FINANCE BILL

HL Deb 23 July 1963 vol 252 cc602-84

2.43 p.m.

Order of the Day for the Second Reading read.

THE MINISTER OF STATE FOR FOREIGN AFFAIRS (THE EARL OF DUNDEE)

My Lords, your Lordships are always obliged to discuss the Finance Bill under a number of disadvantages. We always have to take it at this time of the year when our business is apt to be congested, particularly, I think, in the present year.

SEVERAL NOBLE LORDS

Hear, hear!

THE EARL OF DUNDEE

By the time we discuss the Finance Bill not only is it very much out of date and every body has lost interest in it, but it is too soon to tell how the measures contained in the Bill are working. So, on the one hand, we are doing something which has no news value because everybody has discussed it in the Press and in another place till they are tired of it; and, on the other hand, we are not yet able to say whether its proposals have justified themselves or not. So in moving the Second Reading I shall try to be both short and factual about it.

The background of this Bill is the disappointing economic history of the second half of 1962, in which demand for our exports abroad and private investment at home both failed to expand as we had calculated that they would do and as they had seemed likely to do in the first half of the year. The reflationary measures, of which this Bill is the centrepiece, began last autumn. On the banking side the £233 million of special deposits which the banks had been required to furnish in order to restrict their credit activities was all paid back to them in three instalments ending in January. All Treasury restrictions on bank advances were removed, and at the beginning of this year the bank rate came down to 4 per cent., which is fairly low in comparison with what it had been for some time, although still high compared with what many of us used to be accustomed to long ago.

Another monetary measure was the special repayment of an extra £42 million of post-war credits; and on the fiscal side there was the reduction of purchase tax, first on cars and then on other durable articles of the 45 per cent. class, which cost the Exchequer £85 million. Then, in the field of investment, first there were the investment allowances of 30 per cent. for buildings and 15 per cent. for plant, which this Bill confirms retrospectively, with the purpose of encouraging a revival in private investment. In the field of public investment the present Chancellor of the Exchequer announced at that time an increase of £70 million in public expenditure, which has since been supplemented by a further extra amount of £135 million. That will bring the probable public investment expenditure in the current year up to a total of more than £2,200 million. Of the increase which has been authorised on account of the present economic situation within the last seven or eight months most has been allocated to electricity, to education (which we shall be discussing to-morrow), and to roads.

Then in the field of social security—that, of course, is not a subject which is directly related to the economic situation, but any kind of economic planning must take account of changes in the level of purchasing power caused by changes in social security in the spring of this year—pensions and other benefits were raised from the former figure of 57s. 6d. for a single person by 10s. to 67s. 6d. The total amount being distributed in the new benefits is an increase of £227 million, of which about 30 per cent. is represented by Exchequer contribution, the remainder being the employer-worker contribution. So that represents an increase in the purchasing power of £70 million. These measures—some extraneous to the Finance Bill and some retrospectively confirmed by it—must be all considered together with it.

As for the Budget itself, it is often said that my right honourable friend the Chancellor of the Exchequer is very lucky in being called upon to introduce his first Budget at a time when it is plainly desirable to pursue a policy of tax reduction rather than of tax increase, of stimulating rather than restricting the economy: in other words, a policy of doing what is popular rather than what is unpopular. But my right honourable friend, both before and after the introduction of the Finance Bill, has always declared that the principle which he is trying to follow is the cautious one of not doing so much one year that he may have to undo some of it next year.

Some of his critics have attacked him for not doing enough, but I think that most Parties and most organs of public opinion agree that, having regard to the present stage of the economy, the changes which he made in the Budget in this Finance Bill were about right in quantity and also rightly distributed. The principal remission, of course, was in income tax; not in the standard rate, but in adjusting the incidence of income tax, to the benefit of age relief, of small income relief, of marriage allowances and children's allowances. The remissions which were made under these headings amount to £186 million in the current year and £240 million in a full year, and they have the effect of exempting 3¾ million persons from income tax altogether.

My Lords, other measures to assist economic growth, besides those to increase purchasing power, and to guide it in the right direction were announced by my right honourable friend in his Budget. The unemployment problem, as I think most of us now agree, is not a problem which applies to the whole country. It is, to put it in a sentence, a problem of trying to redistribute industry to the relative advantage of Scotland, North-East England, Northern Ireland and, of course, the other development areas. The special measures which the Chancellor of the Exchequer took at the time of the Budget, in order to accelerate the movement of industry to these development areas were of two kinds—the new standard grants, which supplemented what had been done already under the Local Employment Act, and the free depreciation allowance.

The previous arrangement had been that the amount of grant or loan which a new industry could get depended on what the Board of Trade Committee thought of their special case. The Chancellor thought it would be more satisfactory that firms should know what they were entitled to get if they came to a development area. His proposal was that the grants should be 25 per cent. in respect of building and 10 per cent. in respect of plant and equipment. I think your Lordships will agree that by far the greater of the two proposals, and the one likely to have the greatest effect, was the free depreciation allowance, under which an industrialist coming to the special areas is allowed to choose the period over which he will write off the whole of his capital expenses. The effect of that is that he receives a 100 per cent. depreciation allowance plus a 30 per cent. investment allowance, so he need not pay one penny in taxation until he has written off the whole of his investment costs in setting up his factory, together with the ordinary 30 per cent. investment allowance.

It is too soon to say yet what effect this change is going to have, or to measure it in terms of factory space or numbers of people employed. But I can give your Lordships one figure: that since the Finance Bill was introduced there have been 270 firm applications to the Board of Trade for assistance under the Local Employment Act, which is just about five times the number of applications made in the corresponding period of last year. I think that that, so far as it goes, is encouraging.

am not going to say anything now about the other change of major importance in the Finance Bill—the abolition of Schedule A and the relief from payment of Schedule A tax of the owner-occupier's house—because that is a measure which I think many of your Lordships have always believed to be a good thing, whatever the economic conditions of the moment may be. It has no special relevance to our present economic problems. Nevertheless, I have no doubt that it will be fairly universally welcomed by your Lordships.

The total net amount of tax which my right honourable friend remitted in his Budget was £269 million. He would otherwise have had an estimated surplus next year of £179 million, which his tax remissions converted into an estimated deficit of £90 million above the line. As the amount to be borrowed below the line amounted to £597 million, that means that the estimated amount of public borrowing next year, below and above the line together, will be £687 million. That is not quite so much as the deficit which was deliberately estimated and provided for in 1959. But I will leave it to your Lordships to debate whether it is too much or too little to suit the particular problems of the moment.

The main theme of my right honourable friend in this Bill and in the measures associated with it, was his desire to assist the recommendation of the National Economic Development Council, of which he himself of course is Chairman, that we should aim at an economic growth of about 4 per cent. per year, which would have to be accompanied by increases in incomes of not more than 3½ per cent. That is the objective which my right honourable friend is trying to follow. He thinks it is capable of attainment. We all know what the difficulties are. He believes that the measures which he is proposing in this Bill are those which, so far as the Government are concerned, are best calculated to achieve fulfilment.

I think, my Lords, that the economic climate in Great Britain is almost as difficult to estimate as the weather. There are some countries where you can make your plans for a long time in advance, knowing pretty well what the weather is going to be like. You cannot do that here. I think there is some analogy between our economic climate and the weather, too, because there are so many uncertainties which affect our planning. Planning of course we must have. It has often been a word which has been used controversially. Of course every Government has an economic plan of some kind and, whether it is a Labour Government or a Conservative Government, it very often finds that the economic assumptions on which its plans for the next three years, five years, or even one year, are made, are completely upset by changes in conditions which were not foreseen at the time when the plan was made. But, my Lords, I will only try to give a very modest weather forecast, without suggesting that other factors may not come in to upset it, as they often do in any weather forecast.

So far as domestic consumption is concerned, that is going up. It will go up more, no doubt, when the full effect of the remissions of taxation in the Finance Bill accompanied by the increased social National Insurance benefits begin to take their full effect. Purchasing power is increasing. Wages have now reached the record average of £16 a week, which, even allowing for the inflationary processes from which we have suffered, represents a very large rise in the real standard of living.

BARONESS SUMMERSKILL

Not for women.

LORD SILKIN

Is that wages or earnings? It the noble Earl quoting average wages or average earnings?

THE EARL OF DUNDEE

Earnings.

EARL ALEXANDER OF HILLSBOROUGH

Including overtime?

THE EARL OF DUNDEE

Yes. They were higher than they were before; that is all that I am saying.

LORD CROOK

More overtime.

THE EARL OF DUNDEE

I am trying to point out only that they have gone up.

BARONESS SUMMERSKILL

I think the noble Earl should also mention that women get only £8.

THE EARL OF DUNDEE

I dare say they got only £7 10s. last year. The point is that all workers are getting a little more, on average, than they were getting before. As for investments, the information that the Board of Trade get front employers' associations and other industrial bodies indicates that the downward trend of private investment is beginning to flatten out, and there are indications that it will in time begin to rise. That is of course always a long-term matter, because people have to plan their investments a long time in advance.

As for our trade, exports have gone up to a marked extent. In the first quarter of 1960 they amounted to £949 million; in 1961 to £967 million; last year to £963 million; and, in the first quarter of this year, to £1,027 million—and, as your Lordships will have seen, the figure for June is a record figure of £335 million for the month, or £348 if you include re-exports. That figure is a good one, but do not let us be complacent about it. We may expect, I think, some increase in demand in North America, where measures are being taken to increase purchasing power; but, if you take our markets as a whole, they are not getting all that easier, and, in order to maintain and increase our exports, which is vital if we are to achieve our target of a 4 per cent. rise in annual production, we shall have to work very hard to eliminate waste, to increase efficiency, to reduce restrictive practices and, if we can, to bring down our costs.

As to the balance of payments, the position is better than it has been at any time since 1959. In the first quarter of this year, we had a favourable balance of £59 million. As for employment, that again is at a record figure. The recent reduction in unemployment since the hard winter is very much more than seasonal, and I am glad to see that it applies to the development areas as well as to the rest of the country. As for production itself, the present basic year is usually taken as 1958. If we take 1958 as 100, industrial production a year ago was 116. That is an increase of 4 per cent. in those four years; but, of course, it was not even. Most of it was in the first two years, 1959 and 1960, and very little in 1961 and 1962. In the winter of last year it went down until it got to 113 in January, the worst period of the snowstorm. Now it has gone up. In May of this year, the last month for which the figure is available, it was 118, which is two points higher than for the similar month a year ago. If we want to achieve our 4 per cent. target, we shall have to double that between now and this time next year; and, my Lords, the indications are that industrial production is continuing, and will continue, to rise. But we all know only too well on how many conditions that continued rise will depend.

THE EARL OF LONGFORD

My Lords, may I interrupt the noble Earl? Surely, we shall have to do much more than double it if we want to get a 4 per cent. rise over the five-year period which "Neddy" has in mind, because we are already so far behind.

THE EARL OF DUNDEE

We shall have to double it at least, in any event. The "Neddy" period, I think, began last year, did it not? We shall at any rate have to increase it. I am trying to give your Lordships the facts at the moment. It is 118 now.

THE EARL OF LONGFORD

I was trying to elaborate them.

THE EARL OF DUNDEE

I am sure the noble Earl will elaborate it when he speaks. We shall have at least to double it if we want to achieve the target, and the indications are that industrial production is going up and will probably continue to go up. But, as I was saying when the noble Earl interrupted, we know only too well on how many factors that may depend, both abroad and at home. Abroad there are the conditions under which our export trade has to be carried on. We cannot say yet how much success we and President Kennedy are going to have in our endeavours to get tariffs reduced in order that world trade may be increased. Neither can we know yet how successful we may be in persuading the international monetary authorities to pursue a policy of greater liquidity, which I think most Parties in this country are agreed is a desirable thing for the economic benefit of the world as a whole.

As for conditions at home, I need not tell your Lordships how uncertain we have always been since 1945 about wage-cost inflation. Everybody is agreed that we must try to have an incomes policy. Everybody is agreed that we cannot impose an incomes policy by Act of Parliament, by the force of law; that it must depend on the common sense and responsibility of everybody who is engaged in industry, All I can say about that is that the need for an incomes policy is being appreciated at least a little more widely now than it has been in the last ten or fifteen years.

With regard to this Bill, I would submit to your Lordships that, so far as the Government's part is concerned, this Bill and the measures accompanying it, with which my right honourable friend the Chancellor of the Exchequer has associated it, do represent—I will put it no higher than this, and the Chancellor himself always likes to put his policy in a cautious and modest way—a sound and well-conceived advance towards our common objective of more steady industrial growth, uninterrupted by inflation and by consequent restrictive measures. My Lords, I beg to move.

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

3.10 p.m.

EARL ALEXANDER OF HILLSBOROUGH

My Lords, the noble Earl has introduced his Motion for the Second Reading of this Finance Bill with his usual charm and courtesy, and we have listened with great interest to the points he has been making in defence of the measure itself. I myself take cover under his lucid explanation of the main principles of the Bill for thinking that it is not necessary for me in this speech to examine the Bill as a Bill, but rather that I should follow the example of my noble and lamented late friend Lord Pethick-Lawrence and devote myself on this particular occasion of the Second Reading of the Finance Bill to looking into the general economic situation of our country instead of making detailed criticisms of the clauses in the Finance Bill. Nevertheless, I should like to refer to one or two points which were made by the noble Earl, especially in the latter half of his speech.

We are all concerned about the figures of unemployment; and I am sure that every part of the House rejoiced when we learned of the latest reduction in one month of about 100,000 unemployed people. Certainly the figures for June, 1963, were 100,000 fewer than they were; but they are still 100,000 more than for the same month in the previous year. That, I think, must be one of the reasons why the noble Earl still expressed a little anxiety about that position. We are all glad on this side of the House that the Government recently in trying to deal with unemployment have devoted themselves, so far as I can see, to following out the ideas introduced by the Labour Party many years ago; these ideas envisaged a distribution of industry over a wider part of the country and the creation of special areas for which plans could be made and followed through for the purpose of relieving unemployment.

It is a matter of significance that the noble and learned Viscount the Leader of this House was chosen to be given his fifth concurrent Ministerial task: to bring plans to a conclusion for relieving unemployment in the North-East section of the country which is still very harassed by that problem. I cannot help commenting on this particular point that it seems a very long time now since a start was made to resolve a matter of such urgency as the relieving of special localised unemployment; and we have not yet had any real plans laid before us. There was a good deal of concern expressed the other day in another place about the long delay. I hope that the noble Earl may be able to bring this point to the notice of his colleagues and to see if he cannot get some earlier effort made in that direction.

My Lords, I must say that there are some features in the Bill that the noble Earl explained which give us pleasure. I think that on the whole, although it was criticised in some quarters, the decision to abolish Schedule "A" income tax on owner-occupied premises is a good thing. It will not provide all that saving to the owner. Of course, it is a tax relief, but some of the houseowners had better understand that they will not get special income tax relief when they carry out repairs to their houses. That is reasonable and just because it is a claim against tax, but I do not think that all houseowners realise that they will have to meet in full the bills for house repairs. On the whole, however, practically all will make a net gain and that is satisfactory.

Also welcome is the other lower income relief. But let us look at the general planning. We were highly delighted to hear the noble Earl say that, of course, any Government must have some plans and that they have to plan for the future. But in the past fifteen years we were regarded as quite idiotic because of our ideas of the necessity of having plans at all. And yet here we are, at the end of twelve years of Conservative Government, and they are saying, "Of course, we must have plans". The record of the Government proves that to be absolutely necessary. It is a pity they had not thought of some planning a little earlier.

With regard to the Budget which arises out of the Government's policies and the monetary matters to which the noble Earl has referred, I think it would be just as well to take a quick view of the budgetary position now as compared with the budgetary position when the Government took office in October, 1951. That is almost twelve years ago. The Government have been unchallenged in their majorities ever since, and yet we see this net result. The Budget this year, so far as I can make it out, if you add the additional expenditure likely to be incurred, may well turn out to be about £6,500 million or £6,600 million. The last financial year ended with about £6,300 million expenditure above and below the line. In 1951, the total of the Budget was £4,190 million. I think we are entitled, as ordinary Members of Parliament in either House or as electors in the constituencies, to ask what we have got or what we have gained from the Budget, which has risen from £4,190 million in 1951 to between £6,500 million and £6,600 million in 1963–64.

I am bound to say that if in the years before the war a Liberal Government showed a record such as this, the Conservatives would have shouted, "Turn out the wastrels!" And if it had been a Conservative Government in office with the same kind of Budget, the Liberals would also have been shouting, "Turn out the wastrels!" What has become of the great theories I used to learn from the political meetings I attended before the First World War? Here I used to learn my ideas of citizenship and of how it was absolutely necessary that a national Budget should be a good household budget. It should be balanced; the expenditure should be creative of power; it should lead us to security and safety. And there should be no waste anywhere. I think this present picture is a remarkable one. Everybody will say, "Of course this is one of the features of inflation." But who is responsible for the major part of the inflation? It cannot be the Opposition. The Government have to take the responsibility of inflation in their own Budget of housekeeping—and this Budget of between £6,500 million and £6,600 million wants some explanation.

