, but it has nothing to do with the case on wages. They are totally different considerations. In answer to the direct question put by the noble Viscount, of course I give that freedom to trade union members. I am happy to say that I have had a good number of them as my friends and I do not think any of them has doubted that that was my attitude.

To sum up this part of my argument, there are dozens of good reasons why it may be wrong to distribute a dividend. The money may be required for reserves, for modernising the industry or for other purposes. There is, however, one reason which would be a rotten reason for not distributing dividends, and that is that you think it is bad for the shareholders. Courtaulds Limited not so long ago reduced a dividend because they thought they would please their employees by demonstrating their loathing of their shareholders. It was not a very successful operation and subsequent events made them very much regret it.

I must say that I found myself in some sympathy with a part of the speech of the noble Viscount the Leader of the Opposition on certain thoughts he had about gambling. I do not object to premium bonds, but there were passages in that part of his speech with which I found myself in more sympathy, perhaps, than most, but what I find so strange is that he can have that attitude to sheer gambling, which he does not propose to make illegal, but feels apparently some horror if those who invest in British industry derive increased profit from that investment. I would remind him in this connection that the shareholders, of course, are not only rich men, but trade unions, pensions funds, the Church of England and many others.

I have tried to explain—I will not repeat the reasons—why I think that the Government request for restraint in profits and dividends should either be abandoned or stated with much greater accuracy and precision. In fact, I think they should indulge in accurate thought on the whole subject before they speak or compose statements of policy. My noble and learned Leader the other day made a similar suggestion in a speech which he made, to which my noble friend Lord Balfour of Inch rye has already alluded. My noble and learned friend went so far as to suggest that Ministers should actually use good English. What he advocated differed so widely from the practice of some of his colleagues that his speech was widely cited as evidence of a Cabinet split. I even saw a suggestion that there was something disloyal about his suggestion that Ministers should use the English language.

I repeat his advice. The Government have everything to gain by using the English language with accuracy and precision. May I give a couple of examples? I think that fourteen years ago to the day, at the request of Ivor Brown, who was at that time editing the Observer, I wrote an article in that paper on the first edition of the book of Sir Ernest Gowers. I ventured there to comment on the then popular and slightly absurd use of the word "break-down" to mean analysis or classification. The example I then quoted was something I had seen in the Press about the break-down of the European Services of the B.B.C., not meaning that these services had broken down but meaning apparently the relative number of broadcasts the service had made to France and Germany respectively. I ventured to prophesy that, if this rather silly habit persisted, it would cause trouble. It was persisted in. My fate is that of a Cassandra; nobody ever takes the least notice of what I say, but it gave me the greatest pleasure to see in the American Press an allusion to "the population of the United States broken down by age and sex".

The other example that I venture to give to the House is the use in almost every Government Speech and in every Government White Paper and Blue Book of what has become easily the most useless word in the English language, and that is the adjective "overall".

LORD STRABOLGI

My Lords, I am sorry to interrupt the noble Lord. I know he is quite an expert on modern English usage—a kind of up-to-date Fowler—but may I ask him, with respect, what this has to do with the economic situation?

LORD CONESFORD

I think, quite a lot; and I do not think the noble Lord who has interrupted me will find it too difficult to follow if he listens to my next two or three sentences. It has everything to do with it and I will tell him why. At the time that Ernest Gowers wrote his book, the adjective "overall" generally meant nothing whatever; that is to say, you could omit the word completely without having any effect whatsoever on the meaning. But, if it did mean something, it could have meant any of fourteen different things. Now I ask the noble Lord who interrupted me to concentrate on this simple thought. The word "overall" is now used indiscriminately to mean "average", "maximum" and total". If he studies economics, I am sure he will come to the conclusion that "average", "maximum" and "total" are three different conceptions and to use the same word when it may have any of those three meanings leads to the greatest confusion. In any Government White Paper the chances are that the word "overall" means nothing, but in cases where it means something it may mean any of those three things. The reader does not know which it means and he suspects that the writer does not know either. Indulging in ill-considered exhortation in sloppy language can injure the Government's reputation. The case is well known at the Temple of a leading counsel who addressed a jury in a very difficult case with these words, "Members of the Jury, my client talks like an ass and he looks like an ass; but, do not be deceived, he is an ass". My Lords, may this never be said of Her Majesty's Government.

7.20 p.m.

LORD MILNE

My Lords, I should like to associate myself with the remarks of noble Lords with regard to the very interesting maiden speech of the noble Marquess—may we often hear him here—and also with the remarks made concerning the late Lord Pethick-Lawrence, whom we remember to-day and of whom we were very fond.

I should like to congratulate the Chancellor of the Exchequer on the results of last year's "housekeeping" as disclosed by the Economic Survey. Personally, I should like to add something else. Whether or not one agrees with his policy, I think he has shown considerable courage in pursuing what was obviously something very unpopular in the face of widespread opposition. if the quality of the results was somewhat fortuitous, I feel that one is entitled to ask why, if things were going so well, there was need for a 7 per cent. bank rate. The fact seems to be that our country is pursuing two operations at the same time, one trading and one banking; and both lack capital, the banking operation to such an extent that it hinders the trading side.

If John Bull were a private citizen he would by now probably have received something of the following advice: "Separate out the two activities, both accounting and management. Secondly, strengthen your bank, and in the meantime do not overtrade. Finally, do not let your prosperous trading business suffer for the sake of the banking side." Clearly, what applies to an individual does not necessarily follow for a nation. Nevertheless, it appears to me that there is some need for something like a differential bank rate. We are justly proud of our role as bankers to the sterling area and custodians of the pound sterling. But are we really clear in our minds on the price we are paying for it, or are we confusing business with sentiment? For so long as sterling occupies the position of an international currency, so long must we expect the pressures and alarms to which such currencies are heir and, in avoiding them, the consequent damage to our home development in present circumstances.

What is the other side of the coin? Starved of capital and stunted by banking medicine, industry struggles along trying to anticipate events. Instead of receiving praise for the strides made since the war by our exports in bridging the gap of lost invisibles, industry is now the whipping horse, even in the O.E.C.D. Economic Survey. I know that we have a lot to learn in business, but in a highly industrialised country such as ours productivity is usually synonymous with modern plant and extra capital. Even if he can get it, no businessman is likely to embark on such a project unless he has confidence in the home market. This is precisely where our banking operation impinges on our trade. Just when industry begins to expand, along comes what is really a banking crisis; up goes the bank rate; down must go overdrafts, and a potential expansion eventually ends as a contraction. In such circumstances the product cost would rise without any movement in wages whatsoever. No wonder our plant is out of date, our productivity low, and dissatisfaction general.

How can we get out of the rut? First of all, I suggest that we should do some basic economic re-thinking; and, with the Common Market in the offing, now is the time. There are indeed signs of it already. Foreign spending has been cut, arrangements have been made to strengthen the reserves, and "Neddy" has been formed. Nevertheless, with the demand for capital ever on the increase, it would be a brave man who would forecast any considerable or sustained improvement in the general balance of payments. It follows that we must in our faith to the trading side and do everything to encourage increased productivity and, with it, exports. Viewed in this vital context the Budget seems to me irrelevant. Was it too much to expect that company taxation might be reorganised to help exporters and yet satisfy the rules of the GATT; or possibly a more realistic view be taken of capital allowances? But no, my Lords; instead we received barley water and a capital gains tax which was really a sop for Cerberus.

7.26 p.m.

LORD AUCKLAND

My Lords, first I should like to apologise to the noble Viscount who leads the Opposition for the fact that, due to a prior engagement, I was not able to be present to hear his speech. I should like to congratulate my noble friend the Marquess of Reading on a most forthright and convincing maiden speech and I associate myself with all the tributes which have been paid to my noble friend from all parts of this House.

I should like to deal primarily with specific proposals in the Budget. I would congratulate the Chancellor of the Exchequer for bringing in what has for the most part, I think, been a realistic Budget. It has been described in various circles as a mouse Budget, an insipid Budget, and an uninspiring Budget. I would say that in some respects the last adjective is not entirely unjustified, but, as one who is not an economist, I have often wondered what constitutes an inspiring Budget. An inspiring Budget must, surely, in the long run be one that seeks votes, and I think that, whatever shortcomings the recent Budget may have, it is certainly not a vote-catching Budget, to the forthcoming electors either of West Derbyshire or of West Middlesbrough.

I would congratulate the Chancellor of the Exchequer on the measures which he is taking regarding the Schedule A property tax. This is going to be of great value to property owners, of whom there are many in this country—not all of them wealthy people—and they are saving the local authorities a good deal of money. Whilst it is always possible to recoup a considerable portion of what one pays on Schedule A, nevertheless the outgoings can hit hard on many people, particularly those living on fixed incomes. So I congratulate the Chancellor on this proposal, and hope that vigilance will be exercised to make sure that the proposals are expedited.

Set against that there has been this tax on confectionery, ice cream and soft drinks. Being a non-smoker, I am fond of confectionery and, like the Chancellor, I have a daughter, who is only a few years younger than his. She is not entirely pleased at this tax. But the dentistry and medical professions have for a long time been concerned with the state of children's teeth, and I do not think that a child to-day will suffer much hardship from an increase of 1½d. on a shillingsworth of sweets, which is what this will amount to.

There was an interesting article in the Sunday Telegraph last week-end by Mr. Michael Woolf, who was discussing the financial cares of to-day's young man. This article instances how a young man of 18 spends his money. The youths who were interviewed in this particular matter were all of about the age of 18; they worked on building sites and earned something like £20 a week. The article begins: I cannot live on £18 or £20 per week,' said a boy who had got into trouble with the authorities. Much is made of the fact that young married couples have difficulty in setting up home; that mortgages are too high; that properties generally cost too much, or that land costs too much. But I suggest that perhaps, for these young lads, an expenditure of £3 10s. per week on entertainment is rather high, as is £1 10s. per week on cigarettes, even though the Chancellor may derive some benefit from this. In the criticisms being directed towards the Chancellor's Budget and the economic situation generally I think that there is some substance in questioning whether young people particularly are being hit as hard as people make out.

