FINANCE BILL

HL Deb 09 December 1964 vol 262 cc111-222

4.0 p.m.

Second Reading debate resumed.

THE EARL OFDUNDEE

My Lords, we are all very grateful to the noble Lord, Lord Shepherd, for his clear and capable exposition both of the Finance Bill itself and of the background to it. I believe that this is the first major speech which the noble Lord has made from the Government Front Bench; anyhow, it was a very good speech. If I may say so, it lends some distinction to our debate that the Finance Bill should be introduced by so romantic and colourful a figure as the Captain of the Gentlemen-at-Arms, which is the English Royal Bodyguard. In Scotland I am not a captain; I am only a very humble private in the Scottish Royal Bodyguard of Archers. And if I loose off a few arrows this afternoon in the general direction of the noble Lord, I am sure he will understand they are not intended to hit him. They are intended to go over his head in a great parabola, like the arrows of the Norman bowmen at the Battle of Hastings which flew over the heads of the English front rank and hit the leader of their party, whose name also happened to be Harold, in the eye.

I hope to be short, for the list of speakers is long, and I do not feel inclined to criticise the general economic policy of Her Majesty's Government until I know what it is. Perhaps we shall know a little more about it when we have heard the noble Lord, Lord Shackle-ton. As for the Finance Bill itself, we cannot amend it—or, at least, if we tried to amend it I do not think we should be likely to get very far. All that we can do is to offer advice and counsel, mingled perhaps with a little criticism.

This is the second Budget of the year 1964. When the first Budget was introduced in April of this year, Mr. Maud-ling told us that he expected that the adverse balance of payments would continue to grow throughout the year. His reasons were, first, the abnormal amount of stockbuilding which he expected would take place; second, the rise in the world price of primary products, which may in itself be a good thing in the long run for the volume of world trade but which, meanwhile, must mean less favourable terms of trade for us; third, the exceptionally large outflow which he anticipated of British investment abroad, and also the rapidly growing volume of investment at home, which meant the importing of more raw materials. Mr. Maudling said that, for those reasons, a large adverse balance of payments for the year 1964 would be neither surprising nor necessarily undesirable, because the increased stock-building would lead to more exports later on, and the increased outflow of investment abroad would mean that our income from abroad would become greater.

He then enumerated what he called our strong defences against this expected adverse balance. Besides our ordinary gold reserves and our dollar portfolio of 1,000 million dollars, there were also our drawing rights of 2,500 million dollars from the International Monetary Fund, the special 500 million dollar "swop" arrangement with the United States, and the new arrangement, called the Basle Agreement, with the European Central Banks. All these fairly recent advances in international liquidity were welcomed by all parties in this country, who had advocated them for a long time both before and after the Radcliffe Report. I think that both the late Government and the Labour Opposition had demanded these and even greater measures of international liquidity, which we thought would not only help the growth of world trade and keep it more stable but would avoid those sudden deflationary actions which so often had to be taken to correct a temporary imbalance in certain individual countries. So the adverse balance of payments was fully expected. The provision against it was in my view adequate, and I still think, in spite of all that the noble Lord, Lord Shepherd, has said, that our economy is basically sound. I have not yet been given any convincing evidence that it is otherwise.

At the end of last week I put down a Question to the Government for Written Answer, to which I received the Answer yesterday and it is to be found in yesterday's Hansard. I asked how much of the official estimate of the balance-of-payments deficit of £700- £800 million is accounted for by repayment of foreign debts, by the setting up of British companies abroad, by the buying of shares in foreign companies (such as the Shell Montacatini deal), by the Government's overseas aid or loans, and by other capital transactions. I am grateful for the Answer which I received, but it does not give any answer for the third and fourth quarters of this year. All it says is that figures for the third quarter will be known at the end of this month, and for the fourth quarter next March. Of course I did not ask for the actual figures which obviously cannot be known till after they happen; what I asked for was an estimate. I thought that if the Government were able to estimate that our total deficit would be £700- £800 million they might also perhaps be able to estimate how much of that deficit would be due to long-term capital transactions. But it may be that the Government are reluctant to probe too closely into the component parts of their own estimates. I know very well that it takes a long time to compile and verify final figures.