The inflation comes from the demands from many quarters, but a lot of the demands have been created by the Government. There are demands for dealing with, say, the frightful crime of doping of race-horses which come from all over the country now; this is because the Government have made such a wide field in gambling investments and on the racecourses. So much greater is the number of people who now take gambling risks that there is a strong demand to deal with this awful crime of doping of race-horses. It is not the poor horses they are concerned about; it is whether or not they will have been robbed of what they hoped would be their winnings in gambling.

When we consider that one of the trends in our economic progress is the falling off in private investment, I wonder whether the Government recognise that that is partly due to the unprecedented growth in gambling. Yet they have put three aids to gambling on the Statute Book. The leaflet issued by the Council of Christian Churches shows that thousands of betting shops have been opened right throughout this country. The estimated cost of gambling investments (shall I call them?) is £870 million for this year, and it is envisaged that they will reach £1,000 million next year. Where does the money go? It certainly goes out of the pockets of the punters, because the punters nearly always lose. Where does it go? Does it go into private investment? I think that the noble Earl might give us a little enlightenment about that.

When we come to the actual contents of the Budget every year, there is always this emphasis on inflation. Away back in the years from 1945 to 1951 we had to deal with extraordinary circumstances. We were nearly bankrupt in 1945, I assure your Lordships. We were working on a six weeks' margin. Yet when we handed over to the Conservative Government, this country was in a stable position, with adequate Forces and a defence budget hundreds of millions of pounds less than the present budget for defence. Is there anybody who, comparing the two sets of circumstances, then and now, in international affairs and our commitments for our share in international defence, can say that we are now as well fitted to meet the situation as we were in 1951? We have now one-third of the Forces that we had then, but with a £350 million higher expenditure. That wants a lot of examination. Perhaps we can deal with this question in more detail when we debate the economy of the Forces. There will not be any time for it in this Parliamentary Session, because the only time allocated to us in this connection is for discussing the central reorganisation of defence. But there is a great deal at fault here.

Look at another way in which this gospel that the Tories have to remain year after year works out. They said, "Set the people free!" Free from what? From these wicked Socialist controls! But our controls worked for the benefit of the country. Where is the Tory expansion in production such as we produced under controls before 1951? Thanks to the work of the Labour Government, we were easily the first of the battered countries, who had suffered heavy bombing and enemy damage, to recover. We did it by controls, by repairing 3 million houses before we could build, by controlling materials and sites, by building first the factories which were most needed and re-tooling where it was needed first. We did it by controlled priorities. So that in 1951 this country, battered and bearing all the signs of the work of the enemy in 1945, had reached exports of 25 per cent. of the total trade of the country.

What can the Government show? All they can show now is a little improvement in the last three months. Of course we are pleased; we must all be pleased with blessings, however small. But at the end of last year we were down to an export trade of 15 per cent. of the trade of the country. In the last few months the figure has risen to vary between 15.2 and 15.6 per cent. But all these figures need the necessary adjustments that have to be made to Board of Trade figures. But this, of course, is a very serious and very difficult situation. It will be of great interest to us if we get some answers to these questions when the Government speaker comes to reply. I shall be particularly interested to hear the reply on gambling. About ten days ago, I noticed in the Daily Express a report of an interview with the Prime Minister, who did not seem to think that there was anything very wrong in the Government's being charged with having created a "Bingo State". I think that there is a great deal wrong with it. The Prime Minister said that if people did not play Bingo, they would play bridge, as they used to do—or Housey-Housey. But when you come to the figures, which now can be proved, and assert so much more readily they are an astonishing setback to the other campaign that we wage all the time to get people to try to save. We owe a great deal to the National Savings Movement. It has meant a good deal to the stability of our country after what we have passed through, and it is a great shame that it should be torn asunder by such an expansion of gambling as I have referred to just now.

I should like to say a few words about particular industries. In the course of his speech the noble Earl said that it was generally recognised that unemployment, bad as it has been in the last nine months, was mainly confined to certain districts. But that is not by any means always the case. One of the things that ought to be essential in the mind of the Government is looking after the changes that come, month after month, by actions taken within industry itself, without any control from the working side. It is true that nowadays they get better notice than they used to do, and sometimes better treatment if they are discharged. Let us take the modern platinum industry, now largely controlled, I believe, by American Tubes. What is happening there? The only one which was making a handsome profit in this country was the one employing 1,000 workers in the Potteries district. That is being closed down, and 1,000 workers being dismissed, to be handed over to new places they have got working in Wales. What are you doing for Stoke? What is happening here will go on happening, with the craze to-day for the big financier or the powerful company coming in with take-over bids, and the subsequent rearrangement of staff and the like being made. I hope that the Government will be able to tell us that they are keeping in mind all that side of planning in relation to growing unemployment in certain cases just as much as those particular, wider districts which have now been scheduled as if they were especially necessitous areas.

Then, may I have a look for a moment or two at some of the specific industries in the country? What would one take first? If we take them by size, first is agriculture. Agriculture has done a magnificent job in this country, during the war and since. If it were not for the actual constant rise in production, from a diminishing number of people employed on the land, and the fact that production of the farming industry has taken the place of £440 million to £450 million worth of imported food, we should have been in a very serious situation with our balance of payments. I should like to know a little more clearly than has yet been indicated by the Government what are their plans. Here we are now, at the beginning of a harvest, and the Government, according to the statement I listened to in another place yesterday by Mr. Soames the Minister, still have no guide price plan for either wheat or barley. Why not? That was not done last year, and in consequence there were some disastrous results. For if you allow undue competition at the start, it continues right through the year; instead of those who are holding their products, so that there should not be uneven marketing, getting the advantage in subsidy, they do not get it, because the prices are not there; and if they do get the prices the result is increased charges to the State by reason of the subsidy. That is a great pity.

Then let us look at the place that used to interest me so much as a boy and as a teenager. Although I lived in the South, I was always studying our propaganda and reports. To-day the textile industry, in Lancashire especially, is going through a dreadful time. When you look at the figures of the industry, you can see that in the days when I first used to understand statistics, back in 1913, we employed 650,000 people in the textile industry in Lancashire. This year we are employing 150,000, many of them on altogether different textures from the main cotton production that used to be theirs.

This situation has been pointed out to me as being inevitable, because of the large increase in commodities like terylene, which is an improved and better material to use for a good many of the things for which cotton was formerly used. But that is the situation. In 1913, Lancashire produced 8,000 million yards of cotton cloth; and of that total 7,000 million yards was exported, only one-eighth of the product being taken into the home market. The position now is that you produce 1,000 million yards, and you export 250 million yards. What a tremendous change that is! While some people say that that is inevitable, surely something much more effective could be done, especially if real attention were paid to the situation of the home market. Above all things, this industry, which was once the very battlefield of the cry for free trade, is now one of those industries that badly needs protection in its home market. That fact has not yet apparently come home with any great force to the Government. Some small changes have been made here and there, but, so far as I can see, action under the anti-dumping procedure seems to be exceedingly slight, and often quite ineffective. And still in this country, where we have such a magnificent market to go to, especially among our women folk, 30 per cent. of the whole requirements of our home market are imported from abroad, in an industry in which we are, I suppose, in quality, the master producers of the world. Cannot something be done about this textile industry?

I daresay that the same plea could be largely made with regard to woollen textile, as well as to cotton. I would add one other comment. I believe that, with commodities like cotton, there ought to be some measure of controlling imports by quota if it cannot be done by any other means; and there might be a differentiation in the quota allocated to a foreign country or to one in the Commonwealth—with, I hope, some tie-up of an exchange of trade in return.

I pass from textiles to engineering. That, of course, is largely dependent, for the main raw material, upon steel. What is the situation with regard to steel? This is the industry about which there was such a row in this House, when they insisted that we should have to leave our Bill over to the next Election before it became law, and which they immediately de-nationalised afterwards. Not only did they de-nationalise, but they made special choice, it seems to me, as to how the work should be distributed in steel among the private users. We remember the discussions that we had in this House over the £50 million loan to a steelworks on special preferential interest rates. What its the situation now? The situation now is that the industry is working to very little more than 70 per cent. capacity of the productive works which have been provided, not only through, first, private and then national owned industry, but also by the additional capitalisation since the present Government have been in office.

Our shipbuilding industry is in a very serious position indeed. It never had anything like the chance it had this time, after a great war. It was full of orders, and doing great work. Our output of shipping in our British building yards from 1945 to 1951 was truly remarkable. Yet during a similar period after the 1914–18 war came to a close there was disaster within a year or two, and the Government had to set up the National Shipping Securities Company to close down, finally and for ever, yard after yard. Now where are we? There was the plea yesterday from the great firm of Swan Hunter on the Tyne, through Mr. Hunter himself, that surely they ought to be able to get some help from the steel industry in this country in competing with the shipbuilding yards abroad. They ask that they should have a 25 per cent. reduction in the price of steel, saying that otherwise they must go abroad and buy foreign steel, or go out of business. What sort of planning have the Government in regard to a situation like that? That is the sort of thing upon which we require information, and we really want to know what is going on.

I come now to the question which has been debated (I need only just refer to it) in other circumstances and in special debates with regard to the building industry. The building industry suffered a severe setback by the winter, and the noble Earl is entitled to refer to the weather affecting economic conditions. But the building industry to-day is beginning to work up again. There are new demands for different payments and the like, but the situation in the country is surely almost farcical in some circumstances. I do not know whether your Lordships have had my experience in this, but as I go round the outer circles and the edge of the inner circles of London to-day I see great newly-built series of offices, completely empty, and they have been empty for some twelve months or more. These have got through the planning powers apparently, instead of flats being erected in those situations. They are, as I say, completely empty and wasted. I see houses going up and prices being asked which are simply fantastic. I looked at a little set of three houses built in a very nice residential road. They had two small bedrooms, a staircase going straight up, a bathroom, one good living room and the tiniest kitchen, and the price was £4,500. When one complained about the price, one was told: "That is much less than you would have to pay for, say, a 99 years' lease of a flat of the same accommodation."

You find that has a tremendous effect upon the price of land. Land prices to-day are simply fantastic. I hope on another occasion to reproduce what some of my colleagues—I think my noble friend Lord Silkin among them—produced twelve months or more ago, of some of the oustanding and remarkable increases which have taken place in land values. It is allowed to go on: there is no control: there is no legislation to deal with it. You let the big man go in, pay his money and then make his profit from the dissection of the land, which he has bought at a huge price, for an even far greater inflated price to those who have to make use of the land. That is bad for the economy, and bad all the way round.

I am looking at the clock, and I feel that perhaps I have been speaking too long. I want the other Members of the House to have a chance. There are many other things I wanted to say, but I say this to the Government. You had better clean up the gambling position; you had better get your planning down to brass tacks instead of talking about it and accomplishing nothing. You had better see that it is not possible to go on for ever in the circumstances of the Budget as I have referred to it having a "Stop-go, Stop-go" policy with prices and interest charges varying as they do. You are now handling your floating debt at a cost of over 6 per cent. for short-term borrowing. Even at this moment you have, according to my figures, in the middle of July, over £5,000 million of floating debt at 3.78 per cent. We were borrowing our floating debt at 10s. 6d. per cent. What has this eternal worship of the god of gold got to do with this maintenance of Conservatism in office? You really ought to have a look at these things and get your planning done, for at the moment my view of the Government is that, so far as they have any planning at all, it has been a miserable failure.

LORD FORBES

My Lords, before the noble Earl sits down, may I ask him this? He wanted to congratulate the Government on introducing planning for industry. May I ask the noble Earl whether he realises that there are various types of planning? Does he still hold to the view that industry should be sent to areas of high unemployment?

EARL ALEXANDER OF HILLSBOROUGH

Do I still hold the view, my Lords? Yes, I should think I do! We have never departed from the principle. I was complaining also that we were taking a long time and being long-winded about the plans for dealing with unemployment now in the special areas. As the noble Lord comes from Scotland, he must know that there are plans going on there. I am strongly in favour of them.

3.44 p.m.

LORD GRANTCHESTER

My Lords, the noble Earl, Lord Dundee, moved this Motion with great restraint and characteristic modesty, and we must all hope that the expectations he expressed will be realised. The noble Earl, Lord Alexander of Hillsborough, has made a number of points with which we on these Benches agree, and, if I may without immodesty, I should like to congratulate him on the orthodoxy of his remarks on national housekeeping, if not on the excessive belief he appears to have in the good a Government can do in intervention and the direction of industrial development.

Following the noble Earl's example, I should like to refer chiefly to a few general considerations rather than to the detailed clauses of this rather long Bill. The theme of the Budget, as we all know, was "expansion without inflation," a theme to which no one could take exception. This Finance Bill gives effect to the ideas of the Chancellor of the Exchequer on how the aim he proclaimed can be achieved. As noble Lords waded through these 70 clauses, I wonder what their feelings were? I am bound to say that the impression made on me was not very great. There are some useful and salutary changes, but I have found nothing very revolutionary, and except possibly for the encouragement of industry into certain designated areas I could not find that it contained much in the way of new ideas. I would not comment on this had not the theme of the Budget been proclaimed with the Parliamentary equivalent of a blast of trumpets. I gladly concede that it makes some reductions in taxation which it would be churlish not to welcome, as well as some complicated changes, as the noble Earl, Lord Alexander of Hillsborough, has said, which on balance do not amount to very much.

But we must judge this Bill on whether we feel it is likely to achieve its declared purpose, not just in the short term of a few months, but in the long term. I can understand that it is not unwelcome to the T.U.C. and to the Labour Party as a modest step forward along the road they have advocated, because the Chancellor appears to have accepted the expansion of production as a primary objective of Government policy. But I am afraid this does not convince me of his wisdom. True, not wishing to be thought to have thrown all sound principles to the wind, the Chancellor qualities his newly adopted primary aim with the words, "without inflation", and that is what I fear they may be—just words. I ask how much need those fear or worry about inflation who, in the conditions envisaged, can successfully demand an increase of wages proportionate to any increase in the cost of living? In the Long run, of course, they too will suffer from inflation, but the evil results are not immediate enough to be an effective deterrent if immediate loss can be avoided.

Of course, the real reason behind this emphasis on expansion is to lend colour to the idea that the Government can engineer an automatic increase of at least 3½ per cent, in earnings each year. Anyway, whatever may be intended, this is the impression that has been created. In my opinion, it is a dangerous impression to create. The impression may do great harm and obscure the need for adaptability and change if living standards are to be improved.

The creative forces in individual initiative on which standards really depend are very unpredictable. My Lords, I do not believe the proposition as it stands is true, and, even if it were, I think it is the wrong picture of life to present, at any rate at the moment, to the British public. Their thoughts are groping today after satisfaction and enjoyment, to learn for the sake of the new interest learning can give. I should like to see the Government sponsoring a television programme like the Italian programme "Never too Late to Learn". The public are feeling their way to derive pride even in a monotonous job accurately done and to enjoy more what is free in life; not always to be pushed around for greater effort, or even always to be enticed to greater effort; in fact, to be able to behave more as a normal free person. These are the aims to-day of the great mass of people in this country after attaining a reasonable standard of life.

Surely as we look at a basic industry, such as steel production, we must wonder where ever-increasing production, including not only economic production but prestige production in excess of present demand, may lead. It seems to have been forgotten during the days when there were shortages that demand for any product depends upon the willingness of consumers to use the product when other choices are open to them.

There is one section of this Bill to which I should like to draw attention, a section of which we, on these Benches, can approve without reserve. These are the clauses which make effective reductions mutually agreed to tariffs between this country and our EFTA partners. I believe the greatest and best contribution Government can make to expansion is by the removal of hampering restrictions upon trade and competition. Those who were inclined to disbelieve this old-fashioned Liberal thesis are showing a remarkable change of view these days as they witness an expansion of trade with every reduction of barriers upon the Continent. What is especially noticeable is that the expansion has gone ahead of the actual removal of the barriers, once the policy was assured.

May I, for a moment, return to the dangers of inflation? I believe inflation inevitably results when any Government spends more than it collects in taxes plus what it borrows in the open market. I believe also that a progressive scale of high taxation creates a dangerous inflationary atmosphere. So, if inflation is to be avoided, the limits within which Government can operate are fairly rigidly determined. If they go outside these limits, Nemesis will overtake them. In the past ten years the present Government have inflated the note issue by more than £1,000 million. True, this is not the only factor involved, but it is the easiest road for a Government to take when they depart from the strict rules I have mentioned as necessary to avoid inflation. Because of this, in spite of the technological advances and the increased efficiency in industry which should have brought down prices, the purchasing power of the pound over the past ten years has fallen by one-third. If, in pointing out these facts, I am accused of over-simplification, I would remind my accusers of the fact that the Germans, having had experience of the disaster which inflation brings, took care in their present Constitution to keep their Government within these strict rules, hence the very small increase in Germany of the consumer price index compared with the Very large increases in other European countries as well as in the United States.