I was disappointed in the fact that the Chancellor had not given many concessions to the old people. I think the figure up to which an old-age pensioned couple can earn without being taxed is now £480 per year. I feel that that figure could have been raised. Another suggestion, made in a number of circles, was that the Chancellor could give tax relief to season ticket holders. I think there is some substance in that suggestion. Many people who have to travel to London to their place of work are not making much money per week. Again, many are living on fixed incomes. We are told, on the other hand, that there are too many cars coming into London with only one person travelling in each car. That is true; I think it is a fair argument. But the time will soon come when some concessions should be given to those who have to travel to London and to other cities from country areas. It is all very well to say that they can live nearer to or in London; but the price of property in these areas is very high indeed.

LORD LINDGREN

My Lords, before the noble Lord leaves that point, what about the worker who does shift work, and therefore has to pay a high rent in order to live near his work and get to work at 4, 5 or 6 o'clock in the morning? Is he to be given tax relief on the excessive rent which he has to pay in London, as compared with those who live 20 or 30 miles out?

LORD AUCKLAND

My Lords, I think that those who hold early morning workers' tickets should get relief on them. I do not know whether that is what the noble Lord is suggesting.

LORD LINDGREN

Many workers in London do shift work, having to start at 4, 5 or 6 o'clock in the morning. They have to live in London. Their rents are excessive, compared with those of persons who start work at 9 or 9.30 and can afford to live 25 or 30 miles on either side of London. If tax relief is given on railway fares, it must be given on the excessive rents paid by those who have to live in London.

LORD AUCKLAND

My Lords, I can see the substance of the noble Lord's argument. But I would point out that, so far as wages are concerned, the people whom the noble Lord mentions are often a good deal higher paid than the insurance or the bank clerk. The noble Lord shakes his head, but that is a fact.

I think the City, where I have the honour to work, has behaved with great restraint over the past few years. The insurance companies are continuing to give good service and to earn more and more dollars. It is interesting to note that national savings are continuing to increase. The building societies are continuing to advance more money, despite the difficulty of mortgages. Nobody is going to pretend that the economy of this country is in wonderful shape, but. I often wonder as I listen to the speeches from the Party opposite—I listened to a number of them during the Budget debate—whether things are really as bad as they say, especially when one reads articles such as that from which I have just quoted in the Sunday Telegraph. I am not for one moment denying that many sections of the community, particularly the old-age pensioners, are not, in many cases, in difficult straits, although they have been given more benefits in the past five years than in previous years. But for young people, particularly, the years ahead are going to be years of some opportunity. In face of present circumstances, I think that the Chancellor has produced a courageous Budget.

7.40 p.m.

LORD PEDDIE

My Lords, I regret the fact that I had not the privilege and the pleasure of hearing the earlier speeches, because I was engaged upstairs in a Select Committee, whose proceedings went on a little longer than I anticipated. This, of necessity, will narrow the range of my comments in this debate. At this late hour, I am sure that that will be appreciated by the House. In addition, I am anxious to ensure that I do not inflict any repetition of argument upon this House.

The noble Lord, Lord Auckland, says that he considers the Budget to be a realistic one. Well, we have had some very interesting and pleasant exchanges on the subject of definitions. I hope that I may have the privilege at some time of borrowing the noble Lord's dictionary, in order that I may be able to understand what he believes to be the meaning of "realistic". My own view is that the Budget was both pathetic and timid in its approach to the economic affairs of the day. If one looks upon it as a contribution made by the Government towards the stimulation of the national economy, I would go so far as to say that it was disastrous.

Several noble Lords, including the noble Lord, Lord Conesford, have made reference to the taxation upon sweets, ice cream and soft drinks. There may be some justification for that on medical grounds. But if we look upon it from the point of view of a nation needing a vigorous approach upon the problems of the day, one can see that it is bad psychology that the Chancellor should concern himself with something of that description when what is required is something far more fundamental. Apart from the very necessary function of raising revenue, which we expect from a Budget, I would say that there are two fundamental requirements. One is to adjust the fiscal system to ensure that incentives are given where they have the greatest effect on productivity. In this Budget one fails to see any indication of encouragement in the way of incentives likely to stimulate productivity.

The second requirement, I would suggest, is to give an appearance of equity. In this particular Budget there is more appearance than equity. The Chancellor of the Exchequer may claim that he has done something to achieve this appearance of equity in his treatment of the speculative gains tax; but, quite frankly, it is merely a façade. He may have admitted the principle—and that I concede is tremendously important; but it is generally acknowledged, even by the financial Press, that this tax will have very little impact upon capital gains. So much then for the Budget.

Last July the Chancellor of the Exchequer outlined several objectives. I want to deal with one or two of them in the light of experience over the past few months. His objectives were: to increase exports and industrial production; to reduce or curb the rise in retail prices; and to curb Government expenditure. In the light of experience over the past few months Government policy has been conspicuous by its failure.

Let me deal first of all with exports. I will not inflict on the House many statistics, because I am quite sure that other speakers have quoted them earlier, but, for the purpose of my argument, it is necessary to quote figures from the Economic Survey. They show that the value of exports has declined from £1,965 million in the first half of last year to £1,898 million in the second half. In total value our exports for the full year were £128 million, or 31 per cent. higher than in 1960. But in volume there was very little change between the first quarter and the end of the year. If we examine comparative tables which are quoted for the whole period of Conservative Administration, we see there that Britain shows the lowest increase in exports of any Western European nation.

My noble friend Lord Stonham referred to the Government's view, which was recently stated in another place, that if home demand is held in strict check industry will automatically seek additional export markets. I agree with the arguments that have been advanced by my noble friend, and indeed one can refer to our experience in 1957 when industry did not seek additional markets abroad and exports did not rise after 1957. They did not, in fact, rise until home demand started to go up and expansion occurred again in this country. Over the last eight months this has again been true: exports have not responded to the check in home demand.

What has been the effect of the restriction of home demand? Production has fallen, and in consequence there has been a substantial increase in the unit cost of production. In my opinion the completely obstinate pursuit of what I believe to be the fallacious idea that there is a fixed (and I emphasise the word fixed) relationship between restricted home demand and export development is partly responsible for the difficulties we have experienced of late. I agree that there is no formula upon which the relationship between home sales and exports can be expressed, but it is certainly positive that an increase in exports is not in direct ratio to restriction of home demand. Because, as has already been said, the greatest single factor in the determination of our costs, which has a tremendous bearing upon our export capabilities, is our cost of production. That, in turn, is determined by the volume of production, which in its turn, has an influence upon the unit cost.

In support of this particular point, and also to draw the attention of the House to the policy of the Government, which has had an adverse effect on our exports, I should like to refer to recent statements made by the chairman of one of the leading radio manufacturers in this country on the subject of the influence of purchase tax upon foreign trade. The Chancellor of the Exchequer said recently that purchase tax leads to a distortion of the pattern of consumer spending, and hence of investment. That is perfectly true, and in consequence it is not without its influence upon exports. So far, I fail to see any indication in the policy of the Government that they accept that point of view. The statement of the chairman of one of the leading radio and television manufacturers, to which I have referred, and which I should like to quote to your Lordships, was that his industry has been one of the main targets for purchase tax, and the situation has become serious in recent years. Fiscal measures have been introduced by the Government which have had a paralysing effect on the industry. Purchase tax is not only a source of revenue but a means of regulating the economy. The changes in the rate have been violent and frequent. He then goes on to say that most of the ups and downs, it is on the export market where most of the harm is done—by neglect. A feature of purchase tax, he says, is that it has an effect on quality, and here again it acts as an export disincentive. He goes on to make what is, to my mind, a very important statement, when he says that manufacturers in this country have had to play down their sets to a price that will be acceptable to the public after purchase tax is paid. The only way to get them down to that price is to put in cheaper materials and minimal specifications.

But, my Lords, on the Continent high-quality finish is required, and generous specifications are vital. What is the result? According to this chairman, the consequence is that two production lines have to be maintained: one for the home market and one for the export market; and, as a result, costs are higher and there are less exports for this country. That again indicates that the Government itself has had a serious adverse effect upon exports, at least in that particular industry, although I aim quite sure that it could be applied also to many other industries. I could at this stage go on to make reference to the question of imports. Here again we see a substantial increase in imports which has worsened the situation. However, I will leave that, and will turn to the question of industrial production.

Measures suggested by the Chancellor of the Exchequer for the resuscitation of British industry, which were announced in the "little Budget" have meant not merely stagnation but an actual decline in our industrial production. When the Chancellor's measures were announced the Official Index of Industrial Production stood at 116 (I think the base was 100, in 1958) but by January it had fallen to 111, its lowest for 23 months. What is the position to date? No one can make political capital out of the situation to-day, but I quote from nonpolitical sources. The Economic and Social Review recently made the statement that it expects that spare " Whilst the home market is able to ride industrial capacity will be as much at the end of this year as it is now, and that unemployment will be higher. It went on to point out that over the past two-and-a-half years the growth of the United Kingdom economy was only 1½ per cent. per annum—lower than that of any other country in Western Europe.