As for the first two quarters, the first half of this year, I received a very full answer, which I think we all knew already, as to the deficit of £341 million, at the rate of about £2 million a day. Of that £341 million no less than £216 million was due to long-term capital transactions—that is to say, getting on for two-thirds. It is not only right, but in the interests of our own trade and economy, to mention these things when we talk about the trade deficit or adverse balance, because, if we do not do so, people will all think that we are going "down the drain", which we are not. I repeat again that in my view our economy has been sound and I have so far been given no evidence to the contrary.

So far as the first half year's figures were concerned, we knew them at the time of the General Election. The noble Lord, Lord Shepherd, suggested in his speech that Mr. Maudling (I think this is the phrase he used) ought to have given us more warnings of the gathering storms. Mr. Maudling talked a great deal during the Election about these matters. I have some notes here of what he said on various occasions, chiefly at his Press conferences, but also at a speech in his constituency. At a Press conference on October 1, he said: I accept that we have an urgent problem and a real problem of closing the trade gap, particularly by expanding our exports". Again, on October 9 he said: The need is still for a real and urgent drive to expand our exports. Then, just before the Election, on October 14 he said: I have never sought to minimise either the real or the urgent nature of the problem of increasing our export trade. On this question of exports, I think, again, that it is not in our interests that we should denigrate or minimise what our exporters have done. The figures for 1963 showed an 8 per cent. increase over the previous year, and the figures for 1964 so far show an increase in exports of 4 per cent. over the corresponding period of last year. That is a very good achievement. But what Mr. Maudling had the candour to point out continually during the Election was that for the last two or three months of the summer exports had not been good enough, and that they would have to be better still if we were to hit our economic objective. I thought it was rather refreshing—and it seemed to me that he rather went out of his way to do it—that a leading politician should lay so much stress on those difficulties immediately before the General Election.

When, immediately after the Election, first the Prime Minister and then Mr. George Brown stated that Mr. Maudling had sought to conceal the difficulties of our trade position for electoral reasons, I am bound to say that my deepest suspicions were aroused about the political integrity of the new Government. I have so often noticed that when people make a ludicrously false statement of this kind, their motive usually is to cover up or to distract attention from some delinquency of their own.

THE LORD PRIVY SEAL (THE EARL OF LONGFORD)

My Lords, may I interrupt the noble Earl? It is not just delinquency which brings me to my feet, and I hope to speak later to-night about export figures, but I can hardly hope that more than perhaps a tenth of the noble Lords who are now listening to the noble Earl will be here when I rise during the shades of evening. Is the noble Earl aware that during this year the general movement of exports has been downwards, and profoundly disappointing?

THE EARL OF DUNDEE

My Lords, I hope that the noble Earl will cut out that part of his speech from what he says at 10 o'clock to-night, in order to save time then. I have stated correctly—I think one must take both sides of the picture—that this year so far our exports are 4 per cent. higher than our exports for the same period in 1963. It is true that for certain months in the summer they were disappointing, but the general figure for the first nine months of 1964 is higher. The point I was making was that Mr. Maudling had been extremely frank about stating the position before the Election, and I was trying to discover what delinquency—not the noble Earl's of course; I know he never commits any delinquencies at all, although he would probably be the first to admit that he does, but he is a man of exceptionally undelinquent character—the Government were trying to cover up.

There is this import surcharge which has been imposed, and which was described and first announced in the White Paper of October 26. I am not yet certain from the evidence which I have so far been given whether it was necessary or not. I told your Lordships in the debate on the Address that so long as there is any doubt about the matter I think we ought to give the Government the benefit of the doubt. But I am not at all convinced of the necessity of this surcharge. What I am convinced of, my Lords, is that the manner in which it was announced and applied has done immeasurable damage to our foreign relations and to our credit abroad. Here in this White Paper it is stated that: there is ample support for sterling in the facilities available to us". Then, again, it is stated: Apart from special problems of individual areas and a limited number of industries there is no undue pressure on resources calling for action. My Lords, that does not mean, of course, that action perhaps ought not to have been taken. I am not suggesting that the noble Lord should fulfil the rôle of Mr. Micawber and wait for something to turn up, if he thinks that something has to be done. It does not mean that no action need be taken, but—even more so, in view of these facts, that there was no urgency and that we had ample support for sterling—it is inexcusable that action should be taken without any previous thought, which is the only conclusion I can draw from this White Paper.