I wonder whether there is a single noble Lord in this House who has not received, since the Budget, notice of some increase in charges. The letter usually reads: "We are reluctantly compelled to increase our charges …" for something or the other, and over a very short space of time this happens over almost everything. I will draw your Lordships' attention to one instance only, and I have chosen one in which private enterprise cannot be blamed and about which no letter of excuse was written. I have here two similar airline tickets (return tickets from London to Paris, in fact) one issued at the end of March last at £22 and the other issued in May at £24 9s.; an increase between March and May of 10 per cent. If that sort of increase is general, as, my Lords, I fear unfortunately it is, most of the shine of the Budget seems to be in process of wearing off already.

LORD FORBES

My Lords, is not that a seasonal increase by the airlines?

LORD GRANTCHESTER

I have no letter of excuse with it, so I do not know, but I have not known these fares to come down once they have gone up, and I think the noble Lord would be optimistic if he were to think they will come down in the autumn.

I do not know whether the Government pay any great attention to the reports of the Bank for International Settlements. The report issued last month calls in question the policy of expansionism as it is being practised in Europe, and advises that greater attention should be paid to the problems of cost inflation. I hope this advice from the Bank for International Settlements has not gone unnoticed by Her Majesty's Government.

My Lords, in these days "deficit" financing seems to be regarded as almost a virtue. If it can ever be justified it can only be, surely, in a period when reserves are high and can stand the strain. How nice it would be if we could really live for ever on a continually increasing overdraft! When it is put plainly like that in relation to the nation's accounts, it is passed off as being over-simplification. Inflation, as we know, imperils both individual freedom and democracy itself. This is the reason why some of us feel we must harp upon this danger when the Government almost surreptitiously—for the Orders laid on the Table are rarely, if ever, challenged in either House—puts into its Bank extra notes or issues bills to pay for what the nation is apparently not willing to pay or which it is led to believe it can get on "never, never" terms.

I will not weary your Lordships much longer. I feel I am speaking, at any rate in your Lordships' House to the converted. I wish that were true of many more outside this House. But I must ask one or two simple questions, if I may. We heard from a former Chancellor of the Exchequer, some fifteen months ago I think, that he had ordered an inquiry to discover what possible economies in expenditure could be made. He also, I believe, instituted an inquiry into the question of the reform of the whole structure of taxation. I would ask the Minister if these committees are still pursuing their studies or have they lost their way in the maze or been abandoned? The present Chancellor of the Exchequer mentioned a study bearing upon the possible harmonisation of methods of raising taxes in different countries in Europe, which I think is very desirable. When may we expect to hear more of this particular study?

Finally I should like to ask the Government to add another matter to be considered as a matter of urgency. It is the question of replacing the existing gold exchange standard by a generally acceptable standard independent of any currency and to which currencies, at least in countries seeking financial stability, could be related. A welcome return to a more traditional orthodoxy in this matter is very evident at the moment in most Continental countries, and agreement on this vital matter might make European unity a reality very much more quickly than any other action which could be taken. It is one subject in which I understand the French President and the French Government would welcome British co-operation. I therefore suggest that this is a matter of urgency and importance for this and other reasons and would like to ask the Minister to give the question careful consideration.

4.5 p.m.

LORD CHAMPION

My Lords, as I listened to the noble Lord, Lord Grantchester, I somehow felt that by some trick of the time machine we had slipped back into the last century. It seems to me that the remarks he made had more relevance to an age that is past, an age in which this country dominated world trade and was largely responsible for what went on in the world in that connection. But to-day we have to face conditions as we find them and try to mould them to the advantage of the British nation. I agree with Lord Grantchester that difficulties are brought about by some of our actions which bring about conditions of inflation. This can be disastrous to people with fixed incomes, and I should like very much to think that before long we shall find a way of securing full employment within our economy and at the same time avoid the evils of inflation. So far I do not think any country in the world has managed to achieve this; nevertheless it is our job to go on trying.

The noble Earl, Lord Dundee, was short and factual in his statement. I think it was none the worse for that. I contrast it with the speech of introduction that we heard from the noble and learned Viscount, Lord Hailsham, last year, which was a philosophical dissertation. The two speeches were widely contrasting in style, but both, I am sure, welcome to the House. The noble Earl told us the facts of the last half of the year 1962 were rather disturbing; but he held out, it seemed to me, a much more promising picture for the future. He seemed to suggest that things were getting better, and he told us that the present Chancellor was extremely lucky to be able to budget for less taxation and increasing prosperity. In this connection, I sincerely hope this is not a continuation of the "Stop-Go" policy which we have had continually throughout the period of the Tory Government since 1951, the policy of "Go" always leading up very shortly to the General Election, and the policy of "Stop" following that Election. This is not good for the country—it may be good for the Tory Party's Government but certainly it is not good for the country. I sincerely hope that that phase in the Conservative Government's management of its budgetary financial policies has passed, and that they will think for the country rather than for their particular political advantage.

I am not going into the economic history of the past twelve years; my noble Leader has done that out of his particular knowledge of events in the peirod 1945–50 and the subsequent years, and he has done it with a vigour that I could not possibly hope to match. In the corresponding debate of last year I ventured to suggest that there were three essentials for prosperity and for increasing the rate of our economic growth: one, a steady expansion of production, and a steady expansion of production of course really means in this connection an increase in productivity, for it is no good just increasing your production if that production flows only from the increasing number of men that are employed to secure it. Secondly, a fair distribution of the product of our industry, which I said must not only be fair but also he seen to be fair by all income receivers. Thirdly, there must be an incomes policy which will not price us out of the world's markets; and the noble Earl referred to this aspect of the task that we are facing in the future.

Of course, I do not claim the slightest originality for these three, what I call, essentials, for prosperity. Everyone, almost every speaker, I am sure, who has intervened in economic debates in your Lordships' House over the past very many years, has referred to them in one way or another. But that does not mean, unfortunately, that everyone—Government, management and trade unions—so completely accepts them and acts upon them that there is no need to refer to them again. I think we have to keep on hammering home these facts, these essentials, until they pass into our national consciousness and all responsible people act upon them. That means that Government must plan for their acceptance, management must act up to the great responsibilities which are theirs, and the trade unions must come to terms with the changed and ever changing environment within which they have to function.

If one tries to deal with these groups under their separate heads, it is not because they are separate always: they are intertwined, and each is dependent upon the others for the complete fulfilment of the contribution it may make to our national economic prosperity. If I start with the trade unions it certainly is not because there is any order of priority in these matters, but rather because it just happens to fit into the pattern of the speech I am trying to make. Mr. George Woodcock is quoted in an excellent broadsheet Trade Unions in a Changing Society, recently issued by P.E.P., as having said at the 1962 Trades Union Congress—and I quote: Structure, particularly in the Trade Union Movement is a function of purpose. We expect that we shall first of all in our inquiries inquire into trade union purpose and policy and ask ourselves: 'What are we here for?' When we know what we are here for, then we can talk about the kind of structure that will enable us to do what we are here for. We shall have also to keep in mind not simply the history of the British Trade Union Movement, but the fact that the British Trade Union Movement has reflected, and will always continue to reflect, in its structure and practices the circumstances of the time. We shall have to inquire into the circumstances of the times and see how far they have brought about conditions which require adaptations on the part of our unions. Those were wise words about the structure of the trade union movement. My only doubt about them is to be found in the sentence which ends with the words: the British Trade Union Movement has reflected, and will continue to reflect, in its structure and practices the circumstances of the times. I am a trade unionist of over fifty years' standing, initiated into a trade union in the days when we were struggling hard for recognition. We have all too often lagged behind the circumstances of the times and have been much too slow in the acceptance of a new idea of our purpose. All too often our answers to the problems have been to the problems of the past and not to the problems of the present and o fthe future. Somehow, we have just got to catch up. Inside the trade unions we have to realise this and struggle hard to catch up with the conditions and the circumstances of the times. We really must accept our share of the responsibility for increasing the size of the national cake. But, of course, we have at the same time to try to ensure that the portion of that cake that the workers get increases with an increase in its size.

When I say this, I must admit that I do not accept any suggestion that the existing pattern of the relative distribution of the cake among the various interests—dividends, rent, salary and wages—are fixed for all time. I certainly would not accept that. I feel, as I have always felt, that much too much in our society goes to those who do much too little for it. We, as the trade unions, must struggle to effect that distribution, but all the time remembering that just to distribute an existing cake is not enough: we have to do our level best to increase its size.

The trade unions remain—understandably so—most suspicious of the Government's policy on incomes. In connection with this debate I re-read the Government's White Paper Incomes Policy. The Next Step, practically the whole of which is devoted to wages policy, and only one paragraph, almost a fleeting reference, to profits and dividends. It seemed as though the whole emphasis of this was on: "How are we going to distribute that portion which is wages?", and little said about how the other portion of incomes, equally important in this regard, of profits and dividends shall be adjusted and how they shall be measured. I notice that in his speech the noble Earl talked about incomes policy, but never one word about any part of it other than that portion of it which deals with wages policy.

That is not good enough. Such an approach makes understandable the trade unions' refusal to participate in the work of the National Incomes Commission. But, having said that, I am bound to say that the time will come when the Trade Union Movement must accept its share of the responsibility for a wages policy within the wider aspect of an incomes policy as a whole. If it does not do it under this Government, it would have to do it under the next. I rather think we may have a little share in persuading the trade unions when the next Government comes along; but I can see in this Chamber that there are some people who doubt whether we shall form a Government after the next Election. I happen to be looking at one at the moment.

THE EARL OF LONGFORD

He must be the only one.

LORD CHAMPION

It is not quite true to say that he must be the only one; there are just a few others. But increasingly the trade unions must face up to reconciling the old protective functions with national economic objectives. It is not only a matter of wages, but also a matter of direct co-operation with managements in increasing productivity.

The next point that I want to try to make is that we must have managements in our industrial concerns which will face up to their vast responsibilities. I am sure that many of your Lordships will have done as I have over the week-end: read the Fielden Report on Engineering Design. As so many other investigations in a wider field have done, this Report highlights the fact that whilst management in some sections of engineering manufacture is exceptionally good, much too much of it is exceptionally bad. If, as I suggest, the trade unions have to catch up with the circumstances of the times, so, too, must the whole of British managements. The worst must catch up with the average and then go on to catch up with the best, and set a new world standard in this connection.

The impression left on me by that Report on existing management can be summed up in the simple sentence quoted from one of those who gave evidence. He said: Companies with traditional products tended to rest upon their laurels, and that it was more difficult to improve the design of a successful article than to develop a new one. Britain dares not rest upon her laurels. We have to struggle to live, and dependence on what served us well in the past will not necessarily get us through the years which lie ahead.

I daresay that most of your Lordships get monthly a publication called Italy Presents. I do, and I must admit that from time to time I am struck by the strides made by the Italians in eye-catching design. I know that eye-catching design is not the be-all and end-all of a product, but eye-catching design ought to be married to competence to do the job for which it is manufactured. The most esthetically pleasing teapot in the world is of no use if it dribbles, instead of pouring cleanly. Good design must be embodied in a machine which will do the work for which it is intended. If there is backwardness in design and in the application of research to our manufacturers, we must somehow persuade management to catch up. I believe, too, that we still have a long way to go in men-management techniques. In this field its share in the task of helping the trade unions in their adjustment to their new purpose is an important task, and, indeed, may well be a decisive one.

One of the severest criticisms of management is that the capital which is invested in industry is too little used. I was a shift-worker in my job, and I must admit that I hated it. I hated being out of circulation in the afternoon and evening when all the young fellows and girls I knew were out in the town, or in the park, or elsewhere; but it was my job. We dare not, I think, go on using our expensive machines, as we now do, on one shift a day for five days a week. A recent article on this subject said that many people these days have come to talk about much of our new equipment and new machines as being "one day a week" machines, a telling phrase—an exaggeration, of course, but often telling phrases are exaggerations. But despite our hatred of shift work (and we in this House ought to know something about it, as we do a little of it here; at least, we occasionally have a little splash at night work), and even if men do not like shift work, they will do it, provided that the incentives are right. And it is the job of management to co-operate with the trade unions in examining the effects and the economic use of capital which is invested in machinery.

The last of my headings is the function of Government in all this. The noble Viscount, Lord Hailsham, said on July 30, 1962, in our debate on the Finance Bill last year [OFFICIAL REPORT, Vol. 243, col. 6]: although luck, good or bad … enters vastly into almost every human enterprise, the more chancy the field of activity may be … the more important it is to reduce the element of chance in them by conscious and methodical forethought, consistent action, and realistic appraisal of the facts of the case. If that is planning, then I am, and have always beeen, a planner. I do not know whether the whole of the Government have been converted to a "conscious and methodical fore-thought" leading to planning and actions based upon it. I must admit that I am not, like Lord Grantchester, afraid of planning. I believe that the age has come when we cannot hope to achieve a reasonable degree of economic prosperity unless we do, consciously and deliberately, plan for an increase in production, while all the time struggling to avoid inflation.

LORD GRANTCHESTER

My Lords, I never said that I was against planning; because one always plans one's own business. The point is: whether one should plan someone else's business.

LORD CHAMPION

My Lords, this business of planning one's own business was a nineteenth century concept, and it had little relationship to the national economy as a whole. This just will not do to-day. We have to plan as a national concept; we have to plan for productivity; and, what is more, we must take such steps as lie in our power to ensure that this is carried out.

Our charge is that, if the Government have been so converted by the noble Viscount, Lord Hailsham, it is something like a deathbed repentance. In 1951 the Tories won Government on a policy of "setting the people free". Their policy has got us to the bottom of the Western countries' table in regard to average rate of investment and increase in exports, and next to the bottom of the table in regard to increase in industrial production and increase in prices. They have managed to do this in twelve years of government. France, whose position is in almost every respect better than ours (except in the matter of price increases), has achieved her position as a result of conscious, deliberate planning. She has been able, despite difficulties of changes in the economical climate, to which the noble Earl referred, really to plan for progress. The plan was started by its main architect, Jean Monnet, in 1946. France is now in the period of the fourth plan. Reading of the methods adopted in France's planning, one is struck by the fact that our N.E.D.C. is heavily indebted for its structure to the High Planning Council of France, and although we ought to have been working on similar lines to the French over the past twelve years all we can say of N.E.D.C. is that this first tentative approach to planning is better late than never.

What is the Government's policy task in all this? It seems to me that it must ensure, by its education policy, a supply of scientists, technologists, engineers and designers. That is not an easy task, for, clearly, pressures build up spasmodically with each succeeding report of our deficiencies. One day the whole stress is on scientists and technologists, and now I would imagine that, following the Fielden Report, pressures will be exerted on the Government in regard to engineers and designers. But it is the job of the Government to strike a balance in these conflicting claims. Education is required not only at the higher and more formal levels: it is badly needed also at the workers' level in regard to industrial training for required skills and re-training of redundant workers—and, unfortunately, redundancy is always an inevitable concomitant of a developing economy. We must try to do something about re-training redundant workers into new skilled and semi-skilled jobs, so that they can again take their place in building our prosperity. This means helping and co-operating with industry; it means providing the finance and the facilities. In this field the co-operation of the trade unions is, of course, vital. The Government's financial policies must be so adjusted as to make funds available for the essential projects. I am not sure that some of our taxation ought not to be deliberately penal upon those who will persist in using outworn and out-of-date equipment.

My Lords, the last point I would make in this connection (the noble Earl referred to this and said what we were doing) is that we must give every possible assistance for exports. Because, as "Neddy" points out, the one possible serious obstacle to a 4 per cent. annual growth is the danger of not getting a 5 per cent. annual increase in our exports. I was glad that the noble Earl placed emphasis on this point. That is all a hard task: it is a hard task for everyone concerned—trade unions, management, Government. It is a planning task, but I believe that it is the only way by which we can ensure prosperity and a continuing economic growth.

4.31 p.m.

LORD LUCAS OF CHILWORTH

My Lords, your Lordships' House must indeed be grateful to the noble Earl the Minister, who moved the Second Reading of this Finance Bill, for the modest and factual way in which he presented it to your Lordships, and for his review of the present economic position of the country as Her Majesty's Government see it. I was sorry that he brought in the current Treasury jargon—although I should perhaps have been disappointed if he had not done so—when he said that, of course, the Chancellor's policy is one of cautious and steady growth, with nothing spectacular to lead to inflation. I am a little more apprehensive than he is. I do not find the immediate future so encouraging as he does. The noble Earl is quite right: productivity is going up and less labour is required to obtain the same output. So we must increase still more the productivity of the country, to absorb the same amount of labour as we did before. That in itself represents, in my view, the challenge that is facing this Government.