I turn now to the Federation of British Industries, which could never be accused of putting forward arguments which, in their opinion, were calculated to support the opinions which we express from this side. Their recent inquiry showed that the present mood of industry is distinctly pessimistic. Their last survey showed that nearly 60 per cent. of the firms were working below capacity, mainly because of lack of orders. Steel industrial production is at 70 per cent, of capacity; and unemployment increased from 259,000 in July last year to 452,000 in March. Incidentally, that is not the full story, because I know only too well that many firms in this country are retaining a measure of labour for obvious reasons—for the time when there is an adequate supply of orders to keep them all busy. But this slowing down in the tempo of industrial production is even more significant than people realise; and something drastic must be done. It is not merely a question of declining wealth; it is also effecting a worsening of our relative competitive strength, as compared with other countries.

One can turn to prices, but I understand that those have already been quoted so I make no further comment on them, except to indicate that, following the statement of the Chancellor of the Exchequer that he would endeavour to keep prices down, they have, in fact, risen. There was a more substantial increase between July and March than at any period since the inception of the Index. As regards Government expenditure, there again we have substantial increases, all indicative of the fact that, for some reason or other, the Government were unable to pursue a policy which would assist our own industry, although they declared only a matter of eight months ago that their policy was calculated to be of assistance in the development and resuscitation of British industry.

On all four counts the Government's economic policy has failed in its objectives. I know that the supporters of the Government complain that the man in the street does not understand what the Government are doing; and they endeavour to secure some satisfaction from the fact that these policies must be right because they are unpopular. I have heard that view expressed many times. The Government seem unable to consider the possibility that they may be paying the penalty for doing the wrong things too often. I think that that idea has been reflected in more than one quarter to-day. It is my firm belief, my Lords, that the Government cannot understand the current mood of the British people. They fail to recognise the sign of injustice that is inevitably created by imposing, for instance, a pay pause within months of announcing a substantial surtax concession. How can they expect to stimulate and develop the interest of workers, to try to persuade them to work harder, when, at the same time, they pursue a policy of that kind?

I know that the Government have been successful to some extent in checking the rate of increase of certain incomes by setting aside established methods of negotiation, mutilating the authority of arbitration courts, and, in consequence, creating bitterness among teachers, civil servants, nurses and the like. Let me make it clear that many of us, including those of us on this side of the House, would endorse any effort that related income to productivity. That must be realised in the future.

The noble Lord, Lord Conesford, made a good deal of reference to the question of profits and dividends. While he was speaking, I took the trouble of looking up the relation between the two. At a time when the Government have suggested that there should be some restriction on the upward trend of wages by means of the pay pause, what do we see with dividends? The noble Lord, Lord Conesford, was probably expressing publicly what so many other people are thinking privately: that there should be far less restriction upon dividends. But whatever appeal has been made for restriction of dividends, what has been the experience? The Economic Survey itself states that dividends were 71 per cent. higher in 1961 than they were in 1960. The Financial Times, incidentally, does not agree with that figure; they say that they increased by 12 per cent. The Stock Exchange say that the figure is 6 per cent. You take your pick. But, in any case, that shows quite a substantial increase. Who earns all these dividends?

One thing that can be established, is that dividends are 30 per cent. higher than they were two years ago. We are not going to grumble too much about that, except to say that during that same period production has hardly risen, and that is the real point at issue. It is not a fact that we deprecate an increase in profits. If profits are truly related to increased national wealth, to a welling-up of production, and to an increase in the general standard of life for the community, well and good. But here we are having evidence of increases in dividend payments at a time when the Government themselves will recognise that there is very little increase in general productivity.

Now dividends, like wages, must of necessity be related to production. There is clear evidence here that there is no question of any relation to productivity. I was very interested in the noble Lord's refreshing comment that the directors should decide in their own interests, even against the interests of the State, whether there should be restraint in profits and whether dividends should be abandoned. I wonder what he would think if that general principle found universal expression among trade union leaders. I am sure there would be a great outcry from the Government Benches. We get many appeals for a recognition of national loyalty, and an emphasis upon our need to recognise the interests of the State and the nation—which we do. Quite frankly, comments of that description are not likely to excite the interest of the worker; nor are they likely to encourage the efforts of some trade union leaders—indeed, many trade union leaders—who are just as much conscious of their national responsibilities, or more conscious of their national responsibilities, than those who express the statements that we have heard about this afternoon.

I would end on this note, my Lords. I feel that, to-day, one of the most regrettable political circumstances is the public confusion over planning. Years ago the Conservative Party successfully created the public illusion that planning was synonymous with irksome restriction and unnecessary control, and to-day they are hoist with their own petard, because it is recognised—and recognised by both sides of the House—that there is an absolute necessity for the orderly planning of our resources if we are to develop this nation along proper lines. I would just say this: that, quite apart from the merits or demerits of the Common Market—and I make no comment upon that at this stage because, personally, I feel that before one makes any positive utterance it would be as well to know the precise terms of entry—there is a growing opinion among the people of this country that the Government are seeking an entry into the Common Market in the hope that they may find an escape from the chaos they have created at home: and that is not the sort of atmosphere in which one can impartially consider that most important subject. My Lords, I apologise for speaking at length, and I sincerely hope that I have not, because of the fact that I was out of the Chamber at the early stage, repeated any arguments that have been previously advanced.

8.2 p.m.

LORD MELCHETT

My Lords, I will try to be brief, as we have already had a long debate this afternoon. I should first of all like to associate myself with what other noble Lords have said about how much we miss the late Lord Pethick-Lawrence. He was a person of great charm and kindness in debate, and when I first came to your Lordships' House and took part in these. debates I was always most grateful to him for the way in which he encouraged those of us who were new to the House. I should also like to say a word of congratulation to my noble friend Lord Reading on his maiden speech. It is a happy occasion for me to be able to do that, as we are first cousins; and I hope he will be heard in your Lordships' House very often in the future.

This debate has covered quite a large field, and I think a great deal of the criticism which has been levelled at Her Majesty's Government from the Opposition Benches, and to a certain extent from my own side of the House, has really been based on less than a fair assessment of the success of the Government's policy. When one looks at last year, 1961 (which is very fresh in everyone's mind because it was a year of crisis and difficulty, a year in which there was a special Budget and a year in which new taxes were introduced in the middle of the year), I think one has to bear in mind that some of the things that caught up with the British economy during that period were not entirely of our own making or as a result of the success or failure of our own policies. It was a year in which the American dollar came under very heavy pressure. The dollar was weak; and, following on this, we had the revaluation upwards of the mark and, to a lesser extent, the guilder. This had a reaction on sterling which created a very severe, technically difficult position for sterling. As it happened, this was coupled at the same time with balance of payments difficulties of our own.

The Government were faced with what amounted to a severe crisis, and crisis measures were necessary to bring things under control. Whatever has been said in criticism of the Government, one must be clear that the measures that were introduced have been highly successful. First of all, the inflationary pressure inside this country was brought under control; confidence was restored in sterling; and we finished the year in an altogether more favourable balance of payments position than one could possibly have hoped for during the situation in the middle of the year. I think it is absolutely undeniable that the combination of strong fiscal policies in the field of taxation and the energetic use of the monetary controls was successful and entirely vindicated the way in which the Government handled the situation during last year.

Of course, the respite thus gained will be of little avail to us if steps are not taken to improve the longer-term trends; and this afternoon many noble Lords, particularly noble Lords on the Opposition Benches, have cast doubts on the Government's ability or intention to do anything effective about the longer-term position, and have compared our performance in an unfavourable light with that of other industrial countries. Now it was the Government themselves who pointed out last July that the respite they could gain by the severe measures then introduced would be effective only if they could improve the longer-term trends: and, of course, they have proceeded to do this very thing. I am going to say a word or two about that in a moment; but, before doing so, I should like to refute some of the suggestions that have been put forward about the gloom and difficulty in which we now find ourselves.

Actually, my Lords, as a result of the stronger position in which we are and which I believe is very largely due to the wise and severe policies which the Government pursued during last year, the prospects now are really rather good. Our prospects for exports to Europe and to the United States and Canada look better for this coming year than they have done for some time; the earnings of the under-developed or the primary producing countries, the less industrialised countries, are expected to improve during this year, and therefore our export prospects to those areas are also likely to improve; and, finally, the basic balance-of-payments position, the overall position as disclosed in the statistics, looks as though it will improve in the course of the year. All this leads one to feel that the picture which has been painted of the economy staggering under terrible restrictions, of our position being almost untenable and of other countries around us in Europe overtaking us economically, really does not match up to the situation.

We have still a long way to go to get the balance-of-payments situation in an entirely satisfactory state, but, of course, this is not something which can be done quickly. We may need another decade to recover from all the difficulties of the post-war years. I am certainly not one of those who attach any particular blame to the management of our affairs by the Labour Party, particularly in the 1951 crisis, because I think there were events then (the Korean War, of course) and there have been events since which, from time to time, have made our position as the managers of the largest clearing currency of the world extremely difficult. Our reserves are insufficient: and I do not believe there is a short, quick solution to these balance-of-payments problems when they are constantly linked, as the noble Lord, Lord Mills, pointed out, with the problem of managing sterling at the same time.

Now, may I, for a moment, turn to the Government's proposals—and I will try here to be brief—as far as the Budget is concerned? The Budget has been tremendously criticised as being uninspiring, neutral and failing to produce any new ideas or new incentives. I should have thought that this was exactly what was required at the moment. The measures that the Government have used to bring the economy under control and to improve the position have, as I said, been successful. For once we have used a combination of fiscal and monetary controls, and we have achieved quick and reasonable success. Surely it would be the very last thing for which anyone would ask that, having obtained some measure of success, we should immediately start relaxing and reinflating.