The noble Lord has asked what we mean when we talk about consultation with our friends and EFTA partners, and whether we mean negotiation. I do not think we mean any of the things he suggested; at least, I do not. I am not suggesting that, if the Government thought that these surcharges were necessary and in the interests of our economy, they should have made the imposition of those charges conditional upon reaching agreement either with EFTA or with anybody else. I am not suggesting that we should have had lengthy negotiations. What we do suggest, and what we think is very important, is that since the imposition of these surcharges were unquestionably a breach of our EFTA engagements, we ought to have had the courtesy to inform our EFTA partners in advance of what was going to be done. It would not have taken—

LORD SHEPHERD

My Lords, this is most important. I can draw the noble Earl's attention to a reply that my noble friend Lord Rhodes gave in this House some ten days ago. in which he informed your Lordships that these Governments were informed by this Government of the imposition of this charge. They were informed.

THE EARL OF DUNDEE

For how long?

LORD ST. OSWALD

Five minutes.

LORD SHEPHERD

Over the weekend.

THE EARL OFDUNDEE

I have said that I am not suggesting that we ought to have spent a long time in negotiations. But I think we ought to have taken a little more trouble to point out to them that we realised this was a breach of the EFTA Agreement, that we were very reluctant to do it, that we would take it off as soon as possible, and that we hoped they would understand. We did say all these things after we had announced the imposition and published the White Paper, but I do not think we took much trouble to talk to them about it beforehand. I think that if we had done so, it would have made all the difference to the confidence which our friends have in the sincerity of our intentions towards them. I think that if you had taken more trouble to do this in a more considerate manner, you would not have had the Danish Parliament passing a unanimous resolution condemning this country for its breach of the EFTA Agreement; and you would not, I think, have had these bitter cartoons in the Swedish newspapers of John Bull sending out the signal: "England expects that every foreigner this day will do his duty". The manner in which this was done created a very deep bitterness. I know the noble Lord will agree that the continuance and cohesion of the EFTA organisation is of very great importance indeed to the future of our commerce—also, perhaps, to the political stability of the world, and, it may be, to the unity of Europe.

As for our Commonwealth, were they informed, too? We never heard of it if they were. I wonder what they thought of the words in the Queen's Speech about the Government's intention to foster … close consultation between Member Governments and … promote Commonwealth collaboration in trade and economic development…. I think, my Lords, that it is the manner in which this thing has been done, which has rightly been described as a ham-fisted process, which has done a great deal to diminish the confidence of our friends in our good intentions and in our good will.

I am not trying to say it is wrong to warn the country that you think a crisis is serious; but perpetual exaggeration of it does make it serious when it need not be. I think there is one very significant remark that was made in another place by the Prime Minister only the other day, on November 23—and this was after the 7 per cent. bank rate had had to be imposed, which, again, nobody had thought of when the Budget was introduced at the beginning of November. What he said was: We are dealing with a situation where what matters is not what our trade and payments position is, but what people overseas think it is."—[Official Report (Commons), Vol. 702 (No. 18), col. 931, November 23, 1964.] Yes, my Lords, but who made people overseas think it is different from what it is? We are criticised for not raising a "storm warning". We are criticised for not having gone round last September declaring that there was going to be a crisis, and for not taking some preventive action. I think that if we had done that, our statements would have been untrue and our action would have been unnecessary. I think it is largely because the Government, for reasons which I do not fully know yet, seem determined to put across the idea that there is a crisis that the position has got so much worse.

In the same speech, my Lords, the Prime Minister said this: … so far as the trade gap is concerned … there were reserves and borrowings more than adequate to meet this … "[col. 933]. That does not seem to justify the suggestion of the gathering storm and all that. He said: … there were reserves and borrowings more than adequate to meet this, but in the course of the past week"— this was on November 23— there has been this new development arising from confidence factors … My Lords, I think that when the Prime Minister said that, he said a mouthful. It is probably about the truest remark he has made since he came into office.