The yardstick of the past will be useless for the future. We have to create more jobs; we have to create new jobs. And although the noble Earl quite rightly says that we have now brought the unemployment figure in this country down to under 500,000, there are still 167,000 fewer men employed in manufacturing industry than were employed in the same industry twelve months ago; and we have the winter to face. I would beg the Government, especially the noble Earl—although I do not think that in his reply he will be guilty of it—not to laugh off the danger, as the Government did two years ago, when we pointed out from all sides of the House that unemployment would reach terrific heights within six months' time. We then had one of the most sorry speeches from the Government spokesman, the Minister of State for the Board of Trade, that I have ever heard in your Lordships' House. I would beg of the Government not to think that this unemployment problem will not grow more difficult during the winter. And remember, my Lords, that in Scotland and the North of England unemployment is still 4 per cent.—and a stubborn 4 per cent., too.

That brings me to the point that the noble Earl, Lord Dundee, made about the Government's assistance to industry, and about these investment allowances. I remember that twelve months ago I pointed out in clear terms—and I think the noble Lord, Lord Stonham, who is sitting on the Opposition Front Bench adopted the same attitude—that, while I was not prepared to look a gift horse in the mouth, that gift horse was not a starter for a very long time ahead; and that is still true. I will come back to that point in a minute. I want to touch on a point made by the noble Earl the Leader of the Opposition; and, if he will permit me to say so, I thought he made one of the best speeches I have heard him make on economics for a long time. It was forceful; it was factual, and it contained a lot with which all sides of the House would have to agree.

I will come back to this point of what the Government have done with this special assistance for special areas. When I was in the Government I had experience in South Wales, and I have always viewed these panaceas for different areas with the greatest distrust. I would far sooner rely upon curing distress in special areas by the general uplift of the country's economy, than I would bring out things that look nice, like glossy pamphlets but from which the gloss soon wears off. If I take Scotland as an example, that has a stubborn 4 per cent. unemployment. It is useless to take some industries to Scotland. The labour in Scotland is a different type of labour; and, if your Lordships have been in the productive industries, as I have, you soon find that out. After all, the Clydeside shipyard worker is a splendid fellow at his job, but it is no good taking some very light industry there and thinking that the Clydeside worker is going to adapt himself to it.

I should like to ask the noble Earl, Lord Dundee, how much of this £30 million subsidy, or 5 per cent. loan, to the ship-using industry is going to find its way to the Clyde. I should like the noble Earl to tell the House—since I understand that the £30 million has all been applied for—to whom it is going, and what are the types of ships that are to be built. Is this £30 million going to help our real shipbuilding industries on the Clyde, the Tyne, and the Tees, or is it going into a lot of small ships, which may be very good but which will not help the basic problem of one of our principal shipbuilding areas—that is, the Clyde?

LORD STRATHCLYDE

My Lords, I wonder whether the noble Lord would permit me to interrupt for a moment. I am quite sure that he did not make the statement, in regard to a lack of adaptability on the part of the Clyde shipbuilders, without experience. Could he give us an idea of his experience which leads him lo that conclusion, because it is a new one to me?

LORD LUCAS OF CHILWORTH

Yes, I can. There are factories in an industry in which I served for quite a number of years, which have moved to Scotland and cannot get right into production, because in some of the productive processes they cannot get the proper labour, which is female labour. Because they cannot get the proper labour to do one thing in the productive chain, the whole production of the factory has been held up; and it is still not in full production. That is what I had in my mind when I said that.

LORD STRATHCLYDE

The noble Lord would surely agree with me that that is not a matter of adaptability. What the noble Lord has now said is that the proper type of labour, female labour, that is needed for these processes, is not available in the parts of the country to which he has applied.

LORD LUCAS OF CHILWORTH

That is what I said. I went on to say—and it is a truth—that the female labour, or any other labour that is available, is not suitable, and cannot be adapted to that process. One naturally follows the other.

LORD POLWARTH

My Lords, perhaps the noble Lord will allow me to ask him whether he would be a little more specific about the nature of this industry.

LORD LUCAS OF CHILWORTH

It is the motor industry. I am not going to mention names of firms, and things like that.

LORD GREENHILL

Not names of firms, but the type of industry.

LORD LUCAS OF CHILWORTH

I said an industry with which I have been connected for a number of years; and I thought that, after twenty years in your Lordships' House, I had been well and truly branded with the motor industry. I should not have thought that I would have to explain to which industry I was referring.

LORD GREENHILL

Not as a manufacturer.

LORD LUCAS OF CHILWORTH

As a manufacturer as well, yes.

Now I want to get back to this question of public investment. I believe that although public investment is growing, we are not getting the benefit as quickly as we should—and that was the point made by the noble Earl the Leader of the Opposition. I am going to cite the road programme as an example. Motor vehicles are coming on to the roads of this country faster than we are building roads. We are not even holding our own: we are slipping back. It has been said, I think, by the Minister, and it is a truth, that we cannot spend all the money that there is available for a road programme. The reason for that is because Government is ill-fitted to get that speed in the process of building roads which is necessary if industry is going in the future to have those conveyor lines that she so badly needs.

It is no good developing various areas of the country if you cannot get your roads built quickly enough. Here I can speak from personal experience. The circumlocutions, the procrastinations and the delay that there is from the time a road project is agreed to the time the road is opened for vehicular traffic are of staggering proportions. I think the Road Council said there are 39 steps or 39 hurdles which have to be overcome. There are two and a half miles of bypass not very far from my home that were put into a road programme fifteen years ago and which have not been completed yet. The complete circle, of which this is only a part, was put into the programme 35 years ago, and this is the last two and a half miles. The reason, my Lords, is that when you come to these big projects you have the Ministry of Transport, which is tied up with professional people, and you have a highway authority, again tied up with professional people, and they are all jiggling about with modifications and alterations to specifications right up to the time the last yard of tarmacadam has been rolled into place. All this costs a lot of money and takes years.

We just are not getting on with our roads quickly enough. I am not going to develop this theory this afternoon, although I shall at some future date, but I am myself convinced that the construction of our motor roads and our trunk roads must be taken right out of the hands of the Ministry of Transport and out of the hands of the highway authorities, and put under the control of a Roads Board. That is the only way we shall ever get roads built at a right price and within a reasonable space of time.

It is the same with all these other projects. The noble Viscount the Leader of the House, with all his dynamic enthusiasm, was sent to the North-East, and I should think he came back bubbling with ideas. As soon as he gets back, he is run off to Moscow. Now if your Lordships think any dynamic energy is going to be put into anything like that by the Board of Trade in his absence, you are greatly mistaken. And what happens in the meantime? While all this is going on, men are going hungry, and there is no one behind any of these projects who has got—I like to use the phrase—a hobnailed boot which he can plant in a proper place to see that the job is got on with. Our greatest growth industry to-day is the Civil Service—they multiplied themselves this last year by, I think, 34,000—all not attuned, as industrialists are, to get on with the job and see that it is brought to an end.

I come now to another point that I should like to mention—demand. Demand has not risen sufficiently. Again, I think the Government were wise to make these concessions in P.A.Y.E. tax; but there is not sufficient demand. If the Government have learned any lesson over this last twelve months, let them learn this: that the easiest thing in the world is to slow down an economy; the hardest thing in the world is to get it going again. And it is not going. I have canvassed opinion in the retail trade. The retail trade is not getting ahead as it should. Shops are not busy, in spite of what is said. The motor car industry did not have such a good month during June as it had in May. Do not think we are going to see this increase in demand until the economy is still more stimulated: we are living in a fool's paradise if we think so. We shall not get private investment into industry until the demand increases. People are not going to invest in equipment unless there is a demand for the goods they are going to make.

I should have thought all this was elementary, but it does not appear to strike Her Majesty's Government. So we get these phrases—"A cautious growth", and "One step enough for me". Time is not on the Government's side. I am not going to plead an Election cause for them. I do not know what the bookmakers in your Lordships' House or the gamblers referred to by the noble Earl would offer, what the betting would be, on the Government's winning the next Election; but if this unemployment is not cured or had substantial inroads made into it, and if the demand does not go up and the economy does not hum more than it does now, I should not give them more than a 100 to 1 chance—and I think, perhaps, that would be a pity. However, there it is.

My Lords, I want to talk also about exports. Twelve months ago, when we were debating the Finance Bill last time, we were all, or most of us were, agog at the prospect of joining the Common Market. We knew our task was going to be hard if we got into it. We also appreciated that it would be still harder if we did not get into it. We are not in it; but we do not seem to have the idea that our task is any harder to-day in the export markets of the world than it was five years ago. It is in fact very much harder. And as our exports increase our imports must increase; we cannot increase exports of finished manufactures unless we import the raw materials. It means that our exports have to go up far more than they are going up to-day. I beg the Government not to lose sight of the fact that one of the reasons why our exports are having a better showing in the markets of the world is that some of our competitors are now having their costs creeping up on them. In other words, we are increasing our exports by the difficulties of our competitors and not by our own virtues. Our main difficulty is that our prices are too high. One noble Lord—I think it was the noble Lord, Lord Champion—spoke about pricing ourselves out of markets. We have to produce more, and we shall not produce more exports until we have stimulated our home demand to make a substantial contribution to the covering of our manufacturing overhead costs. This is elementary to anybody who has been in business for a short space of time, and I hope that the noble Earl will take these facts into consideration.

My Lords, I should like to see one of the greatest deterrents to expansion in the Home Market removed, and that is purchase tax. Purchase tax is a bad tax. It influences manufacturing costs; the manufacturer does not have that proper control over his retail prices that he should have. I would far prefer a sales tax to a purchase tax. Purchase tax is an iniquitous tax.

One of the reasons why the Chancellor of the Exchequer could not take off purchase tax before Christmas was that it would have meant that the retail shops would lose something in the region of £20 million to £30 million because tax had been paid on the goods in stock. Purchase tax is paid at the wholesale level. That is a most silly thing; it is so artificial. If we had had a sales tax the only people who would have been affected would be the purchaser of the particular article on the particular day. The one reason why the Government will not make this change is that favourite thing, administrative convenience. If the Government want to stimulate the economy of this country then they must do away with purchase tax and give manufacturers a free hand.

I would now return to the question of the curtailment of the shipments of Argentine beef, and the blow that that action of the Government was to those British shipowners who had built refrigerated ships to the tune of something in the region of £40 million specifically for this trade. It will be remembered that I said that the shipments of Argentine chilled beef would be reduced for the last six months of this year to about 60,000 tons; whereas from 1957 to 1962 they had run at about 235,000 tons. This has involved the shippers of Argentine meat in a loss for this next six months of over £1 million in their earnings. At the same time as the Government do this they offer £30 million in loans for building more ships—when they have taken away the trade of the ships that were already built. If that is not crazy, I do not know what is. At the same time as this was being done they imported into this country 40,000 tons of Yugoslav beef. The result within two weeks of this being done was that the price of Argentine chilled beef went up to the housewife. Subsidies and deficiency payments of £40 million will be paid to the producer of home-produced beef. I have no complaint about that; but there will still be a meat shortage. My information is that the butchery trade say that, through this curtailment of the shipments of Argentine beef, prices will go up still more in the next six months. They have already gone up to 5s. 6d. a lb. for sirloin, and they are between 8s. and 8s. 6d. for a cut of steak. There will be a shortage of meat during this coming six months.

Here we have a Government increasing the inflationary spiral by creating shortages so that prices go higher. I ask the noble Earl what is the sense of that? At the same time a crippling blow is struck at one industry in this country which wants all the help it can get, the British shipping industry. I myself would have thought that British shipowners who have to ply their trade, especially in South American waters, have enough competition to put up with from the subsidies given by foreign owners, flag discrimination, et cetera, without their own Government entering the lists against them. This is an ill-thought-out policy. On this question of imported meat I have for years been advocating that there should be long-term contracts and bulk buying, so that everybody knows where they stand—the raiser, the British farmer, the British meat trade, the British shipper—

EARL ALEXANDER OF HILLSBOROUGH

My Lords, I hope the noble Lord will allow me to interrupt. I agree with the last point only in what the noble Lord has said. That is, I believe that there should be long-term contracts, but we should insist that there are deliveries from the Argentine within those contracts; because the British industry has been let down over and over again by the Argentine's falling down on their contracts. I do not quarrel with the Government for taking action, or in paying quite high subsidies for getting first-class British beef. They should not be interefered with in this way.

LORD LUCAS OF CHILWORTH

My Lords, the noble Earl and I see eye to eye on this. I would say that a contract is a thing that must be honoured; although, if one looks into it, one finds that the decline in shipments of Argentine beef was due mainly to strikes and floods out there. But the main point is that there are willing sellers of Argentine beef for shipment to this country, and there are willing buyers. There is a shortage of meat and the British producer cannot fill the gap; so the housewife has to pay higher prices. That is the main point I wish to make.

I have a suspicion that the noble Lord who is to follow me is going to talk about another aspect of retail trade, so I will not venture into that field now. But I am certain that there is one thing that must be repealed in this country before very long, and that is the Restrictive Trade Practices Act as regards resale price maintenance. Prices are too high to-day. All this stamp trading and all this coupon trading is just a protest by the ordinary man and woman in the street against the high prices they are asked to pay for many branded articles which have a resale price maintenance label attached to them.

I wish the Government well. I hope that their policy will succeed. I do not think that it will succeed quickly enough. Time is not on the Government's side. I would ask the Government seriously to stimulate demand before it is too late, because, whatever they do, it will take some time to filter through to the productive factories of the country. I certainly hope that we can look forward to a radical reduction in the rate of unemployment before the end of the year.

VISCOUNT MASSEREENE AND FERRARD

My Lords, may I point out that if one has long-term bulk buying contracts, one cannot take any advantage of a fall in world prices. Therefore the housewife would probably have to pay far more.

LORD LUCAS OF CHILWORTH

My Lords, of course one can. If the noble Lord had any experience of bulk buying on long-term he would appreciate that unless you are a complete idiot you take advantage of all that kind of thing. That is in your agreement. You do not bind yourself to buy goods at a settled price; you bind yourself to buy at market prices.

5.2 p.m.

LORD SAINSBURY

My Lords, I am not an economist, a financial expert or an industrialist, and I speak in this debate with a certain diffidence. But of one thing I can assure your Lordships: I shall not range over such a wide field as the noble Lord who last spoke. I shall not detain your Lordships long. I should like to confine my remarks to investment policy—perhaps not altogether an inappropriate subject as this is National Productivity Year and the right investment policy is decisive in raising productivity.

In certain quarters it seems almost taken for granted that all capital investment is good, but I think this is a view which does not stand up to close criticism. One should consider not only the volume of capital invested but also the effect of the investment on the progress of the economy—in other words, consider not only its volume, but also its quality and pattern. It is obvious that wrong investment decisions can be made for various reasons. For example, there may be a misjudgment of the market which leads to excess capacity. There may be wrong investment decisions because of technical misjudgment. There may be wrong investment decisions because the size of a manufacturing unit is too small in relation to economic production or its location is uneconomic in relation either on the one hand, to raw materials, and, on the other, to the marketing of the finished product.

Apart from wrong decisions by individual firms, whole industries can suffer the consequences of faulty investment decisions. Mr. Duncan Burn, a former industrial correspondent of The Times and now director of a new economic planning body set up by various firms in the electrical industry, has in lectures and articles enumerated several industries in which he suggests that there have been faulty investment decisions. Steel, coal, the motor car industry, British Railways and the nuclear energy programme are some of them. These examples, whether one accepts them or not, illustrate, I think, the vital importance from the national point of view of the right decisions in this field of capital investment.

It is an obvious truism that the industrial health of this country depends to a large extent on the speed at which technical advance becomes effective. If our competitive position is not to decline, change and the acceptance of new ideas is continuously necessary. We have to face the challenge of what some people describe as our Second Industrial Revolution—to get rid of obsolescent practices and to foster innovation. I am thinking not only of the application of automation, electronic controls and the use of computers. My noble friend Lord Champion has already referred to the Fielden Report on Engineering Design published last week. He has said how highly critical it is of British engineering and has quoted from the Report. I, too, would quote from that Report. They draw attention to the failure of particular sections of the British engineering industry to keep abreast of foreign competitors in redesigning their products to take advantage of advances in technology. Surely we cannot do this without the right sort of investment policy.