Noble Lords on both sides of the House have, for many years past now, constantly complained of the "Stop-Go" policy; and the noble Lord, Lord Stonham, has complained about the effects of that policy in regard to one particular industry. It seems clear that, if the Chancellor of the Exchequer's assessment of this coming year is reasonable, we are going to get a steady increase in consumption, in demand, and in production, without any steps being taken at this stage to produce greater demand by relaxing either in the fiscal or in the monetary fields. If we did relax at this stage, the chances are that, by the end of the year, we should once again be faced with the depressing and discouraging process of reimposing some form of restraint. Therefore, my Lords, I conclude that this Budget is absolutely what was required. I think it is also just about the easiest Budget there could be to criticise, because everyone has some theory or other as to how the situation could be improved a little, and if a Budget comes out which has nothing very startling in it by way of new proposals, or taxes, or incentives, or suggestions, then more people are disappointed by it than probably are when more interesting proposals are put forward.

I was going to say a little about export incentives, but I think it is too late to go into much detail. However, I would just say this. I am sure that the function of Government here should not be to try to find clever gimmicks and incentives for any particular part of the economy which they feel requires stimulating. I believe that the function of Government should be to provide the financial and economic springboard from which the whole of the industrial and business community should take off. To try to find individual cures or stimulants for particular problems is, in the end, only going to create as many problems as are solved. The investment allowances are a case in point. The investment allowances have never persuaded anybody to invest. People invest in new plant or equipment because they think that, when they have built it, they will be able to sell the output at a profit. If you have some form of export incentive, people will not export as the result of that incentive; they will export if they can sell their goods in satisfactory markets overseas and collect the money which is owed to them. The incentive would be nothing more than something from which one would benefit if all the other factors necessary were present. If those factors were not present, I personally am doubtful whether the export incentive would really be of much avail.

Perhaps I may pass on from that to say a word about the O.E.C.D. Report. Many of your Lordships, and many people outside your Lordships' House, have read into this Report, or drawn from it, many conclusions which, frankly, I feel are quite unwarranted. I think that this is a very valuable document, and many of the comments and suggestions which are written into the Report are of the greatest value. As I think the noble Lord, Lord Poole, mentioned earlier this afternoon, they are, on the whole, an absolute vindication of the Chancellor of the Exchequer's and the Government's policy, both in general and in particular: in particular in the setting up of the National Economic Development Council, and in general in announcing that the Government are going to have a positive policy towards wages. I think it was the Financial Secretary to the Treasury, when speaking in another place on the Budget debate, who said that he felt this was one of the most important departures in general Government policy that had been made since the Government took the general responsibility for full employment at the end of, or just after, the last war; that this departure of taking a positive policy attitude towards wages could be considered in the same light.

To turn back again to this Report, my Lords, the inference has been drawn that we are performing very poorly when compared with other countries. If noble Lords really wish to draw the inference that, because Germany and France (who I suppose are our two largest industrial competitors across the Channel) have increased their gross national product at a higher rate than we have during the decade of the 'fifties, therefore we are falling behind, then in looking at these tables they will be forced to the conclusion that the country we should fear most is Greece because in fact Greece is second in the league tables. Such a proposition is obviously perfectly ludicrous. What one has to realise is that these tables show the rate of growth of gross national product and they depend on the starting point. Obviously, Greece starts at a very low point.

Similarly, one noble Lord on the Opposition Benches (I am afraid I cannot remember who) quoted Ireland as leading in productivity. Of course, Ireland has done relatively well, and, I think, slightly better than we have; but anybody who knows the Irish Republic knows that the productivity per worker there must be very low. It is not an industrialised country but a country of small farms, and largely inefficient farms, and, of course, any increase shows up immediately. This is a point which seems to have been completely missed, and therefore I consider that the interpretation put upon these figures is most misleading.

So far as France and Germany are concerned, the German population to the extent of about 30 per cent. is still employed in agriculture. They have had a constant flow of refugee labour from the East. They have also had a major currency reform which gave them the starting point to this expansion. In France there are similar factors. They have a large agricultural population which is still only beginning to be drawn into industry. We were in a completely different position in 1950, the base year for these figures. I am not sure what the position was in 1950, but to-day we have only about 5 per cent. of our working population employed in agriculture, and in the circumstances it would have been quite impossible to expect us to have performed at the same level of expansion as other countries.

Your Lordships will find that we have done nearly as well as the United States: the differences are very small. We have increased our gross national product to the extent of just under 3 per cent. per annum, and the United States. I think, have increased theirs by just about 3 per cent. Some of the more advanced Scandinavian countries, like Denmark. Norway and Sweden, have increased theirs by just under 3½ per cent. So the differences are very small. I think the indications, contrary to what some noble Lords have suggested, are that really we are doing extremely well—extremely well in view of the heavy defence burden which we carry as well as the major responsibility of managing the sterling area, and, of course, the fact that we also have a much larger investment programme overseas in our Commonwealth, in Colonial territories and in helping the underdeveloped areas.

I do not want to detain your Lordships any longer. However, I feel that to some extent an altogether too depressing note has been struck by some of my noble friends on this side of the House. I myself believe that, if the Government are open to any criticism, it may be the criticism which my noble friend Lord Balfour of Inchrye touched on: perhaps they have not put across their case quite as well as they might. I think they have a very good case, a good story to tell, and I look forward to this year being a prosperous one.

8.20 p.m.

BARONESS WOOTTON OF ABINGER

My Lords. I must confess that at this stage of the debate I feel very like the member of the American population described by the noble Lord, Lord Conesford—that is to say, broken down by age and sex. I suppose that many of your Lordships will have the feeling that everything that has been said in the course of this debate has been said many times before on similar occasions over a number of years. Nevertheless, I am extremely grateful to the noble Marquess, Lord Reading, for the contribution he made, in his delightfully phrased and informative maiden speech this afternoon, because I think that the noble Marquess summed up perhaps better than anybody the situation so far as it concerns Government policy. The noble Marquess said that what is needed is new notions, and I find myself in the happy position of being, for once, in complete agreement with a noble Lord on the opposite Benches.

I should like also strongly to support the plea made by the noble Lord, Lord Balfour of Inchrye, that the Government should tell us precisely just how we are to become more competitive. Most of the methods that are advocated generally have been discarded, and we are left wondering what the recipe is to be. I myself could not help being reminded of one of the many occasions when the Government had been pressing for greater output—this was at a time when I happened to be a professor in the University of London. Conscientiously we held a departmental meeting to consider how we could increase our output. Three alternatives were presented. The first was that we should condense 10 per cent. more matter into each of our lectures. The second was that we should compress each of our lectures into 10 per cent. less time. And the third, and most popular, was that we should repeat ourselves 10 per cent. more often. Maybe the noble and learned Viscount who is to reply may have some more constructive proposal than any of those.

The noble Lord, Lord Mills, gave us what I might perhaps call a rather complacent picture, though in sombre tone, of what is sometimes described as the affluent society. Personally, I would rather describe it as the top-heavy society, for it is affluent only at one end. I think that the noble Lord drew this picture by the simple device of taking credit for all the good things that had happened and omitting to mention all the bad ones.

VISCOUNT HAILSHAM

My Lords, surely this is only the obverse of the Opposition's case. They mention only the bad things and give credit for none of the good things. That is the game.

BARONESS WOOTTON OF ABINGER

My Lords, the noble and learned Viscount is giving an excellent exhibition of a philosophy which I did not think he held—the Marxist contention that truth emerges from the .synthesis of thesis and antithesis.

VISCOUNT HAILSHAM

My Lords, I entirely agree with the noble Baroness, but it was by Hegel, before Marx.

BARONESS WOOTTON OF ABINGER

My Lords, I am sure that we shall agree to give the credit to Hegel.

The noble Lord, Lord Melchett, carried this one stage further by mentioning some things—notably revaluations overseas—which he said were inevitable, while the good things were the product of the Government. The noble Lord, Lord Mills, for example, took credit for the extensive school building that has taken place in the years we have had a Conservative Government, but he omitted to mention the drastic cuts that are now being made in the proposals for school building, and the cuts now proposed in the expenditure on universities. He mentioned with some complacency our progress in exports, but failed to mention, as my noble friends Lord Walston and Lord Peddie pointed out, how we had fallen back in our comparative position, and I do not think that this falling hack is entirely answered by the comparison which the noble Lord, Lord Melchett, used. He pointed out that if a country starts from a low level, it is in a strong position to make a large percentage increase, and quoted the example of Greece. That explanation does not explain away our failure to maintain our share in the total of world trade.

Similarly, the noble Lord, Lord Poole (I am sorry that he is not now in his place) was disposed to take credit for the comparatively low level of unemployment which has prevailed now for over ten years. But he failed to mention that in Northern Ireland the level of employment runs consistently at four or five times the level in Great Britain. Either this is due to circumstances which are beyond the power of the Government, in which case they are not quite so efficient as they make out, or they are due to some extraordinary meanness which causes them to be unwilling to impart the secret of their success in Great 13ritain to their colleagues in the Government of Northern Ireland.

I think that far and away the best defence of the Government's policy came from the noble Lord, Lord Melchett, if I may say so. But he posed his defence mare in the future than in the past. He spoke not of achievements but of prospects. Jam yesterday and jam to-morrow, but never jam to-day! But Governments are judged by "jam to-day." But let us be honest. There is one new element in the Government's economics policy. Though perhaps your Lordships will forgive me, having said that, if I point out that it is not quite so new as some noble Lords opposite might like to claim. The new element is the proposal: that we should have a new incomes policy. If I may quote from a book which was published some seven years ago, we find this passage: The pattern of income distribution is essentially a political question. It embodies social valuations which affect the whole community and in which conflicting interests are involved, and the issues raised by these conflicts are germane to the differences which divide political Parties so long at least as those differences can claim to be the expression of alternative social philosophies or designs for achieving alternative social ends. The place for the discussion of wage policy is on the agenda of political conferences. My Lords, when I wrote those words seven years ago I had the impression, from the reaction which was provoked, that I had, so to speak, used a dirty word; and your Lordships can therefore imagine the pleasure with which I welcome the publication of a Government White Paper actually entitled, Incomes Policy—for Government White Papers are not usually essays in pornographic expression.