Government in the modern world plays a large part in economic decisions. As I am not an accountant, I should be loath to get involved in the subject of capital allowances, but I feel that there is an important difference between the replacement of a particular piece of worn-out equipment that has come to the end of its life-span with an identical article and, on the other hand, the replanning of production with new and technically more advanced plant or apparatus. Could not the tax system be used in some way to encourage this particular type of capital investment?

May I point out that the Tucker Committee and the Royal Commission upon the Taxation of Profits and Income suggested something similar—a greater discretion in the use of capital allowances? It would seem that all this points to a greater degree of planning and co-ordination of capital investment. Could not the task be entrusted to (to give it its full and dignified title) the National Economic Development Council. Obviously in this connection the part of N.E.D.C. would have to be considered and whether or not, in addition to producing reports on economic development, it should not be given some planning authority.

Opinions differ as to how much we can learn from France. The general planning authority in France, I understand, has special modernisation commissions to improve productivity and they have a very large influence on the pattern of capital investment. They have certainly served to concentrate public opinion on industries that ought to be growing as well as on industries that are declining. Few people, I think, would suggest that we should transplant the French planning system in its entirety to this country, but no doubt their methods are worthy of study.

What is important, obviously, is the pattern of relationship in future between the N.E.D.C. and the Government as a whole or individual Government Departments. The Economist in a recent issue, stated that the British Prime Minister does not at present have any central planning staff to help him. There is a case, they suggest, for making N.E.D.C. in some way responsible to the Prime Minister's office. Dr. Thomas Balogh, on the other hand, in his recent Fabian pamphlet, has called for a Ministry of Planning and Production, and suggests that the Treasury should concentrate on being a good Finance Ministry and not pretend to be anything else. Whatever the future holds concerning this relationship, in my view, unless the work of the National Economic Development Council leads to a more efficient and less wasteful use of our capital resources, and to greater technical advance, it will have failed in one of its major objectives.

5.11 p.m.

LORD BARNBY

My Lords, I am sure we have all enjoyed the address which the noble Lord has just made; it was thought-provoking and eloquent, and it confirms that the talents he has brought to this House have enriched our debating powers. The noble Earl, in presenting this Bill for our consideration, is certainly entitled to our admiration. He did it with his usual thoroughness; he was precise and clear and, in so far as these Bills in the main have been presented over the past twenty years or so, relatively brief. He certainly gave us a marshalled list of what has been done by the Government. But I, too, should like to say at this stage that I think we all ought to feel, as this is not a controversial Bill, in that our powers of amendment do not exist but our ability to criticise does, that the noble Earl the Leader of the Opposition was to-day in particularly good form. He presented his reasoning in such an engaging way that I must say I found myself falling in line with a great deal of what he said. There were two particular angles to which I attach that thinking. The first was that of the necessity for the Government to deal with the lower-Asiatic-wage imports, to which I shall refer later, and the other the increase of facilities for betting. It staggers one to think, when one sees it repeated in the Press, that at present £1,000 million a year is being turned over in betting. If your Lordships drive for ten miles outside Manchester you will see a betting shop about every half a mile. It is an astonishing thing. However, that is a small point.

This Bill, as I say, was presented by the noble Earl in a manner that caused him to give us a catalogue of what the Government have done. I suppose our main thought would be: what an astonishing thing that the move in the economy had not been greater! My noble friend Lord Lucas of Chilworth emphasised—in fact, his candour was most disturbing—that unless a great deal more was done the economy would not get going. But, as the noble Earl the Leader of the Opposition pointed out, we now have a Budget of £4,600 million; and the noble Earl, Lord Dundee, in moving the Second Reading of the Bill, told us that as a result of this Budget it would be necessary to find another £680 million. If we go much faster, where are we going to land?

The fact remains that the effect of all these measures up to date seems to have been very small. One would have hoped that this year the Finance Bill would be regarded as an instrument of policy. Since it succeeds our retraction from our flirtations for intimate associations with Europe, one might have thought that it would before now have resulted in an outline by the Government of some alternative policy. It might be multi-pronged but there are those, like myself, who feel that one prong might have been a more intimate association with the Commonwealth, and that there would have appeared a greater emphasis on Commonwealth trade. If I may say a word about Australia, one hears it said so often: "What is the good of trying to trade with the Dominions? They constantly raise their tariffs, or put on restrictions." But experience over the past forty years proves that as soon as our exports in one thing fall off, they are always replaced by exports of another character. So we ought not to take that argument seriously.

We now have "Neddy" to guide our steps. We must welcome its activities. But the Council's candour indicates that we have to do more than increase exports by 5 per cent. over the next few years to achieve the targets. The Economic Survey of Europe, published in 1962, states: It seems that in 1963 investment in manufacturing industry will slacken further in Western Europe as a whole. The turn in the balance-of-payments tide for the Common Market seems a warning. From 1955 to 1962 each year the external reserves of the Common Market rose by 2,000 million dollars per annum, or a total of 13,500 million dollars. Now the tide appears to be turning in a decisive fashion. This basic change in the fortunes of the Common Market has implications of considerable importance to the rest of the world. It may well be that accommodation between Russia and the United States will result from a recognition by Russia that she has an 8,000-mile frontier to defend between herself and China. We could be sitting in a fortunate position, uncommitted, with clear power of manœuvre, on the flank of this European Community whose fortunes from now on may deteriorate.

The next point to which I wish to draw attention (and the noble Earl the Leader of the Opposition explained this with great clarity) is the impact of imports from low-wage countries. This will compel statesmen at some point to recognise that more conscious discrimination by all Western standard countries will be necessary for some years to come. Inescapably it will be found that tariffs which were considered possible are inadequate. As the noble Earl said, quotas may be substituted if employment in the Western type receiving countries is to be conserved; and he added that we can count on the vigilance of the Opposition, in or out of office, to press it. Let us remember that the United States and Canada are glaring examples of the damage done by these imports from low-wage countries, and of the extent to which unemployment results and factories are progressively closed.

So far as the United Kingdom is concerned, I cannot do better than give one Illustration: and I quote an extract from the speech of the Chairman of Courtauld's. I am glad to see my noble friend Lord Eccles, who is a member of their board defending these interests, sitting in his place. The Chairman said: Britain's textile industry is suffering from imports of cotton piece goods and"— I emphasise the word "and"— made-up apparel from low-cost countries, which account for no less than 35 per cent. of our home consumption. This massive volume was serious enough, but even more serious are the low prices at which these goods are sold. Our interest compels us to recognise our dependence on the volume of activity of the United Kingdom textile industry as a whole. Obviously, he was emphasising the damage that can be done from a small quantity of extremely low-cost merchandise which puts the whole country into disarray and imperils the employment in those industries.

I turn to my next point, that of overseas loans. With the forward progress of emergent Colonies towards independence, there is a growing volume of loan commitments. The aggregate is becoming burdensome. Independence is the election of those countries; it is not proved that it is the desire of the British taxpayer. Yet it is the British taxpayer who will have to pay for and provide these loans. These, in the aggregate, with the loans to the underdeveloped countries, are massive. I will give one example. We have committed ourselves, I think, to some £30 million to Cyprus, which conies in under the Technical Co-operation Department, one part of the Civil Estimates. These things slip by in a remarkable manner: £20 million here, £5 million there, and £8 million somewhere else. They go on one after the other, and the taxpayer has to foot the Bill.

Questions in this House have brought out that, of £150 million of aid and subventions to overseas countries in 1962, only £40 million was tied. I urge that a much large proportion of these loans which we are being forced to give should be tied. We know how other countries tie their loans, and I cannot give a better example than that of the United States, who made a 40-year loan to Brazil free of interest. If that is not tying it, and an export incentive, I do not know what is. The American Bankers' Association at its last meeting urged that the United States should do much more of this. I would ask the noble Earl whether he can give some indication with regard to a commitment recently announced of a massive loan to India. Is that tied? Because in the Press at the same time we see notice of India seeking arms in Russia. Are our sterling loans to be used for the purchase of arms from Russia by India? I do not believe that that is what the taxpayer wants.

My next point refers to trade boycotts. We have read of the naïve childishness and petulant impracticability of the suggestions by some members of the Opposition that there should be a boycott with regard to South Africa. Surely, if dislike of the internal policies of overseas countries is to govern our foreign trade policies, then we can say farewell to the freedom of multilateral trade. In the case of South Africa, it will do little harm to them, but it could do a great deal of harm to us, with our £135 million-a-year exports to South Africa; with the privilege of an agreement which gives us Simonstown base in times of trouble. I wish that the noble Earl could have given more information than was obtained in this House quite recently. Supposing that, out of irritation, the Union Government decided to direct their consignments of gold to a destination other than London, surely that would have a disquieting effect on the position of sterling.

My next point is East-West trade—and I remember that the noble Earl the Leader of the Opposition touched on this quite strongly. If I might interject a personal reminiscence, it is some 34 years ago, I remember, that I first found myself, with him, in Moscow, beating up trade. We have urged trade with the Eastern-controlled economy countries ever since. We may all have noticed a powerful appeal by an impressive body of businessmen for an expansion of trade with the planned economy countries. This, anyhow, would appeal to the Opposition. It is topical now to talk of large numbers of people as a market. I suppose that the Eastern bloc would be upwards of 1,000 million people—quite different from the figures quoted for the E.E.C. Trade in this direction could undoubtedly be increased a good deal. I will quote from Mr. Chambers, the Chairman of I.C.I. He said: With regard to trading with the Soviet Union and, for that matter, with the other planned economy countries of Eastern Europe, my own view is the more we can trade normally with those countries, the greater the prospect of an easing of international tension. My Lords, why can we not deploy with vigour the vast purchasing power of Britain and buy less from non-Commonwealth countries with whom we have an adverse balance of trade? In connection with this I would appeal for still easier terms and longer periods for the E.C.G.D. credit facilities, to match what other countries do. After all, let us be candid: the casualty risk with the Communist countries has been very low. I urge that we trade more with Eastern countries, and that is the direction in which, surely, there should be additional opportunity of bringing about this urgently needed expansion of trade which "Neddy"' tells us must be not less than 5 per cent. to 6 per cent. per annum in the near future if we are to catch up. I conclude by quoting my right honourable friend the President of the Board of Trade, who said: The policy of expanding exports and restricting imports do not go together. My Lords, I support the Bill.

5.31 p.m.

LORD SHACKLETON

My Lords, I would very briefly agree with the speech of the noble Lord, Lord Barnby, who covered a wide and interesting field, but I will not be drawn into the question of South Africa. However, I should like to say that I listen with grave anxiety whenever there is a suggestion of restricting imports from low wage-cost countries. We all appreciate the danger that an excess of imports can have in the short run on a particular industry, but, at the same time, in the battle for rising living standards in the world any restrictions of a kind which I admit we have to have—for example, those with regard to imports of textiles from Hong Kong—must be used to the least possible extent rather than the greatest. We are not only handicapping those countries but may be handicapping even our own economic position. If, in fact, we are to achieve lower production costs we clearly cannot afford to throw away the advantages that certain cheaper imports may give us as opposed to more costly home-made manufactures.

I do not propose to develop this point further, beyond saying that clearly there is a moral aspect to this, which, I am sure the noble Lord would concede, we must bear in mind in the whole of our economic planning. It is an obligation on us to raise production not only for the sake of our own people but also for the two-thirds of the peoples of the world—a figure about which we hear so much that we are almost tired of it—who are living under conditions of poverty. I hope that the noble Lord will not think that I am wishing in any way to lecture him on the subject, but I do wish to make those particular points.

LORD BARNBY

My Lords, I am sure the noble Lord will not disagree that our thoughts must give more priority for our own workers than for the misfortunes of people in other countries.

LORD SHACKLETON

That is just the point on which I did not entirely agree with the noble Lord. I would say that that particular brand of self-interest which he is preaching is not an enlightened self-interest. That is what I am trying to convey. But there are clearly limits to what one can do. I should have thought that this is one of the issues which is becoming clear in the world to-day: we have responsibilities to people outside our own country. In the same way, morality within our country has changed in that no longer do some of the rich regard themselves as merely concerned with the welfare of their own families but to a greater extent they have accepted responsibilities to the community, and they pay their taxes more willingly than they used to.

LORD BARNBY

My Lords, I hope the noble Lord will forgive my interrupting again, but if our purse is limited, surely priority must be to our own people.

LORD SHACKLETON

I will not pursue this further. It may be that some other noble Lord will wish to pursue what is an interesting topic. I am only saying that the noble Lord is putting forward a view which I think is not only too narrow but may be positively harmful to our own people. I tried to deploy a number of arguments in economic terms as well as a wider international argument in favour of the welfare of the world, but I think we can leave the point, although it is one which would certainly be of interest to pursue further.

I should like to congratulate the noble Earl who introduced this Bill. We on this side of the House are apt to think that on occasion we are rather hard worked, but he was on the job all yesterday with the Television Bill till about half-past eleven, and he has had to open the debate to-day and will wind it up. He delivered his speech with clarity, though perhaps not with as much force as we might have expected. In any case, it would be too much to expect any other noble Lord, including most of us on this side of the House, to equal the vigour of my noble friend the Leader of the Opposition who, in my opinion, delivered one of the most vigorous of his many speeches and, if I may say so, one of the most effective condemnations of the Government's policy over the past few years.

I shall not follow the particular arguments he used, because I think they were very largely unanswerable and I think we are to-day in the presence of a repentant if rather exhausted sinner in the shape of the Government—but not the noble Earl, Lord Dundee. He admitted that the Government made a mistake last year, and said that the decline in demand and in trade was unexpected. As the noble Lord, Lord Lucas of Chilworth, said, it was not for want of numbers of us telling the Government what was going to happen. At least they admit their error, but they do not seem to be very sorry about it, and the outcome has been a good deal of suffering and hardship for people who, if the Government had not made this mistake, might have avoided these hardships. I do not think, therefore, that the somewhat easy complacency which the Government invariably show in economic debates is going to be very satisfactory to those of us who are observing their performance rather critically.

Along with the noble Lord, Lord Lucas of Chilworth, and other noble Lords, I fear that the Government are still making the same mistakes. Although they have now learned certain important economic lessons—and it is quite clear that the advent of the new Chancellor of the Exchequer has ushered in a new era, however much the Government may deny this—the fact is that they are still failing to expand demand in the way that their own National Economic Development Council would appear to suggest they should. It is quite evident (and I am sorry to have to refer again to the noble Lord, Lord Lucas of Chilworth, who mentioned this) from present trading—and I do not mean the long-term statistics of the Government but the actual monthly trading figures in the retail trade; the noble Lord, Lord Lucas of Chilworth, mentioned the motor trade—that demand is still not expanding fast enough.

While it is too low we shall not solve the problems of the developing areas. It is not going to be enough to attempt to solve them purely by regional solutions, especially using such blunt instruments as the Government have been using. My noble friend Lord Sainsbury in his very interesting speech also gave some evidence of the bluntness of these special allowances. The fact that the Government are now beginning to make a first tentative essay in regional planning, which they had always rather thought impossible, is something we should welcome; but it is not enough by itself. It is disappointing in a year when the National Economic Development Council has been beginning to get into its stride, when it has been setting out pretty clearly the sort of steps that should be taken, that the Government are so slow to act. I would say straight away that their lift to demand has been too slow, and the argument that if the Government are to avoid a "Stop-Go" policy they must be slow to put too much pressure on the accelerator in the early stages, plausible though it may be, does not alter the fact that they are not accelerating enough to get the economy going.

They have failed, furthermore, in this Finance Bill and Budget to make some of the changes in the tax system which would appear to be necessary. It has been argued that if they are to inject certain extra money into the economy they cannot afford to use that up purely in fiscal changes; but the urgency of relating our tax structure to the industrial needs and the general economic needs of the country is very urgent. I will not to-day go into the arguments on added value tax and other issues of a kind that have been referred to, but clearly they are ones which we shall have to face in relation to the needs of our export trade. The trouble is that we have an export system which is still too much geared to the administrative potentialities of collection and the Treasury approach (I am not attacking the Treasury) and not enough directly geared to our present national needs; and in this matter, as in others, we are not studying enough the experience of other countries, though there are signs that we are beginning to do so.

The Government are still—and I say this with goodwill to them, because, as I say, they are tired, and we cannot expect their repentance to take too visible forms too quickly—failing lamentably to put any vitality into the drive for "modernising Britain with the Conservatives". At this rate their "modernisation" will be almost a dirty word, because it shows no signs of real vitality or, indeed, of real meaning. We have had, for instance, their proposals for industrial training, and they were welcomed in this House, not with great enthusiasm but with a slight relief that the Government were aware of the need. But look again at what is being done in other countries with whom we are competing—and I do not wish to suggest that when we look abroad we find everything is better than in this country; I am merely looking at those things in which we are being passed by other people.

This is reported in the N.E.D.C. Report. Looking at what is being done in Sweden or even in the United States, we find that we are only tinkering with this problem. We have facilities for training 5,000 adults in this country. The number is 20,000 in Sweden, a country of about one-tenth of our population, or perhaps a little more. It is not without significance that in the N.E.D.C. book Conditions Favourable to Faster Growth, the first sections are concerned with education as well as with training. My noble friend Lord Longford will be introducing a debate to-morrow on education, and education is very much more closely related—and we must increasingly recognise this—not only to the provision of a happy life but to the economic progress of the country. I do not doubt there will be an opportunity to probe further the deficiencies in our educational system to-morrow.

Several of my noble friends have referred to the Fielden Report. I will not quote it, although it is something that ought to be quoted, and quoted again on every possible occasion. What is so disturbing is that this is not the first of such reports. We have had a whole series of sorry tales. We have had the story of the shipbuilding industry; we have had the story of machine tools—a whole series of reports which suggest that even in those sections of British industry which we hoped were technologically advanced and we hoped had good management there are large areas of really serious failure. It is unfortunate that in this matter the profit and loss account is not a sufficient sanction or sufficient guide to the ultimate efficiency of the particular industry.

It is against this background that we see the rather depressing figures that we have of exports. There are the comparative figures of productivity and earnings in manufacturing industries between 1953 and 1961. We see that on average the percentage increase in output per hour of the other main exporters has gone up by 4.5 per cent. per annum, as against 2.7 per cent. in this country. I realise that there are certain reasons for this; it is perfectly fair to admit they were coming up from a lower level. Earnings have gone up 6.4 per cent. against 5 per cent. in the other main exporters, and the wage costs per unit of output in this country have gone up 3.6 per cent. per annum against .5 per cent. in the other main exporting countries. Whatever the reasons for this are, it cannot go on.

My noble friend Lord Champion, in his very interesting speech, has made clear that we look forward to the day when there will be an effective incomes policy in this country. It is one of our criticisms of the Government that they have mishandled the introduction of a national incomes policy. But this is not the only aspect; it is the fact that there has been a failure in management, in development of technology. And here again these are from the Government's own reports. Among the reasons that we have a falling share in exports they give design, quality, delivery and salesmanship. This is the responsibility of management. We have talked often enough in this House in some interesting debates, when there has been a good measure of agreement between industry and our trade union colleagues in this House as to the need for better management. But when management in industry fails to put its own house in order, then I fear the Government must find a way to move in. This may mean much more pressure, much more direct influence of the kind that the Government have already been showing, using some pretty rough means in relation to certain industries, such as the aircraft manufacturing industry.

I will not develop this theme any further. I want to return once more to this problem of the level of demand and its relation to exports. I commented in our previous debate on the economic situation that one of the aspects of the new Chancellor's policy which I found most acceptable was his willingness to recognise that we could absorb, and indeed must run the risk of, a short-term deficit position; that with the improved international liquidity—and it is nothing like enough—with improved resources from the International Monetary Fund and by arrangements such as the ones we made with the United States, we must be prepared to face the risk. I would urge very strongly that the Government should press on faster with this idea.

Here again N.E.D.C. says—and I apologise for quoting, but I think that these are golden words for this country: While in the short run a rise in demand has tended to worsen the balance of payments, it need not put it into deficit. The important question is the level about which the balance of payments fluctuates, as the economy moves between higher and lower pressure of demand. In the long run if the economy has to run permanently at a higher, rather than a lower, level, the balance of payments will not necessarily suffer and may benefit if growth of productivity is thereby speeded up. They even go on to say: Studies made by the office lend little support to the opposite view that a higher pressure of demand discourages exports by attracting potential exports into the home market or driving away potential foreign customers. This has been the alibi the Government have used year after year as a reason for depressing demand. It has been urged that it is a wrong policy by the Trades Union Congress and by the Opposition. We hope now that the Government will accept this. It is only if we are prepared to press on with a higher level of demand that we can hope to get vitality into the economy. It is only in this way that we shall get industry to be bolder. We appreciate that there may be dangers if trade is too easy, but we do not want to see a situation in which we must have import controls, and so on. But if we accept, as the Government do, the target set by the N.E.D.C., then, as many noble Lords have already said, we must get a move on a great deal harder than we have done so far. Whereas the Government may no longer be committing blunders of the same order as in the past—a matter to which my noble friend Lord Alexander of Hillsborough referred so forcefully—they are still capable of failing to do the right things.

We are asking for a multiple attack. We want, furthermore, a different and more flexible tax policy. I would again draw attention to the fact that the N.E.D.C. have themselves suggested that a wealth tax may have a place in a growth policy. We want intelligent and not blind regional planning. We may have to face direct intervention in industry. This is a difficult thing to achieve, and I hope that no noble Lord will seek to interpret this as a threat by the Opposition to start nationalising industry. That is not what we are seeking to do. But we have to face up to the lessons of the Fielden Report and other Reports; we have to get more dynamism in industry. And we shall have got that dynamism when we have a dynamic Government.

5.53 p.m.

LORD WALSTON

My Lords, I am tempted to intervene in this debate only as the result of some figures I came across this morning as I was glancing through some Government statistics. But before talking about those I should like briefly to refer to some of the remarks of the noble Lord, Lord Barnby, and of my noble friend Lord Shackleton. The noble Lord, Lord Barnby, rightly mentioned the importance of expanding world trade, and spoke of the need or the desirability of extending trade to Communist countries. But shortly before that, to my surprise and dismay, he spoke of the need for curtailing world trade—or so I thought—by keeping out the products of countries with a low-wage structure. He also made certain strictures about the aid that we in this country give to the underdeveloped countries.

All I would do on that point (I do not wish to develop it at any length, because it would take far too long) is to underline, or recall to your Lordships' attention, some pertinent and wise remarks made by the noble Earl, Lord Dundee, on a previous occasion when we had such a debate, concerning the drop in commodity prices throughout the world. I have not his actual words in front of me, but my recollection is that he pointed out to your Lordships that the drop in commodity prices over the past five years, I think, far more than outweighed all the aid which we and other countries had given to the developing countries during that period. That brings us, I believe, to the inescapable conclusion that if we genuinely wish to expand world trade—as I believe we all do—we must increase the purchasing power of the poorest sections of the world. That is quite apart from any political reason; any reasons of social justice; any question of the fight against Communism, and the rest of it. And it goes without saying that if the gap between the rich countries, which comprise mainly the Western countries, and the poor countries, which are the underdeveloped countries, continues to increase, naturally there is a happy breeding ground for Communism.

But setting aside that argument and the argument of social justice, and dealing purely with the question of finding increased markets for our own products, it is inescapable that we must be sure that those countries which so desperately want what we produce—I am not talking of this country alone, but of the West as a whole, including the United States—whether it is surplus food or whether it is our manufactured products, must have the means with which to buy it, in addition to the means for capital investment; and that can come, in the first instance, only if we pay there more for what they produce. I believe that in this view I have an ally certainly in the noble Earl, Lord Dundee, and I believe also in many of your Lordships in all parts of the House.

The other point that I should like briefly to make is one which, so far as I know, has not yet been touched upon in this debate. As I, and other noble Lords, have said before, we wish to increase our output; we wish to sell that increased output. But it is not sufficient simply to give the potential buyers more money; we must also reduce our own costs, or at least hold our own costs steady. Other noble Lords who have spoken, including in particular my noble friend Lord Champion, have suggested means by which that can be done. But one of the main factors in our production costs is wages; and wages are, to a large extent, determined by the cost of living.

Looking through some of the figures this morning in the Government statistics, I came across a fact which I am sure is well known to your Lordships, but which had escaped my attention. It is contained in the Economic Survey for 1962. It shows, in assessing the cost of living, that the cost of food accounts for 31½9 per cent. of the total of the items taken into account in the statistics of the cost of living. The cost of rent and house maintenance accounts for 10½2 per cent. In other words, slightly over 42 per cent. of the esential ingredients of the cost of living are taken up by food, rent and house maintenance in general. That is a pretty large proportion. Surely, if we could find some way, if not of reducing these costs, at least of holding them steady, we should have gone a long way to holding our wages steady, improving our export position, and holding the whole cost of living steady.

I then looked at some other figures from the White Paper on National Income and Expenditure in 1962. At page 23, table 20 is a most interesting table. It shows the relative rises in costs between the various items of consumer expenditure between the years 1951 and 1961. I think it is of considerable significance that those two items I have already mentioned—food, and rent and house maintenance—are the two which have shown the greatest percentage rise during that period. Food has shown a percentage rise of 40 per cent.; and housing, rents, rates, water charges, maintenance repairs and improvements by occupiers has shown a rise of 65 per cent. On the other hand, other items, taken as they are listed here, show smaller rises. Alcoholic drinks have gone up only by 5.4 per cent., clothing 8.4 per cent., furniture and floor coverings, 19 per cent., and other household goods, 14 per cent. So we have a situation where the relatively unimportant things in the cost of living, and therefore in wages, and therefore in cost of production, have risen, one can say within bounds, whereas the two items which now account for very nearly half the total cost of living have risen by 40 and 65 per cent. respectively.

I turn now (and I do so hesitantly, in view of the fact that I am sitting next to my noble friend Lord Sainsbury, who has different views on this subject) to the vexed question of what is loosely called retail margins, though it embraces a much wider sphere than simply the retail margins in dealing with the gap between the price the producer receives and what the consumer pays. As I have said, the cost of all food has gone up 40 per cent. in that period. Unfortunately I have not been able to obtain figures of primary producer prices from 1951, but the rise in regard to the cost of food has been relatively steady during that ten-year period, so I do not think that it matters greatly that the figures I have been able to get run only from 1955.

In the case of New Zealand butter, between 1955 and 1961 there has, in fact, been a drop of 30 per cent. in producer price; in the case of Canadian wheat, a drop of 7½ per cent.; in the case of home-produced wheat, a drop of 15 per cent. In other words, at the time when the retail cost of food to the housewife has been increasing steadily at the rate of 4 per cent. per annum, there has been a drop in the price received by the producer. I want to make it quite clear that I am not throwing about accusations of profiteering by middle-men. I do not know whether they have been profiteerine, any more than I know (apart from the spectacular headline news we have been reading lately) whether on the housing front, where there has been an enormous rise in costs, there has been profiteering. Throughout the general property market I do not know whether there has been undue profiteering. But what undoubtedly has happened during this period is that there has been an ever-growing margin between the cost of the raw material and the cost of the finished product. And I believe that this calls for a serious study on the part of the Government.

At the moment we are completely blind about this subject. All we know is that there seems to be some form of Parkinson's Law that applies to food no less than to employment in business and in Government offices. This law seems to be: the greater the affluence of a society the greater is the amount that they are prepared to spend on the processing (in its widest sense) of the food they consume. Whether it is that they wish to do so; whether it is that for some reason or another it is forced upon them; whether it is because there is greater affluence on the buyers' side and, to take the case of bread, a lower price for wheat on the producers' side, so that the millers feel they can enrich their bread with some more expensive ingredients and can process it in a more refined way which costs more and which can be passed on to the consumer, I do not know. If that is so, whether they are in fact giving the consumer something he wants and is willingly going to pay for, or whether they are foisting on to the consumer, because of their own forms of competition, something he would well be without, I do not know either. But it is significant that if in this country one wishes to save some money and say, "I will not have a milkman deliver my milk at home, but will go and buy the bottle in the dairy myself" one will still have to pay the same amount as if the milkman had brought it to one's doorstep. In other words, there is no incentive at all to the consumer to reduce the margin. That must have a considerable effect on the whole of our national economy.

EARL ALEXANDER OF HILLSBOROUGH

My Lords, may I interrupt my noble friend for a moment? The point he has raised is of very great interest. It ought to be referred to the Council over which the noble Baroness. Lady Elliot of Harwood, presides, and I hope that it will be gone into. But I feel in the case of bread that you must stick to your attack based on the millers. In the case of milk there is a public examination of the whole of the costs of milk, both in production and in distribution, and the margin is fixed at a level. In the case of bread the habits of women have so changed that some of them like to go to the corner shop to pick up their bread, and some—not all—get it more cheaply. It does net matter how much the cost has decreased to the miller, it costs the man who has to serve women, who tell him "I must have my bread delivered at the door: I have young children; I have a job to go to, and cannot find time to collect it," over 2½d per loaf to deliver it; and there is nothing like the reasonable profit there ought to be to the distributor. There is great interest in this matter, and I think it ought to be examined in detail by the Consumer Council.

LORD BARNBY

My Lords, if the noble Baroness is going to look into the case of bread, would it not be appropriate at the same time for efforts to be made to educate people into the wider use of brown bread, with the offal in it, instead of their using white bread with its deleterious effects?

LORD WALSTON

I am extremely interested in both the intervention of my noble friend and that of the noble Lord, Lord Barnby. I will not follow Lord Barnby into nutritional values; I think that is ranging a little wide of a Finance Bill debate. But I would support my noble Leader in what he has said, particularly speaking as somebody who, many years ago, was, in fact, a retailer of milk, in the most literal sense of taking milk round to the doorsteps at 6 o'clock in the morning. I well know not only the unpleasantness of the job, but the considerable cost involved in doing it. I emphasise once more that I am not casting aspersions on any one aspect of the processing or distributing food trade. All I am trying to do is to put across to the Government that we have certain facts before us.

The first fact is that wages depend to a large extent on the cost of living. The second fact is that food and rent between them, account for nearly 50 per cent. of the cost of living. The third fact is that in the last ten years food and rent have both risen, "percentagewise", more than any other of the ingredients of the cost of living. The fourth fact is that in general, world food prices and home food prices to the producer have been coming down. Those are the facts with which we are faced.

I suggest to the Government very strongly, as my noble Leader has done in his intervention, that in view of all these things it is absolutely essential that we should devote at least as much attention to discovering the reasons for these facts, and what underlies them, as to all the techniques of production, salesmanship, research in industry, education, and all the rest of it. All those are essential factors, and we do not find out enough about them. I believe that a relatively small amount of investigation, mainly of a statistical kind, with an inquiry into what has happened in the last ten years to account for these undisputed figures, would give very valuable information—information which might eventually lead to a reduction, a slowing down, of this ever-widening margin which plays such a large part in the rising costs of living and in the pressure of wages. I believe, my Lords, that with that basic information we could at last begin to make an attack upon this spiral which is having such a disastrous effect on our own economy and export prospects. I hope that we shall have a sympathetic response from the noble Earl to that suggestion.

6.10 p.m.

LORD POLWARTH

My Lords, my first duty is to apologise to the two noble Earls who opened this debate for my inability, owing to inescapable outside commitments, to be here to listen. At this late hour I do not propose to enter the wider fields of the economic and political scene, which have been so very thoroughly explored by the other noble Lords who have spoken. I certainly do not intend to follow up the discussion on comparative nutritional values or the shopping habits of our housewives. This is, after all, the Second Reading of the Finance Bill and it is to certain provisions of this Bill, with one or two minor digressions, that I propose to confine my remarks.

The provisions regarding direct taxation must, I am sure, be welcome to practically all of us. We must welcome the reliefs given at the lower end of the income tax scale, and in particular the complete removal from the taxation net of a large number of individuals of comparatively small incomes to whom this relief is of the greatest importance. Few of us, I think, will lament the passing of those anachronisms, Schedule "B" and the land tax—certainly few of us in the accountancy profession—or of Schedule "A". It is an indication of the appalling complexity of our tax code that to abolish these taxes and replace them with something more logical requires no fewer than nineteen clauses and, I believe, seven Schedules. I only hope that the Revenue will produce a plain man's guide to the new provisions. There will, of course, be a very great saving of work, not only for those who have been bedevilled by the preparation of maintenance claims to prove that they are not in fact liable to this tax at all. The removal of the many taxpayers from Pay As You Earn should mean a substantially less administrative burden, not only for the Government but for employers who carry gratuitously such a large amount of this work.

The reduction on stamp duties on the transfer of investments is particularly welcome in the City of London and in many other places, and, whatever one's political beliefs may be, will surely lead to the greater prestige of that institution and its greater use as one of the greatest centres of finance in the world. I think it is a pity that the Government did not go the whole way and remove the tax entirely. After all, the cost of collecting 1 per cent. stamp duty is just as great as in collecting 2 per cent. I only hope that they will go further in the next Bill. Desirable as all these amendments are, it is above all for Chapter III of Part II regarding capital allowances that I welcome the Bill. In Clause 38 history has been made. For the first time we have had acceptance by the Treasury of the principle of the variation of tax rates on a regional basis, with the object of encouraging the better distribution of industry throughout the country. That, my Lords, is something historic.

This problem of high local unemployment has been debated in your Lordships' House several times in the past year, particularly during last winter when the figures were so high. For the time being, that problem is not so much in the limelight. It has been obscured by the seasonal improvement in employment figures, and by some undoubted improvement in the underlying state of the economy. But it is a long-term problem, none the less, and I think it is now widely recognised that it can be solved only by much more active and sustained measures than those of the past to stimulate industrial growth.