We find reinforcement of this attitude in the O.E.C.D. Report, which has also called attention to the problem of evolving in this country a more permanent system for the determination of money incomes, which is accepted as just and reasonable by the community as a whole. So we were full of hope, and the Chancellor of the Exchequer in another place told us that this incomes policy was necessitated by certain facts about recent changes in distribution. He mentioned that between 1960 and 1961 there had `been a 5 per cent. increase in wages and salaries; a 6½ per cent. increase in other personal incomes; a 20 per cent. increase in gross dividends, and a 3 per cent. increase in production. He said, "These figures do not make sense." We on these Benches would, I think, endorse that statement, though not necessarily for quite the same reason. So we embarked upon a pay pause—stage one of the new economic policy. Credit was taken by the Chancellor of the Exchequer in another place for the fact that during the pay pause, from October to February, weekly wage rates rose by only 0.8 per cent. He did not mention that during the same period retail prices rose very nearly twice as fast, suggesting that this is not a very effective cure for inflation. Nor did he mention the fact that during the same period production had actually declined. I fail to see why the Chancellor of the Exchequer was so pleased with the policy of the pay pause, and, indeed, from his own point of view, so ready to abandon it in favour of the second stage. For, as the noble Lord, Lord Mills, said, the pay pause was to be only the beginning.

So we pass from the stage of the pay pause to the stage of the positive policy; and I think we all had considerable sympathy with the Chancellor in another place when he said that finding a positive policy was not quite so easy as it looked. A positive policy is described in the White Paper as the next step. Let us see what the positive policy is. The positive policy, the White Paper tells us, is not to take so much notice in wage negotiations of the cost of living; it is not to take so much notice in the determination of wages of shortages of labour in particular industries or firms: it is not to take so much notice of the comparabilities of one wage with another, although these have a part to play. We then turn hopefully to find what we are to take notice of; but at that point the White Paper comes to an untimely end. And when we ask what we are to do about other incomes—not wages or salaries—we find no mention of these until the final paragraph.

The essence of the policy seems to be, in fact, a standstill at, if I may so describe it, a slightly raised figure, to allow a kind of flat 2½ per cent. to 3 per cent. all round with no questions asked as to priorities or anything else. Today, in Question Time, the noble Marquess, Lord Lansdowne, said—and I think we all accepted it—that it is not possible to translate a text that you have not got. Nor is it possible to interpret a policy that you have not got. Yet, in time, I am sure we shall come to see that there is a place in this community for an incomes policy. A real incomes policy would be an extremely radical thing, and it would have to ask a number of questions and challenge a number of assumptions in our existing economic system. It would have to ask questions about priorities: about priorities within the professional field; about priorities as between the professional field and the manual working field; and about priorities, also, within the manual working field itself. It would not, I think, be content with the flat 2 per cent. or 3 per cent. all round, which simply means that existing relativities are standardised for ever and no one who has been unfortunate enough to get left behind in the race has any hope of making good.

The noble Lord, Lords Mills, spoke with pride and pleasure of the rising standard of living—and we accept with gratitude and share in his delight that the standards have risen most significantly in the period since the war. But a real incomes policy would raise the question whether we are content that, in spite of what is often referred to as the high level of wages, just short of 10 per cent. of the adult males who are in full-time occupation take home earnings of less than £10 a week: that, not 10 per cent. but 87 per cent. of the adult females who are in full-time employment take home less than £l0 a week; and that barely less than one-third of the households which are living in poverty, as we used to judge it—that is to say, slightly above the subsistence level—are households in which the head of the household is in full-time employment. In other words, there is a long tale still of low wages, which are to be frozen, apparently, by the universal formula of not more than 3 per cent.

I think perhaps we shall have to admit, too (I say this with some trepidation in the presence of my trade union friends), that a real incomes policy would challenge some of the assumptions of some of the doctrines that have long held sway in this country. It might have to challenge even the doctrine of the divine right of collective bargaining—or, perhaps I should say, of the divine rightness of every collective bargain. It might have to challenge the tradition that has grown up in this country that in industrial arbitration we use not the common British judicial system, but the Chinese. This, I think, is now recognised in the White Paper, which suggests that we move from the Chinese to the British system. For I understand that when there is a dispute in China it is the custom not to try to settle it by having some objective standard of what is fair between the parties, but to cast around for something which will cause the parties to give up their quarrel, something to which they will agree.

But, above all, a real incomes policy must deal with the structure of incomes of all kinds from top to bottom and not simply apply to them a blank formula. Let me remind your Lordships that in the past ten years there have been most disproportionate changes in the total volume of different types of income, and it is quite impossible to contemplate an incomes policy Which deals with wages and salaries alone. In the past ten years the increase in total wages has been of the order of 87 per cent.; the increase in total salaries has been of the order of 119 per cent.; and the increase in gross dividends has been of the order of 145 per cent.

The Government's economic policy, as we have heard it to-day, is essentially restrictive, but it is effectively restrictive only in certain cases. The noble Lord, Lord Conesford, was very worried about what directors of companies were to do with the dividends which they did not think it honourable to distribute. But I do not think his worry is necessary. In the first place, there is very little sign that the occasion of this concern will arise, since there is to be, apparently, no effective restraint on dividends. But, if their consciences do prick them too severely, they can put their dividends away, thereby enhancing the capital value of the stocks of their concern, and thereby giving opportunities for capital gains which will escape the speculative gains tax.

The policy, as we have heard it, is not only restrictive but seems to lack any consistent leadership or direction. As the noble Lord, Lord Balfour of Inchrye, painted out, it is not even clear whether we are assuming commitment to the Common Market or whether we are still assuming that we shall "go it alone". As the noble Lord, Lord Stonham, pointed out, similar inconsistencies have pervaded the Government's attitude in the regulation of home demand, until unfortunate manufacturers are driven crazy by these perpetual changes in the taxation to which they are liable, and by the alternate expansion and restriction of their credit opportunities. It looks a little as if the policy Which we now have is that of a driver who gets into a cart and harnesses to it two horses, but unfortunately does not appreciate that the two horses are pulling, most of the time, in opposite directions. It also seems (I do not know whether it makes the situation better or worse) that each of the two horses is a little old and tired.

8.42 p.m.

VISCOUNT HAILSHAM

My Lords, the noble Baroness who has just resumed her seat rather strangely referred to herself as broken down by age and sex. I think the whole House would agree that she is not broken down by age, and most of us find the other thing more stimulating than disintegrating. At any rate, it is a pleasure to follow the noble Baroness, who, whatever may be said of my colleagues, certainly does not fall into the trap of vapidity, the criticism of which was levelled at us by my noble friend Lord Balfour of Inchrye. She expresses herself charmingly and with great clarity and distinction of language.

After very nearly seven hours of oratory, I must, I confess at the end of the day, describe myself as "bloody but unbowed". The debate has been, I should have said, on the diffuse side. Every year we have a debate just after the Budget, and every year we have another debate when the Finance Bill reaches this House. It would be very nice indeed to debate with the Party opposite the factor of growth in our economy, the "league tables", and so on; it would be very nice to debate export with a number of noble Lords who have referred to it; it would be very nice to debate the actual Budget proposals with those who have discussed them; and the O.E.C.D. Report which has been repeatedly referred to in our discussions to-day would also be an admirable subject for debate. But, like the character in the Beggar's Opera, When they all tease me together, to none a word will I say, But fal-de-lal-de-la-dee. I find it impossible, at this hour of the evening, to deal with so many different subjects and, therefore, I must select.

My noble friend Lord Balfour of Inchrye said that it was on the whole desirable that the Government should be responsible for forthright statements. I agree with him. It is, of course, generally accepted as one of the more prized rights of the British to criticise their Government, but I have noticed that they are apt to be a little shocked when a member of the Government ventures to hit back. The attitude the public expects from its Governments is that of a spaniel rebuked by its master, on its back, paws up and bent, a general attitude of submission and ingratiation. But I do not feel like a spaniel.

LORD SHACKLETON

You do not look like one, either.

VISCOUNT HAILSHAM

The House will forgive me if I do not adopt this supine position towards the criticisms which have been levelled at the Government. The first criticism I must answer is that which was levelled by the noble Lord, Lord Shackleton, at the speech of my noble friend Lord Mills. I happen to agree with my noble friend Lord Melchett, that the noble Viscount who leads the Opposition opened his speech in unduly sombre terms. He took too gloomy a view of the situation: he was painting too black a picture. Now, of course, one understands that in the fury of Party debate one is tempted to do that sort of thing. But if one takes too gloomy a view of the situation, one can neither diagnose the character of the disease nor hope to prescribe an adequate remedy. Therefore, it seemed to me that my noble friend Lord Mills was perfectly right to remind the House, as I shall be reminding it in due course, that there are in fact some very solidly bright parts of the present picture, and I think my noble friend Lord Melchett was perfectly right to refer to them.

It was a little less than just of the noble Lord, Lord Shackleton, to say that that kind of thing made him almost despair. You cannot have it both ways. You can charge a Government with being complacent if you like, but only if you have not overpainted the picture in dark colours just before you do so. It seemed to me that the speech of my noble friend Lord Mills was a useful corrective to the undue pessimism of the speech of the noble Viscount who introduced this debate.

The second criticism which is made was that my right honourable friend's Budget was a dull Budget—" almost meaningless "the noble Viscount called it;" uninspired "was another phrase which has been used. In one respect I sympathise with the critics. The annual Budget year by year has been built up into something bigger than it ought to be in our total economic policy. If I were working in the Treasury and valued the reputation of any Chancellor of the Exchequer, I would burn that box of Mr. Gladstone. It is the first thing I would do. Burn Mr. Gladstone's box, and you would get a lot less nonsense talked about the annual Budget. Each Chancellor of the Exchequer appears in a ghastly photograph holding the beastly thing up as if it contained the bequeathed goatskins of the Ark of the Covenant. It is the most frightful nonsense, because the Budget is a relatively small part of our national economic policy, important as it is. In the modern age this sort of thing ought to be brought to an end.

But I am bound to defend my right honourable friend's Budget against the charge of being dull. This, I think, is wholly to misunderstand the nature of the appreciation which he has made of it, and this appreciation has been rightly emphasised both by my noble friends Lord Poole and Lord Melchett in their respective speeches and, I think, by the noble Marquess, Lord Reading, in what I thought was a most effective and welcome maiden speech.

When the Chancellor brings in his Budget nowadays, he is not doing the kind of thing that Mr. Gladstone with his original box was trying to do. The rightness or wrongness of a Budget in these days depends less upon the merits or demerits of particular proposals than upon the correctness or otherwise of the Chancellor's appreciation of the economic situation as a whole. I feel bound to say, in parenthesis, that if this Budget is to be attacked as a dull one, I have never seen a Budget which occupied more columns of the Press on the following day—a whole page in the Daily Telegraph. On the whole, newspaper men know what it pays them to put in their newspapers. I have never seen a Budget in recent years with better Press coverage. Even though it be dull, that does not seem to have been the appreciation of the Press. But its dullness or otherwise does not depend upon that. If the Chancellor considers the situation basically inflationary, he has to impose harsh measures of taxation and, maybe, supplement them by monetary or other controls.

Last year, for instance, the present Chancellor budgeted for a big surplus, and fortified his Budget with discretionary powers which he later used for imposing further imposts during the financial year. Mr. Thorneycroft and Mr. Amory, who succeeded him, pursued in many ways the same policy in 1957 and 1958. My Lords, a Chancellor who does this may not be popular, but he is seldom called dull. If, on the other hand, the Chancellor considers the underlying movement of trade is towards recession, he will, presumably, budget for a deficit; he will make numerous popular taxation concessions; he may even, in parallel, persuade the Governor of the Bank of England to reduce the bank rate and generally stimulate the economy. Mr. Amory (as he was then) did this in 1959, and to some extent in his previous Budget. A Chancellor who does this, in my experience is never called dull or uninspired. Indeed, in answer to my noble friend Lord Auckland, this is what I should describe as an inspiring Budget.

But it is possible, of course, that a Chancellor may think that neither of the two alternatives of restriction or reflation meets the needs of the moment. That is what my right honourable friend has done this year. Admittedly he thinks the total burden of taxation should remain approximately where it is, and, admittedly, if this basic appreciation of the Budget is wrong, the Budget is, of course, itself wrong. If what we want is reflation, the Budget is wrong. If what we want is a new dose of restriction to a greater degree, which would, I feel, lead to deflation in the light of current demand, this Budget is wrong. But if my right honourable friend is right that the present situation must be held a little longer, then the Budget is basically sound and criticism is really limited to questions of detail. Complaints in this context that the Budget is meaningless or irrelevant are, to my mind, at any rate, futile and meretricious. The question is whether the appreciation upon which the Budget is founded is a sound one. If it is sound, the Budget is a good one. If it is unsound, it is not irrelevant but had. It is therefore this question which we must investigate a little further.

In passing, however, I make this comment upon some of the political judgments of the noble Viscount who leads the Opposition. He, at any rate, made the suggestion—although I think his noble friend Lord Stonham retreated from it—that these past Budgets to which I have referred have a direct relation to the sequence of General Elections which take place in this country every four years or so. It is said that in the year before an Election we have a favourable Budget, and that sonic time after we have an Election we have a Budget in which financial controls are imposed and taxation raised. I think I have been fairly close to the centre of things since about 1956, and I wish to give my own testimony that this charge is wholly false—as indeed I think the noble Lord. Lord Stonham, admitted it to be.

The short answer, my Lords, is that no Government, whether it is acting in the middle of a Parliament or acting at the beginning or end of a Parliament, likes to do unpopular things; and there can be no mistaking that even the very modest measures of control that we imposed in 1957–58, and again in the summer of 1961–62—very modest, that is, in comparison with those of the late Sir Stafford Cripps and his predecessor—have been very unpopular. In passing, may I say this: that whilst I associate myself very sincerely with all that has been said with regard to the noble Lord, Lord Pethick-Lawrence, I myself could not help thinking in the course of the debate of the loss which the House has sustained in the death of the late Lord Dalton, the predecessor of Sir Stafford Cripps, to whom I was referring. The functions of this House did not permit formal tributes, but I think that, when the time has come that this controversial figure can be assessed, he will be remembered as a man who loved youth and favoured learning. And these are qualities of which any man may be proud at the end of a long life of public service.

None the less, however little the Government of the day may appreciate unpopularity, when a Government has to choose between a run on the pound and its own popularity, it has only one choice it can make. It makes it unwillingly. It must face unpopularity; loss of by-elections; and even, if need be, defeat at a later General Election. This is the price of responsible government. And it therefore is a matter of great joy and hope, at any rate to me and I think to my colleagues, that the very unpopular policy which was referred to in many terms, beginning in July, 1961, and undertaken with great courage by my right honourable friend the Chancellor of the Exchequer, is already showing, as my noble friend Lord Melchett pointed out, many signs of success.

Numerous references were made to the O.E.C.D. Report. I shall be referring at a later stage of my remarks to the use made by various noble Lords of that Report, but it is strange, in view of the care with which they have evidently read it, that they did not, at the same time as they quoted other passages, mark the very favourable references to the wage pause at the top of page 31, in which both its success and the way in which it had been carried out were favourably commented upon.

Each time we have acted, we have acted against our will but out of necessity to deal with an economic situation which we had to face. When, in 1958 and in the early months of 1959, we acted to reflate the economy we were faced with what appeared to be a quite serious recession in world trade. The result was that we pursued the second of the two courses I have described. We did so because, first, at that time (that is to say in the early months of 1958) there appeared to be—and nobody was more ready to point it out than the Party opposite—the beginnings of what, by post-war standards, was quite sizable unemployment, partly a result of a world movement of trade; and, secondly, because the policy of restriction which we had courageously, in my opinion, undertaken in 1957 had already restored confidence in sterling, as my right honourable friend's measures in July, 1961, have already restored confidence in sterling. We are (and, indeed, I think both sides of the House would support us in this) a Government of expansionists, and we restrict only to the extent that we feel necessary to combat inflation and to maintain the value of our currency.

Of course the crisis in 1961 was, as the noble Lord, Lord Melchett, just pointed out, sparked off by the revaluation of the mark, undertaken by the West German Government without a great deal of consideration for our vulnerable position. Let anyone who is interested in these things plot the flow of short money out of this country against the events of last summer in the international field, and he will not be disposed to blame that crisis on the Government, following as it did a year of rising pressure of demand, an excessive rise in money incomes and a weakened balance of payments. Our economy and currency are unduly vulnerable, for reasons which are not discreditable to us, to fluctuations in international confidence. But it is this very question of vulnerability which does concern us as a Government and as a nation.

It is true that our material prosperity is higher than ever before, but it is also too precarious; it is too dependent upon the will of others. A part of this problem is slowness of expansion, and the slowness of expansion and our vulnerability are therefore, in more ways than one, a function of our failure to achieve an incomes policy. Again, in passing, I think it is quite extraordinary that noble Lords opposite who have been so ready to refer to the O.E.C.D. Report did not, apparently, attach any importance to the diagnosis which that Report places upon this nature of our vulnerability. It said clearly that the principal cause of our vulnerability is the uncontrolled increase in money incomes, which had the effect of doing the very thing to which the noble Lord, Lord Stonham, drew attention—namely, to increase unit costs, so limiting our power to export. I was delighted to hear the noble Baroness who wound up the debate for the Opposition—a voice, I fear, in that Party crying in the wilderness, but still a voice to which I pay considerable respect, and to which I attach a great deal of importance—admitting the necessity for a national incomes policy. In that the noble Baroness and I are on the same side of the barricade.

I am sorry to labour this point, as I am afraid I have now done in your Lordships' House since I first answered for economic affairs in the summer of 1957, but until it is accepted it cannot be too often said, The choice for this country lies between three policies: one is devaluation and dishonour; one is deflation and unemployment, and the third is a rational and just incomes policy, however many by-elections have to be lost in the process of achieving it, and however often we are driven by the non-co-operation of people who ought to know better—and some of whom certainly do know better—to impose for a short time, I hope very short periods of time, odious and at times unjust inequalities on groups and professions who deserve better of their fellow-countrymen.

LORD SHACKLETON

My Lords, if I may intervene, would the noble Viscount care to tell the House the names of the individuals he is referring to who are unwilling to co-operate with the Government?

VISCOUNT HAILSHAM

My Lords, I think at this stage of the evening the best plan is "No 'names, no pack drill ". To them I would only say that we hate doing this only a little less than such groups hate being at the receiving end. Those who are most and worst affected would thank us little at the end of the process if, for the sake of satisfying them as groups, we were to commit ourselves as a nation to courses which led to devaluation or compelled us to adopt deflation as an alternative.

In answer to the noble Baroness, in her most interesting remarks upon the same subject, I would say that we do not for an instant believe or desire to insist that a flat universal and permanent figure of 21 per cent. or 3 per cent. should be imposed upon the population. What, however, we are bound to say is that until productivity does rise, then the aggregate amount of income which is receivable from all sources shall not exceed the extent of the productivity. And, as I shall point out rather later in my remarks, that is precisely the conclusion of the Report from which noble Lords opposite have quoted.