Here, although he is not present, I am afraid that I must take issue with the noble Lord, Lord Lucas of Chilworth, because if his remarks go reported and unopposed I think they could do very grievous harm. First, he took the view that the solution for helping these areas of persistent unemployment lay not in local measures but in the general improvement of the state of the country's economy. Of course, we all want to see a general improvement in the country's economy, but past experience has always shown that when this takes place the areas of high unemployment are like the sands at the head of a tidal estuary: when the tide comes in they are covered and concealed, but when the tide goes out they are the first to be revealed again. And time and again this has happened.

What we must do is to change the structure of industry in those parts of the country, and already some of us have had quite a lot of success. The noble Lord, Lord Lucas of Chilworth, talked of the stubborn figure of 4 per cent. unemployment in some of these areas. True enough; but figures can be not only stubborn but misleading. These figures mask a very big change in the basic employment situation. There has been a big run-down in the older industries of which those parts of the country still have such a large share. But there has been a very big addition of new and developing industries, even if not sufficient to catch up. I must take issue with the noble Lord, too, on the inability of labour in those parts of the country to adapt itself to the techniques of these new industries. Since he has mentioned the name of Clydeside, which has been much maligned in the past, I must make it clear that this is very far from being the case, and that in making these statements he is doing a grave disservice to those parts of the country.

I apologise to the noble Lord in his absence for not appreciating his connection with the motor industry. I was certainly not aware that he was connected with any of the three motor manufacturing companies established in Scotland. One of these companies has been there for some half a century and, so far as I know, has no problems over suitability of labour. The other two have gone there and started operations within only the last eighteen months. They do, of course, have their problems, as one can only expect. Production line workers cannot be trained overnight. But the Scottish managers of both those companies have told me themselves that they have no doubt that in time the labour will be suitable and produce as efficiently there as anywhere else.

On Clydeside former shipbuilders are now working on the construction of aircraft engines, to take one example, and on a wide variety of other light industry. In Fife the wives and daughters of coal-miners are working, to take one example, on electronic equipment of high precision for an American company, who have said that within three weeks of starting work these girls were producing as high a standard of productivity as those back in their native California. So, my Lords, I must emphatically refute suggestions that the workers in these older industries cannot adapt themselves to the conditions of the new. What we must do is to show that the new industries can flourish, and indeed they will, given the initial stimulus to plant themselves in these parts of the country. I believe that this policy which the Government are pursuing is the right one, in meeting and helping these companies to overcome the initial difficulties of setting up.

For a long time past some of us have urged the need for some differential tax arrangements as part of this process, and now we have acceptance of the principle so far as the depreciation allowances are concerned. I would emphasise that these are not just a give-away to industry. They are merely an advancement in time of benefits which they would ultimately enjoy. To that extent they are not a gift, but an undoubted easing of the problem of financing these new developments at a minimum cost to the country. This new departure is only one part of a major revolution in Government thinking on this whole problem of spreading industry.

In the past, those of us who have been concerned with it have maintained that the grants and loans available to industry have been inadequate and not sufficiently defined. I said in a debate earlier this year that if we want to get industry to go to these areas we must offer a carrot, not merely a stick. It must be a juicy carrot. And, what is more, we must show the donkey the carrot and not hide it under our coat. Along with the Finance Bill, we have had an Amendment of the Local Employment Act. Now we can have grants of 10 per cent. of the cost of new plant and equipment, and of 25 per cent. of the cost of new factory building. This, I think, is a very great improvement; and, despite the time we have waited for these changes, I should like to congratulate and thank the Government for having had this change of heart.

We now have the tools for the job of attracting new industry to these areas. We know precisely, or much more precisely, what they consist of, and we have all got to make the best possible use of them. All in all, I believe they add up to a most attractive deal for the industrialist who is prepared to consider these parts of the country, and it is up to the Government to give the widest possible publicity to them, both here and abroad. For our part, in the voluntary organisations connected with the development of industry, we too will do our best within the limits of our own resources. From the Scottish Council, we have already had a preliminary reconnaissance of the United States, where I believe there is still a large untapped source of new industry. There is interest there in the possibilities of coming to this country, but I regret to say a great deal of misunderstanding about our economic future resulting from the breakdown of the Brussels talks. That is another matter to which I think the Government must give great consideration in order to correct these misunderstandings abroad. If the atmosphere continues favourable, and if the Administration in the United States do not place too many obstacles in the way of investment abroad, I shall certainly go there myself later this year to pursue the search.

My Lords, the other thing that is vital is that we should ensure that these measures continue and are not revoked as soon as employment conditions pick up, as has so often happened in the past. The Government must also avoid hasty action which could aggravate problems of particular places and industry. I am thinking at the moment of the recent announcement for altering the mark-up in the jute prices, which, however necessary it may have been at some time and in some way, was, I consider, most ineptly handled by the Government Department concerned.

There are still major deficiencies in policy, particularly in the definition of the districts where these advantages can be applied. They are still too closely related to bare unemployment figures in a particular area; they ignore the natural geographical grouping; and they ignore the problem of travelling to work. People travel to work over much longer distances than they did. There is one particular instance that stands out in Scotland. Grangemouth is a large complex of chemical and petro-chemical industry. Grangemouth itself is not a development district. Many extensions and additions to the chemical industry in Scotland could logically be made only in conjunction with that which is already there because of the supply of resources. Yet no grants or aid are available, merely because the town itself is not a development district, although much of the surrounding "travel to work" area is eligible. That is something which I think must be looked at, and I sincerely ask the Government to do so.

My Lords, in this Bill and in these other measures that I have mentioned the Government have taken a bold new step in tackling the problem of local unemployment and the distribution of industry. No steps of whatever kind will solve these problems overnight. I ask the Government not to go back on them, and the Opposition not to damn them until they have had time to show their worth.

6.25 p.m.

THE EARL OF LONGFORD

My Lords, we have listened with much interest to the expert observations of the noble Lord, Lord Polwarth. All accountants are eminent, and some, particularly Scottish accountants, are more eminent than others. I think that we on this side would be bound to dissent from his view that the Government are doing something quite novel in overcoming local unemployment. I remember staying in Durham before the war and visiting some of the worst areas there, where you saw men with faces like paper and legs like sticks. All that was cured; and I should have thought, perhaps, that the noble Lord would have in recollection the initiative taken by the late Lord Dalton and his colleagues in curing heavy unemployment in those areas. I was rather surprised at his treating this attempt by the Government, to which we wish all success, as something novel in our history. However, I must leave the noble Earl to answer him.

I join the noble Lord, Lord Shackleton, in paying tribute to the noble Earl, Lord Dundee—a most faithful and acceptable servant of the Government and also, if I may say so, of the House. I do not think the noble Lord, Lord Shackleton, mentioned this, but an additional burden has fallen on the shoulders of the noble Earl, Lord Dundee, in the form of the reply to-morrow night to the debate I am opening on Education. The fact that I am opening that debate—and, I am afraid, not with any marked brevity—gives me a reason, which the House will rapidly appreciate, for not standing too long between your Lordships and the noble Earl.

I think that everybody was stirred—certainly that is true of everybody whose demeanour I could observe and to whom I have spoken—by the speech of my noble Leader, the noble Earl, Lord Alexander of Hillsborough, and I am anxious at the end to say a word or two in support of one of his main themes. The speeches of the noble Lord, Lord Shackleton, the noble Lord, Lord Walston, and the noble Lord, Lord Champion, were all extremely knowledgeable in their different ways, but I would say they were united in one respect particularly. Whether dealing with income policies here or with our responsibilities to the impoverished peoples of the earth, they showed that same moral approach. Indeed, they were applying the same moral ideas in their own ways as were enunciated by the noble Earl, Lord Alexander of Hillsborough. But I am sure that those noble Lords that I have mentioned will allow me to single out for special, if respectful, praise the speech of the noble Lord, Lord Sainsbury. It is one of the extraordinary things about this House that it contains some of the most eminent business leaders in the country. I thought of reading out their names, and then realised that to read out the names of Peers whom one has not warned might be contrary to good behaviour, so I will not mention them. But if one took the twenty best known leaders of industry, I think you would find that more than half of them were Members of this House.

But where are they now? It is not quite true to imply that they do not come here: to be fair, they do come here quite a lot. They come to listen, I suppose, in a spirit of humility and anxious to learn: and they are in fact popular and esteemed members of our society. But one thing they do not do is to speak, or if they do speak it is not on economics. This is a curious fact, and perhaps the sociologists can explain it, but it is undoubtedly true. At one time I thought it was because they regarded the House of Lords as a big platform for small men and a small platform for big men, but that is perhaps unfair to them. It may be that they go everywhere with their public relations officers, and that as they cannot bring a public relations officer in here they would feel lost. But, as I say, there is the fact that we have as Members some of the greatest economic leaders of this country, but they do not come to give us the benefit of their views. This is a subject, in a slightly different context, which I know has interested the noble Lord, Lord Ogmore, in the past. But here we have the noble Lord, Lord Sainsbury, one of the most successful businessmen in this country, speaking in this way, and a great treat it was.

The noble Earl, Lord Dundee, made so charming and so modest a speech that it certainly does not fall to me to become involved with him in violent controversy. We are at any rate nominally discussing the Finance Bill. But I think we shall probably all share the view laid down with authority by the Chancellor of the Exchequer in another place on June 28, on the Third Reading of the Finance Bill. He said [OFFICIAL REPORT, Commons, Vol. 679 (No. 136), col. 1846]: It is, of course, too soon to see any of the effects of this Finance Bill because, broadly speaking, none of the release of purchasing power involved has begun to take effect. I do not think that the noble Earl, Lord Dundee, claimed that this Finance Bill has begun to bring about any changes; but it is worth recalling that at this stage, while it is useful to have a debate, it must be regarded as too early to see what effect the Bill has said. Therefore, I will not become involved in discussion of the particular measures.

Nor, in view of the very thorough and concise treatment of the progress of the economy in the last few months by the noble Lord, Lord Shackleton, and the account given us by the noble Earl, need I say much about that aspect. We are, of course glad—as was my noble Leader—to see that progress has been made. Some people have thought that during the last few months we had no Government at all; everybody was wondering whether there would be a different Prime Minister. But I do not think the Government have done much worse under those conditions than before, when it was obvious who was running it. But perhaps there is a lesson in that. On the whole, in the last few months progress has been better than at other moments, but it has not been anything very sensational. We are reminded that the index of production is hardly higher than it was in 1961. So we are not going to get very excited; though, to be fair to the noble Earl, he did not ask us to be all that enthusiastic. All I need remark at this point is to repeat a point that I tried to make in an intervention: that we have a lot of leeway to make up if the N.E.D.C. target to be achieved between 1962 and 1966 is to be caught sight of. We must not think in terms of a 4 per cent. increase in production; we need something much faster.

To turn to the wider themes of the Budget, I would recall something said in the debate in April, when, in the absence of the noble Earl, Lord Alexander of Hillsborough, I spoke at great length. Something was said on that occasion by the noble Lord, Lord Eccles, in a speech which interested me still more when I read it than when I heard it—probably because I had not taken it all in. The noble Lord—who is, after all, one of the leading authorities in the Conservative Party on finance—said [OFFICIAL REPORT, Vol. 248 (No. 70) col. 1041] that Mr. Maudling told the House of Commons that … the choice is between having neither expansion nor an incomes policy, and having them both together; and he said he had decided that the best way to get both was to put expansion first. That is a novel and bold decision … That is the view of the noble Lord, Lord Eccles. He said he had decided to go along with expansion, and hoped and believed that an income policy would be achieved along with it.

The noble Lord, Lord Champion, pointed out that an incomes policy requires sacrifices all round, and we are not within sight of one at the present time. But I would agree with the noble Lord, Lord Eccles, that a new note was struck by the present Chancellor of the Exchequer in the spring, and the question is whether he and his colleagues will stick to expansion or planning when he runs into difficulties. I do not suppose that they will be given very long to face this problem; but we must ask ourselves (and the country is entitled to ask itself the question in the near future): Will they stick to planning and will they stick to its expansion? I am bound to say that I do not think they will stick to planning and expansion unless they realise, in the words of the noble Lord, Lord Eccles, that this was a "novel and bold decision". If they do the same as they always do, then we can be sure that when they run into difficulties they will seek cover.

I should like in this connection to make one reference to the City. I know that same noble Lords read the Financial Times, and the House may have read the article by "Lombard" in the issue of Wednesday, June 17. I cannot read it all, although it is instructive and amusing; but it suggests (and the writer is not some crack-brained Left-Wing revolutionary; the article is written in a rather satirical way) that the interests of the City might find themselves in conflict with the interests of the nation. This view has been expressed by some leaders on my side and has been at once denounced as dangerous. This is a satirical report and is called "The Bank of England Report as it might have been." One passage reads: The Bank can now see that it may have been misguided to attach so much importance to promoting the U.K.'s international banker functions as against other priorities in the past. It regrets in particular that the dear money excesses it has indulged in to this end have left the balance of payments painfully vulnerable to changes in international interest rates.… Any one who reads this article will see there are many, apart from the Left-Wing politicians, who consider this to be one of the great questions that affect the other issue I raised earlier—whether, when difficulties arise, we shall stick to planning and expansion or run away as on previous occasions.

Now, my Lords, I will say just a few words on the City and then I shall sit down. As I have said before in this House, the City is composed of perfectly ordinary British citizens, as patriotic and unselfish as others, neither more so nor less so. They are in financial matters, compared with others, experts. But they are biased; and the trouble is they know they are experts, but they do not know they are biased. That is a psychological difficulty. I do not want to single out the City in this way as the only experts who are also biased. I can take the universities: they are expert about university problems and they are also biased. Some years ago in this House I suggested that the Minister of Education should be made responsible for the universities, but I was promptly howled down and told never to show my face again in any reputable university. However, opinion is moving in that direction now; but you do get these reactions, these vested outlooks, even in high-minded quarters. I am not attacking the City; but they are biased and one must not necessarily accept their views as total wisdom where finance is concerned. I am sure that when the Labour Party come into power they will seek and will attain good relations with the City. They will adopt an unprovocative approach. But I am also quite sure that the Labour Party would make a great mistake if they did not realise that the City know a lot about finance but only a part of the truth. Once that is recognised on both sides, everything will be able to go forward in harmony.

Finally, I will say one word on the moral issue. It is very difficult, speaking from any Party posture, to strike the right moral note. It is so easy to imply that either oneself or one's colleagues are, in a personal sense, more moral than others. That is certainly not the intention here. I am certainly not implying that in private life or political life, in one's personal conduct, one claims some higher standard; but I say that in the Labour Party we believe that the basic principles of Christian morals can be applied to political policies. And I do not believe that that proposition means anything at all to the great majority of Conservatives.

That is why I so strongly support my noble friend Lord Alexander of Hillsborough. With all our imperfections—and, Heaven knows!, they are not only manifest but multitudinous—we are trying to apply morality; and on the other side there is the view that we must not interfere. Take, for example, the debate yesterday in another place. In the last resort, noble Lords opposite say that we cannot aim directly at moral good in many of the matters where we believe that we can aim directly at moral good. For that reason, I believe that the strong lead that my noble friend has given to-day will go out to the country as the attitude of our Party. I can say all the more unashamedly to the noble Earl opposite, because I know that his personal standards are high, that it would be dishonest and cowardly of me not to make it plain.

6.41 p.m.

THE EARL OF DUNDEE

My Lords, I think that probably the fact that under our Constitution since 1911 we are not allowed to reject the Finance Bill has the effect of making our debates on it much more interesting and perhaps much more intelligent, because we are not trying to decide whether the Bill shall pass or not. We are using the Second Reading of the Bill merely as an opportunity to put forward a number of propositions and theories, some of them critical of the Government, some of them not so critical, some interesting, some less interesting, but to all of which I have been delighted to listen this afternoon. I hope that I shall not take too long in making a few comments on some of the things that have been said.

The noble Earl the Leader of the Opposition spoke a good deal about gambling. It so happens that I am not fond of gambling; it is not one of the sins to which I am inclined. Therefore, I naturally do not feel indignant when I hear somebody else condemn it. But I think the noble Earl, Lord Longford, will agree with me that gambling is morally wrong only if one spends more than one can afford to lose, thereby preventing oneself from fulfilling one's obligations to other people, such as to one's wife and family; but gambling within one's means is something which is not wrong.

THE EARL OF LONGFORD

My Lords, I should think that that was so, up to a point. It is wrong to gamble where you encourage other people to gamble beyond their means. That is the case with a lot of well-to-do people, who encourage this dreadful way of life among young men who cannot afford it.

THE EARL OF DUNDEE

My Lords, I was going to refer to the Chancellor's speech about this. He spoke a good deal about the desirability of making a review of the whole field of gambling. He has asked the Customs and Excise to study it and give him a report on the practical problems involved.

He concluded by saying that when the Customs and Excise have compiled a register of all gaming institutions, including in this the often very profitable machines known as "one-armed bandits"—whatever that may mean—he will be in a better position to discharge the practical proposition of dealing with gambling, as part of a comprehensive approach to taxation of the whole field of gambling. Your Lordships will find this important speech in the OFFICIAL REPORT of the House of Commons for April 3, and it fills about two columns. I think it is clear that my right honourable friend, if he finds it practicable and useful to do so, is in favour of taking this step.

The noble Earl, Lord Alexander of Hillsborough, went on to give a most interesting account—and I enjoyed it not less because I have heard him speak in the same vein before—of the Government of which he was so distinguished a member from 1945 to 1951. He argued from that that controls and measures to ensure right priorities are better than the economic policy which has been pursued by successive Governments in the late 'fifties and early 'sixties. I should like to say that I am not—and I do not think anyone in the Party to which I belong or in the Government is—against physical controls in principle. There are many of them which we support. We introduced a great many controls in agricultural marketing before the war, under which, for the general benefit of agriculture, people were prevented from doing what they wanted. One control which we firmly adhere to, in spite of some criticism, is the control of industrial development certificates, under which no factory is allowed to expand without the consent of the Board of Trade. We use this control in order to induce factory-owners to go to or expand in development areas, in order to bring about a better distribution of industry.

The reason why we do not go in at present for a system of control of building, as the noble Earl and his Government did, by licence and allocation of the supplies of materials to manufacturers in order that the people who need them most may get first priority, is because that kind of control is necessary in conditions of extreme scarcity. It was undoubtedly necessary in the conditions of great scarcity which continued for a few years after the war, but I think that the Government of which the noble Earl was a member was always anxious to reduce some of them as soon as possible. The reason against being anxious to control the supply and allocation of materials is that it uses up a great deal of manpower, causes a great deal of delay and does not result in the most economic and efficient production of goods, which is essential to our export trade in a highly competitive world, from which the sellers' market has disappeared and in which the buyers' market has been with us for a long time.

Perhaps this is going a little away from the subject of the debate but I should like to make it clear to the noble Earl that I am against the kind of controls which he advocates now, purely on practical grounds, and not upon any ground of political principle, and that we will always consider the desirability of any control which it may be represented to us is likely to improve our economy.

EARL ALEXANDER OF HILLSBOROUGH

My Lords, may I just take this point up before I forget it? I find it difficult to accept the general argument because of what happened yesterday in another place. The reply of the Government on their taking off of rent control was that that was going to make more houses available to be occupied, whereas the whole difficulty now is due to that. I do not follow the noble Earl's argument to the ultimate conclusion.

THE EARL OF DUNDEE

My Lords, I do not agree with the noble Earl about the Rent Act, but I think it would not be in accordance with your Lordships' wishes, not to mention my own, that I should pursue the subject in the middle of a debate on the Finance Bill, interesting and important though it is. I was going to say that one kind of control, not perhaps direct, is control of investment. In that connection, I should like to thank the noble Lord, Lord Sainsbury, for his interesting speech, in which he largely devoted himself to that subject. Investment, he said, had sometimes been misplaced and badly planned. He may be right. It was interesting that the cases he gave were those of nationalised industries, rail and electricity, which are entirely controlled, and steel, which, although not nationalised, does have its investment largely guided through the medium of the Steel Board, which is a planning instrument.

I connected this with what the noble Earl, Lord Alexander of Hillsborough, said about the present under-capacity of the steel industry. He said that it was producing 25 or 30 per cent. under capacity. The reason for that is that the investment in the steel industry has been very much larger than its present requirements. That does not necessarily mean bad planning, because steel investment takes a long time, and I think it is probably a good thing that steel investment should be planned in such a way as to give surplus capacity at certain times, in order that, if there is a sudden rapid increase in the demand, you may not find yourself in the position that you cannot catch up with it because you have not time to put the extra investment into the steel industry in a year or two. You must have it ready years in advance. It is impossible to foresee exactly what the demand will be five or six years ahead. Therefore, I would not say it is an example of bad planning that the steel industry is now producing under capacity.

It may be that within the next year or two the stimulation of demand (let us hope that it will be so) will cause the steel industry to come up nearer to full capacity, and in that case we should be able to supply the additional demand without having to import more steel from abroad. I do not know whether the noble Lord, Lord Sainsbury, mentioned any private enterprise industries.

LORD SAINSBURY

I mentioned the motor industry.

THE EARL OF DUNDEE

Yes; the noble Lord mentioned the motor industry as well as steel, coal and railways. I think all I need say to him now is that I agree that, either through nationalised industries or through such bodies as the Steel Board, the guidance of investment is clearly one of the things on which planning, and possibly some control, is, or may be, desirable in our modern industrial society.

The next noble Lord to address your Lordships was the noble Lord, Lord Grantchester. Briefly, I agree with what he said about the undesirability of inflation. I did not quite agree with his remedy, which was to cut down Government expenditure whenever you thought inflation was taking place, in order to make sure that prices did not rise unduly. That is what used to happen in the nineteenth century and the early part of the twentieth century under the gold standard, not as an act of Government policy, but automatically. But look at the terrible effects which it had in the frustration of productive power, the unnecessary unemployment and proverty! If it were not for that, there would be no problem. The whole problem we are all struggling to try to solve is this: if you pursue this strict deflationary policy you will create unemployment and prevent wealth from being produced which ought to be produced. On the other hand, if you pursue an expansionist policy, very often you run into a wage-cost spiral, with the result that you have to stop it.

LORD GRANITCHESTER

My Lords, if I may interrupt the noble Earl, I think this matter needs further study. I do not admit what he has suggested. I did not even say that expenditure should be cut down. I said that expenditure must be covered either by taxation or by raising the money in the open market. If it becomes impossible to do so because the Government spend so far beyond their means, you may have a breakdown in Government.

THE EARL OF DUNDEE

Perhaps I misunderstood the noble Lord. I gathered from his speech that he was against deliberately spending more than is being raised in taxation, which is what we are doing this year in this Budget. We are spending £687 million more than we are raising in taxation, and according to our modern theory, which we all support, at least since the White Paper in 1944, we do this deliberately. If we think the economy is in such a state that it ought not to have too much money pumped into it, we may reduce spending and increase taxes. If we think the economy needs more stimulation, we do it, as we are doing it this year, by providing that nearly £700 million shall be borrowed by the Government to make up the difference between taxation and expenditure. Of course, that figure must be subject to the qualification that a great part of the £700 million, though not all of it, is capital expenditure. We are not borrowing simply for consumption, but for capital expenditure, too.

I should like to thank the noble Lord, Lord Champion, for a speech which I think was enlightened and progressive. He took the same view as I do about the argument of the noble Lord who preceded him, and he went on to talk about incomes policy. I was grateful to hear him say that he thought an incomes policy was necessary and right; and I am particularly grateful to feel that he may use such influence as he has with his colleagues in the trade union movement to support those elements in the trade union movement who are favourably inclined towards an incomes policy. The noble Lord argued that an incomes policy was more difficult than it need be because in Government statements about it we had not made it sufficiently clear that other incomes besides wages ought to be restricted. I will not do more than remind the noble Lord of the two White Papers we have had in the last year or two on incomes policy. The one which he quoted, Incomes Policy, The Next Step, says in paragraph 14: Although this Paper is primarily concerned with wages and salaries, the same principles apply to all forms of income. Continued restraint in profit and dividends is a necessary corollary of the incomes policy outlined above. The Government reaffirm the request for the co-operation of those responsible made by the Chancellor in the statement on the 25th July, 1961. The Chancellor of the Exchequer said: As a part of the incomes policy, appropriate corrective action would have to be taken if aggregate profit showed signs of increasing excessively as compared with wages and salaries. Then, as the noble Lord will remember, there was another White Paper in November last year on the National Incomes Commission, which says in paragraph 8: The Commission is required to have regard to the Government's pledge that if any undue growth in the aggregate of profits should result in restraint on earned incomes, that growth will itself be restrained by fiscal or other appropriate means. The Commission is instructed to report from time to time on the need, if any, for such action to be taken. I hope the noble Lord will believe that the Government are in earnest in desiring that an incomes policy should not be applied solely to wages and earned incomes but should include in its scope incomes of every kind.

The noble Lord, Lord Lucas of Chilworth, asked me two questions, one about the shipping loan of £30 million; the loan to British shipowners for the purpose of ordering ships from British yards. The shipowners can choose which British yard they like but, as I think the noble Lord is probably aware, most shipyards are in development areas, and the heaviest concentration of yards is on Clydeside and the North-East coast. Therefore, it is very likely that Clydeside will receive a large share of orders.

LORD LUCAS OF CHILWORTH

My Lords, can the noble Earl be more specific?

THE EARL OF DUNDEE

No, I do not think I can.

LORD LUCAS OF CHILWORTH

Can he tell me whether the whole of the £30 million has now been allocated?

THE EARL OF DUNDEE

No, it has not.

LORD LUCAS OF CHILWORTH

Thank you.

THE EARL OF DUNDEE

That is why I cannot be more specific.

There was a question asked by the noble Lord, Lord Grantchester which I had noted but which I omitted to mention a moment ago. He asked about some Committees on taxation (I was not quite clear which Committees he had in mind), and wondered how they were getting on. He probably had in mind the Committee appointed, under the chairmanship of Mr. Gordon Richardson, to conduct an investigation into the practical effects of instituting in this country a turnover tax. The noble Lord seemed to think that it was for the purpose of co-ordinating our tax with the Common Market. But it is also a Committee which is intended to consider and recommend whether or not the tax is possible on its own merits, quite apart from any question of the Common Market. Perhaps the phrase, "on the pattern generally known in Western Europe" may have caused the noble Lord particularly to think that the Committee was connected with the Common Market.

LORD GRANTCHESTER

It will be useful if there are any more discussions.

THE EARL OF DUNDEE

The Committee was appointed for its own sake, and it has not yet reported.

LORD GRANTCHESTER

There were two appointed by Mr. Selwyn Lloyd, when he was Chancellor of the Exchequer.

THE EARL OF DUNDEE

Yes. The noble Lord, Lord Barnby, particularly asked a question about our aid to underdeveloped countries; to what extent it was tied; and, particularly, about our loans to India. In the present circumstances it is an ideal belief that it would be much better for world trade that aid should not be tied at all; that everybody would benefit if it were not. But, since everybody else does it, we also must. Of course, a good deal of our aid is given multilaterally through the various United Nations or other international institutions; and such aid, of course, cannot be tied. There is a large proportion of our aid which consists simply in making up Budget deficits of Colonies or ex-Colonies which we are under an obligation to help. That sort of aid, of course, would not be tied. But, normally, our loans for industrial development to underdeveloped countries are tied, either formally or informally, by administrative procedures.

With regard to India, British pledges in respect of loans to India since the beginning of their third Five-Year Plan amount to £125 million. This includes a contribution of £30 million towards the capital needs of the third year of the Plan which was offered at the Consortium meeting this year. The biggest single project financed out of this aid is the Durgapur Steelworks. That contract amounted to about £100 million, half of which was to buy machinery from this country. Our aid contributions made to India consisted of a specific loan of £15 million for the first phase of the work and some of our general purpose aid was devoted by the Indian Government to this project.

LORD BARNBY

My Lords, the noble Earl made quite an important statement, if I correctly understood him, that Her Majesty's Government viewed with disfavour the tying of loans. Has the noble Earl had drawn to his attention that the American Bankers' Association appear to have gone on record quite recently—indeed, last week—as saying that in their opinion reductions were urgently needed in the foreign exchange costs of the foreign aid programme. That statement surely can have no other interpretation than that in their view the cost of this foreign aid on the balance of payments in the United States put upon them a greater obligation.

THE EARL OF DUNDEE

My Lords, I should have thought their reason, probably, was that America has a very serious balance-of-payments problem, and could not afford to give so much in aid. But I would not put it quite as the noble Lord has put it. Our view is that ideally it would be better for everybody if nobody tied any aid. But as other people do it, we cannot afford to give large sums of our meagre balance-of-payments surplus in the form of aid to other countries in order to enable them to buy goods from our competitors in competition with British industry. We cannot afford to do that unless everybody agrees that no aid should be tied at all.

I am grateful for the poetic phrase in which the noble Lord, Lord Shackleton, described the Government as a repentant but exhausted sinner. He evidently took the view in his speech that the Chancellor of the Exchequer had not gone far enough in his Budgetary methods to stimulate the economy. That is a matter on which I am sure the Chancellor himself would never wish to be dogmatic. I am certainly not going to enter into a close argument about it now. It is always very difficult to decide whether you are giving enough or whether you are not. The noble Lord, Lord Shackleton, said that by not doing enough in 1962, we had created a great deal of hardship. Of course, any economic policy which is based on expectations which prove not to be well founded may create hardship. But then if you do the opposite thing and your expectations the other way prove to be wrong, the hardships due to inflation and being priced out of foreign markets could be even greater.

The fact is that you have to take a risk, and I think—at least, I hope—that statesmen and economists, of all Parties and of no Party, are gradually learning a little more economic wisdom. After all, it is not so long since we had no economic planning in the world to speak of at all. It is not so long since everybody's economy was governed by the blind standard of gold. In view of the fact that it is only twenty or thirty years since we started to have maintained currencies among the large trading countries in the world, progress, on the whole, might have been worse than at present.

The noble Lord, Lord Walston, made a kind remark about me, which I assure him is the kind of thing I always love hearing, because I am very vain about these things. He said that I made a wise and pertinent remark about a drop in commodity prices, and he went on to urge the Government to try to put right the disequilibrium between economic prices and prices of manufactured goods which has had such a disturbing effect on the economy of the Free World and the fortunes of the less developed countries since 1954. That certainly is an object of our policy. One method which we support together with the United States is the formation of these various international commodity organisations, most of which, I think, have their headquarters in London, with the purpose of stabilising at least the price, even if they cannot put it back to what it was in 1954. Perhaps at that time it may have been a little too inflated due to the Korean war. We do want to stabilise the price; and one great difficulty, as the noble Lord will understand, is that the stabilisation of price often involves a certain amount of sacrifice and restraint upon production on the part of producing countries.

If it is not too much of a digression, may I say that one of the reasons why the Government wished to join the European Common Market was that we believed that as member of the Common Market we should be far better able to arrange world commodity price agreements, which was agreed to by all the other countries of the Six to be a desirable object of policy, and we thought that an enlarged European Common Market with us in it would be able to do that far more effectively than a Common Market without Britain.

My Lords, I am grateful to my noble friend Lord Polwarth for saying something actually about the Finance Bill, and I am grateful for the general support of the Bill which he gave. I also agree with his definition of unemployment in Scotland. As I think he rightly said, Scotland has a great many old industries and inevitably some of them are out of date. That does not mean that they all have to be closed down. Some can be re-equipped and modernised and made to play a very forward part in twentieth century industrial life, possibly with a slightly different and more specialised range of goods and a smaller labour force. But it is inevitable that there should be a considerable loss of employment, and the great problem is not only to build new industries in Scotland but to catch up the loss of employment elsewhere—as I think my noble friend himself used the metaphor, like someone trying to run up a moving staircase which is going down. That is the problem we are up against in Scotland. We must stick to it and I think we are, as he said, making some progress.

I remember that a year ago when my noble friend Lord Polwarth spoke in a debate about this he urged us to accept certain recommendations of the Toothill Report, and I was very glad when we had our debate on Scottish economy on January 23 to be able to tell him that we had done this. He, however, was not satisfied and said that he wanted a juicier carrot in the shape of fixed grants and better taxation discrimination. Immediately afterwards we did that, and I was therefore anxious to hear what my noble friend would ask for to-day. I am sure that with him it seems to be a question of, Ask, and it shall be given unto you; seek and ye shall find". I expected that the noble Earl, Lord Longford, would quickly deviate from the paths of righteousness in which my noble friend Lord Polwarth walked, but he did not do so to any great extent and to the extent he did, he did so in a very delightful way. I am grateful to him for everything he said, and also for his brevity, which I am sorry not to have been able to imitate. I would conclude by picking out the two remarks he made with which I agree very much. One is that our financial policy, as all our policy should be, is subject in many respects to Christian morals. The other is that the City of London, even when it makes a pronouncement ex cathedra on faith and morals, is never infallible.

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

Then, Standing Order No. 41 having been suspended (pursuant to the Resolution):

THE EARL OF DUNDEE

My Lords, I beg to move that the Bill be read a third time.

Moved, That the Bill be now read 3^a.—(The Earl of Dundee.)

On Question, Bill read 3^a, and passed.