It is in this general context, I think, that the Budget must be read. Of course, once one has accepted the general appreciation of the economic content one sees that my right honourable friend was inevitably limited to a small number of detailed proposals. But I should have thought that they were extremely interesting and imaginative proposals. In those circumstances, the Budget's theme was, of course, the gradual reform of our taxation system. There are many people who believe that our taxation system is ripe for reform. The Liberals, who I am afraid have not contributed to this debate to any very great extent, are, I believe, among their number. But no one who is at all acquainted with the immensely complex system that we have can fail to realise the truth of two propositions. The first is that a level of taxation as high as it is quite certain to be in the foreseeable future under any conceivable Government is quite certain to be complex. Only a low level of taxation can yield a relatively simple system, and this is because the anomalies, injustices and opportunities for evasion which a simple system yields are tolerable only when the rate is so low that anomalies and injustices are not resented and opportunities for evasion are not embraced.

The second proposition is that a change to a reformed system of taxation cannot be undertaken in a single step. Supposing, for instance, we wished to move, as many people urge, in favour of a few fairly obvious "starters" in the race for a reformed system; supposing, for instance, we wanted to introduce a consolidated single progressive income tax-cum-surtax in place of the two taxes which are now separately levied; supposing we wanted to move in favour of a consolidated corporation tax to include profits tax and company income tax; supposing we wanted to achieve some rational purchase tax to take account of the ordinary facts of family budgeting, as, for instance, allowed for in the cost-of-living index, instead of a system rapidly becoming irrelevant which attempts to distinguish between necessi- ties and luxuries; and supposing we wanted to move, as some people do, in favour of a legacy or succession duty in place of estate duty, we should still have to go very cautiously at first to remove anomalies, and so build the foundation for changes, which at their inception would almost certainly involve us in serious losses of revenue.

The third general criticism which is levied against the Budget is that there should have been more about exports, more to encourage exports. As my noble friend Lord Poole, and, I think, my noble friend Lord Melchett, pointed out, this is a criticism which is really worthless unless it condescends to detail. The real arguments against export incentives which their supporters must overcome are not so much the international obligations which we have willingly undertaken but the absolute certainty of retaliation by countervailing duties and competitive subsidies by our commercial rivals if we embark on this course. In my opinion, at any rate, there is no easier way of throwing money down the drain than a competitive subsidy race. None the less, suggestions for fiscal reforms—and we have heard several from various quarters of the House during this debate: I think from the noble Lord, Lord Milne, and the noble Lord, Lord Melchett among others—are always welcome. But if those who think that there is a future in what are euphemistically called "incentives"—because of course subsidies, which is the same thing, is a naughty word—would condescend to detail, I can asure them that there is one Minister at least who would look at them very carefully.

It must also he remembered that the recent Report by the Federation of British Industries which examined this particular subject found that it was to the interest of British business and industry to discourage these practices in other people. We can hardly do that if we are deliberately indulging in them ourselves. Unlike my noble friend Lord Conesford, I was personally delighted by the new Case VII income tax, and I have no patience either with those critics who deride it as nugatory or those who condemn it, as my noble friend did, as revolutionary or breaching what he described as a sound principle. It is some- thing which has been recommended, in one form or another, as long ago as 1920, when the Royal Commission reported. I remember that when my father was Attorney General and concerned with revenue cases in 1925, he told me that something of the sort was then long overdue. I am glad that my noble friend Lord Reading endorsed this principle, although he criticised the detail.

I do not agree with my noble friend Lord Conesford that it breaches a principle. I do not consider that it taxes capital at all in that form; indeed, I would equally join issue, although from the opposite point of view, with the noble Viscount who opened the debate, who committed himself to the view that this was nothing better than an ineffective capital gains tax. In my view, it taxes income and not capital, and therein lies the secret of the Case VII and the justification for it. The difference between income and capital is one which has to be examined very closely in relation to actual practice before one claims that it is in any set of cases a matter of principle. If devices are discovered which can evade its spirit and not its letter, doubtless then the resources of civilisation are not exhausted to defeat them.

I was also delighted (in this I have the pleasure of agreeing with my noble friend) when my right honourable friend decided to tax sweets and soft drinks. I knew, of course, that an attempt would be made to work up some sentimental popular prejudice about taxing the kiddies' sweets; but if there is one thing as certain as that lung cancer is, or can be, caused by cigarette smoking, it is that dental caries is caused by excessive sweet-eating. It is no coincidence that our children have the worst teeth and the highest sweet consumption in the world It is a first-class measure of dental health—although I am afraid my noble friend was not so pure minded about that as I would have had him be.

I was glad that not one speaker in this debate criticised my right honourable friend for not increasing the tax on cigarettes. I particularly noticed that the official speaker of the Labour Party on television expressly supported my right honourable friend's decision in that respect. But I would make it quite clear that the fact that my right honour- able friend did not accept this particular recommendation of the Royal College of Physicians does not mean that the Government are not as determined as ever to get across to the public the dangers of excessive cigarette smoking. Even now a careful investigation is being made of what can legitimately and usefully be done without paternalism.

think it is a little late to welcome the end of Schedule A, about which I thought that the noble Viscount opposite was rather at a loss to present reasonable criticism. I mention in passing the issue of profits and dividends, make no particular complaint of the fun which my noble friend Lord Conesford legitimately poked in my direction on this subject. I think his points were neither basically humorous nor merely stylistic, but they were concerned with genuine, logical difficulties with which, from time to time, I must tell him I have tried to deal in these debates. The truth is that when people talk about profits they are in fact referring to a number of quite different types of pecuniary advantage, different in every case from dividends, which are the distributed portion of trading profits, and all of which are quite different again in character and economic and social function from the wages, salaries and professional emoluments with which they are often emotionally and unthinkingly compared.

I do not in the least mind my noble friend's drawing attention to the nonsense, born of confusion of thought, which is often talked about those things—occasionally, no doubt, by Ministers, in common with other people—but I feel I must insist upon what is really a basic moral condition of an effective incomes policy, upon which I have often agreed that the Labour Party are entitled to insist, and that is that if you are going to ask people who derive their livelihood from wages, salaries or professional emoluments to exercise some restraint in what they get, there must be parallel action in other spheres, which affects in one way or another the effective incomes of those who derive their livelihoods from trading profits, capital profits or dividends.

It may be, and indeed is, the case that the field is much smaller. After all, wages and salaries count for, I think, the largest single part of all income. I saw in another place when they debated this subject that 93 per cent. was mentioned as a figure. I could not necessarily endorse that. But it may be that the word restraint is not appropriate to both. It is certainly true, as I have repeatedly insisted, that the methods appropriate to one are inappropriate to the other, largely owing to their different character. But at the end of the day there is really no denying that the belief, often unfounded but always emotionally upsetting, that particular classes, such as land speculators, owners of investment income, investors in rented property, even those who enjoy profits by trading, are completely free from the consequences Government action, is one of the big practical bars to any successful incomes policy. In fact, of course, my right honourable friend is always seeking ways in which to achieve a more equitable arrangement.

At the moment I think the problem is not such a real one as my noble friend seems to have thought. No one, I believe, supposes that individual measures against particular businesses can be contemplated. Company profits have been falling almost continuously since 1960, and following the Government's present measures profits in the second half of 1961 have fallen 7 per cent. on those in the first half of the year and 12½ per cent. on those in the first half of 1960. But perhaps I should, in passing, deal with a question which I think was raised in one form or another both by the noble Lord, Lord Walston, and by one other noble Lord, I think perhaps the noble Lord, Lord Peddie. In comparing dividends with wages it is not always useful to compare rates of percentage increase. Percentages are funny things to quote in statistics. If you have a dividend on £100 investments of £5 a year, and raise it up to £10 a year, your extra income is £5; but the rate of increase percentage-wise is 100 per cent. That is a very different thing from raising wages by £10, which of course is a quite small percentage rise in the wage level of the year. I think that noble Lords who quote these figures should be much more precise about the nature of the base upon which they are calculating their percentage.

LORD WALSTON

My Lords, I do not think the noble Viscount was in the Chamber when I quoted these figures. I gave a specific figure which was something like £700 million or £700-and-something million, up to £900-andsomething million. So I think that the particular error, which is common, was one into which, fortunately, I did not fall, in spite of the absence of the noble and learned Viscount.

VISCOUNT HAILSHAM

My Lords, I was not absent in fact when the noble Lord quoted the figures, but the only part of what he said that I managed to get down was 7 per cent. against 33⅓ per cent. I turn back again to the issue of expansion—

LORD CONESFORD

My Lords, if my noble friend is leaving this subject, I should like to know whether he can answer one specific question I put to him on profits—namely, what do Her Majesty's Government wish a company to do which wishes to do what they want, and finds its profits in danger of increasing. That is the first question. The second question on dividends is, do the Government entirely reject paragraph 536 of the Report of the Royal Commission?

VISCOUNT HAILSHAM

My Lords, I do not think I want to spend a great deal of time on this subject, because I think my noble friend was, with respect, making some difficulties for himself. First of all, the request for dividend restraint was, like the request for wage restraint, a temporary measure, and therefore the question does not arise as a permanent question. But I do not think my noble friend had really pursued this matter sufficiently far, or he would have reflected that there are things that you can do with profits other than spending them on dividends and even other than spending them on increased wages. You can build a new works canteen. I am not saying that this is, or is not, in any way a desirable thing to do. You could spend a little more on market research, especially in the form of a suggestion in the O.E.C.D. Report. You can reduce your prices, as he has said. He claimed, I think wrongly, that that would have led me into an illogical difficulty by way of redress, but I do not agree. If more profits are earned as the result of a reduction in prices, the prices can be reduced again. This might be a way of dealing with the subject. I do not think myself that the difficulty which my noble friend was raising was in fact as genuine as some of the logical difficulties he sees often are.

So I return to the question of expansion and I say, without qualification, as I said before, that this is by conviction a Government of expansion. It has been so since Mr. Butler announced his target of a doubled standard of living in 25 years, and the only priority we put above expansion in the ordinary field is the prevention of inflation, coupled with the achievement of a sound balance of payments. But I think we have to go a little more carefully since it is very easy to talk nonsense about expansion. It is easy to postulate an expansion which would lead us straight into Carey Street. You cannot talk simply in quantitative terms about expanding production without entering into a close discussion of what margin there is for expanding production, what qualitatively you are going to produce, where you are going to sell it and what you are going to get in return.

There seems to me to be some confusion about what growth really is. It is certainly not, as some people appear to think, pushing up demand so as to achieve the maximum ultilisation of all our productive resources, regardless of cost and efficiency in production. It is for this reason that, although I would count myself an expansionist, I have never wholly subscribed to what I can only call the growthmanship which is sweeping through the dry stubble of the economic underworld like a prairie fire, with this talk of league tables and a lot of other bunkum. It is no disrespect to a famous popular newspaper to say that I simply do not believe that the mere fact that on Saturday one prints ten more copies of the Daily Mirror or makes a couple of thousand more cigarette cartons makes anybody much better off, yet they undoubtedly enter into the figures of production.

Therefore, although I am an expansionist—and this is in answer to what the noble Lord, Lord Balfour of Inch-rye, was asking me—I should prefer to raise the banner of efficiency and progress rather than of growth as such. Like so many other desirable things in life, I believe that growth pursued primarily for its own sake and all round is quite capable of leading to disaster. As I say, my view is that it is efficiency rather than growth as such that I should wish to see this country pursue; and being by conviction an expansionist, I believe that if we do in fact achieve efficiency the other thing that matters in this field, desirable growth, will be added unto us.

But it seems to me that we have a very long way to go before we achieve the kind of efficiency we are looking for. It means a very great deal more than expenditure on capital plant, as one noble Lord pointed out by drawing attention to the figures for Norway. It may mean closing down obsolescent plant and freeing labour for more hopeful products. It may mean deliberately contracting the inefficient. It certainly will mean a very different outlook towards apprenticeship and it will mean, perhaps, that fewer industries than heretofore will be able to look to taxpayers' money by way of subsidy. It will mean fewer restrictive practices. It will mean more aggressive salesmanship, a more scientific study of markets and the requirement of the consumer. It will mean a spirit of restless dissatisfaction in management and a little more willingness to face change in organised labour. A cold wind is blowing to sweep away some of the comfortable assumptions of economic life in this country. It is a wind which will blow equally strongly whether we are in, or whether we are not in, the Common Market. Old ways, old techniques, old plants, inefficient designs will be blown away in it and by and large those who look to protection from Government rather than their own efficiency will be disappointed.

This final point leads me to say something about the O.E.C.D. report, to which reference has been made by many speakers in the course of this debate. In common with Lord Poole the most startling thing that I have found in the debates following on the Budget is the use put by Opposition speakers elsewhere and in this House of this report on the United Kingdom economy. As my noble friend Lord Melchett said, this seems to me to be an admirably lucid document. It accurately pinpoints the weaknesses of our economy; it diagnoses the fault and prescribes a definite remedy. The noble Viscount who leads the Opposition seems to me to have picked out from their context the phrases which pinpoint the weaknesses and to have ignored the diagnosis and the remedy; and he proceeded to draw a moral of his own which defies all the evidence and to prescribe a number of medicines which quite certainly would aggravate the complaint. With respect, this is partly due to the fact that the noble Viscount has unfortunately felt himself compelled to paint all the features of the situation black, and has been quite unwilling to take into account the favourable and hopeful features in the economic situation.

My Lords, quite rightly stressing the sluggishness of our rate of growth, the vulnerability of our balance of payments, it seems to me that noble Lords opposite ignore the fact that, despite these adverse factors we still maintain a higher standard of living than any of the countries which are held up as examples to us. The individual comparisons with Italy, France and Germany have often been exposed in debate, certainly by my noble friend behind me, and I myself dealt with these in the debate on the Queen's speech in November. These comparisons are inadequate, and Lord Melchett in particular pointed out the absurdity of the conclusion to which this childish reference to league tables really leads one. The truth is, as was pointed out by an honourable friend of mine in another place, Sir Alexander Spearman, that a true examination of the league tables, apart from other factors, shows two groups of countries: one broadly on the same scale as ours; and the other countries, like France, Germany, Italy, or even Greece, to whom quite different kinds of consideration really apply. I would go into those in greater detail if it had not been more fully done by my noble friends.

Our critics also ignore the added responsibilities which we bear: the difficulty, as Lord Poole said, of maintaining a world currency, of sustaining our Army in Germany, Government investment in underdeveloped countries, the inelasticity of our labour force, which cause many of our problems and make many others intractable. The Report is sound on these points, but it comes down to a fairly clear diagnosis and offers a prescription for action which is in essence the same as that of my right honourable friend the Chancellor of the Exchequer. I do not wish to quote extensively from the Report at this late hour, but it does say that the slowness of our rate of growth and the vulnerability of our balance of payments are both related to the slowness in the rate of growth in our exports, and this in turn is due to the pressure for higher money incomes which has been permanent in the United Kingdom over the period of the 1950's and has resulted in increases which cannot be absorbed without increases in unit costs. The remedy prescribed in the conclusions is almost precisely the opposite to that prescribed by the Labour Party to-day and elsewhere. It is not controls; it is not even a reduction in Government expenditure, although that may be for other reasons most desirable. It is not subsidies or incentives to export. It is not in the Socialist sense planning.

Since the primary aim must be to strengthen our balance of payments, it is considered "unlikely in 1962" that the Government will be able "to relax the measures now restraining the growth of internal demand." That was the conclusion of the Report to which reference has been made, and this is the role of my right honourable friend's Budget, which is under criticism to-day from those who have quoted the Report; and the criticisms which have been levelled at it—that it is irrelevant, dull and unimaginative—have been cast at my right honourable friend's head precisely because he has pursued the remedy which the Report recommends.

It is true, of course, that the Report goes on to say that this is not enough; that escape from the impasse of the alternation of restrictions with inflation and balance-of-payments difficulties could lie only in the achievement, as it says, of a steady and significant export rise as the major dynamic element in new economic growth. But it goes on to say that this rise in exports, demanded by the Report as the condition of escape from the impasse, is to be achieved "in the first place" by requiring that money incomes should henceforth rise no more than the growth of productivity over the economy as a whole"— in other words, my Lords, by the very policy of wage pause and wage restraint which has been so bitterly denounced, and not by the various quack gimmicks and panaceas being peddled from various quarters. My Lords, this policy is not, of course, part of the Budget, but it has been an essential complement to it. Therefore I wholly disagreed with the noble Lord, Lord Shackleton, when he said that the Budget and the Government did nothing to improve expansion. Of course, the wage pause has come to an end—successfully, as the Report emphasises. But a more lasting policy must succeed, and this, as offered by the Report, is the precise policy of wage restraint now being advocated by the Government. It says "Such a system will entail that the Government adopt a more positive attitude than in the past to the process of income determination".

My Lords, I am sorry to have had to speak at such length. I spoke, to begin with, about the diffuseness of this debate. But it is easy to state a fallacy in ten seconds, it is rather more difficult to unravel the fallaciousness of the argument, and I felt that I owed it to the House to deal with some of these criticisms at length. The House will forgive me if I have made a rather firm answer to some of the criticisms which have been made this afternoon. I think that they reflect public opinion accurately. Public opinion is sometimes right and it is sometimes wrong, but my feeling is that there are only two things wrong with the British at the present time. One is the growing chips on their shoulders which ought never to be there, and the other is their inveterate habit of self-deception. One of the most dangerous delusions the British people harbour at the present time is that the economic and spiritual malaise from which they are currently suffering is the fault of the Government, and that it can be cured by fiscal and political measures of the kind called "bold and imaginative—"preferably at other people's expense. My Lords, we are becoming a nation of bellyachers, and what the country needs at the present time is not an excuse for political gimmickries but a renewed sense of patriotism and individual responsibility. We shall not get that by peddling any changes in the Budget.

9.34 p.m.

VISCOUNT ALEXANDER OF HILLSBOROUGH

My Lords, we have had the type of oratory which is usual on such political occasions as we have been dealing with to-night. Much of it was sheer oratory, and, obviously, much of it had been prepared even before any speeches had been heard. Perhaps that is why at least half of my speech has not been answered. A charge has been made and no attempt even has been made to refute it. There is no need for me to start all over again, after that somewhat lengthy display of the noble and learned Viscount's natural oratory—and we always like to hear him speak. But I must say that I have never heard a more imperfect answer to the case which was submitted to be answered.

The only thing that remains to be said is this. I should like to thank, as we always do on such occasions, all who have taken part in the debate. There were speeches from the Government Benches, the Cross Benches, as well as from our side, and I am much obliged to all noble Lords. I am very grateful to my noble friends, and especially to the noble Baroness, Lady Wootton of Abinger, for the way in which she has wound up to-night. I should like to say this to the noble and learned Viscount about my colleague here: that she is perhaps one of the greatest economic brains in the country, but for many years now she has kept as far away from economics as possible because of her sociological urges to do something for the people. But I was so much in need of her services that she came in to wind up for me in the economic debate, and that is saying a very great thing. She is one of our great economists, and I expect that before very long I shall have her assistance again to refute some of the extraordinary things of which the noble and learned Viscount has made use to-night. In the meantime, I would thank everybody who has taken part in the debate and I ask leave to withdraw the Motion.

Motion for Papers, by leave, withdrawn.