I am not going to anticipate what the noble Lord, Lord Shackleton, may say about the general economic situation, which we quite realise the noble Lord, Lord Shepherd, had not time to touch on. Of course, the fundamentally important things to our economy, as I know the noble Lord, Lord Shackleton, will agree, are the getting rid of restrictive practices and the attempt to work out an incomes policy. I shall not pursue these matters now. I would say only this—and I say it in all sincerity and not in any desire to be controversial: that if the idea of the Government is to procure the consent of industry, trade unions and employers to take some action that will put a stop to the continual cost-wage inflation which has been going on at so many times, though not continuously, and if they are trying to procure this by passing an Act to allow the trade unions to insist on the dismissal of some man by his employers, which has now been judged illegal, and by a capital gains tax, I wish them good luck, but I say only this: Don't pay the price before you have got the return for it, because you may find yourself in the position of having done all these things, which may not be of very much advantage to the country, and then you may find that you will still get no wages policy at all.

As for this Bill, my Lords, we cannot amend it, and therefore I do not propose to go into detail on the surcharges. Perhaps some of your Lordships may do so. It might be very interesting if you do, perhaps, for future reference—if, unfortunately, we should ever have to do it again. I think it is rather insane that the surcharges should apply to so many things which would have to come in anyhow, and which British industry cannot do without, and I think it might have been possible to make them very much more selective if it had not been one of these cases, as I have suggested already, of action preceding thought, of leaping before you look. I hope that the surcharges will be abolished as soon as possible.

I hope, also, that the 6d. increase in income tax will be taken off as soon as possible. I am not convinced at all that the Labour Party were not right in the Election when they told the people that all the increases in pensions which they proposed could be paid for, without any increase in taxation, out of natural economic growth. That is one of the things that the Labour Party said with which I agreed, and I am very disappointed to find that they have gone back on it now. I do not want, any more than the noble Lord, Lord Shepherd, to over-state it, but this 6d. increase on the income tax will be a serious disincentive to a large number of able, young, professional and business men who are of the utmost value to our economy. It will not help the brain-drain. As for the tax on fuel, I hope, my Lords, that that will come off very soon, too. Two-thirds of it, at least, will fall, not on private motoring but on commercial vehicles, which will put up the price of our products and lower our competitive power in foreign markets.

As for the measures to help exports, it seems to me they are likely to be marginal. The noble Lord, Lord Shepherd, suggested they were only the beginning of something better, and I think we shall all agree in pursuing anything which does not lead to retaliation by other trading countries, which may hurt us more than our action benefits us. But with this one exception (which I will not go into now) of the measures to help exports, I think it ought to be the primary objective of the Government to repeal and undo the entire contents of this Bill at the earliest possible moment.

4.30 p.m.

LORD GRANTCHESTER

My Lords, I should like to express gratitude to the noble Lord, Lord Shepherd, (who apologised to me for having to leave) and to congratulate him on going rather further than his colleagues in expressing the will to consider, at least, any suggestions made in the course of this debate. Like the noble Earl, Lord Dundee, I have been unable to get details of the estimated deficit of £800 million. I feel sure that this estimate, bandied about as it has been, helps to increase the deficit from day to day. There are people who derive satisfaction from being talked about and from being at the centre of controversy. They do not much mind whether the fame they enjoy, while it lasts, springs from their merits or from their sins. Doctors say that such people suffer from a sick mind, and psychologists talk of an inferiority complex. I have heard more unpleasant things of (his sort said, and said over a wide area, about the doings of Britain and the manner of the doing of it during the past few weeks than I have had to listen to during many years of political contacts in Continental Europe.

I am not exaggerating when I say that I fear that Britain's reputation in Europe will suffer for a generation from the happenings of the past few weeks. In the countries where it stood highest, the reaction has been strongest: disloyalty to her friends; a blow to the sanctity of treaties and agreements; perfidious and stupid, as well as ill-advised. These are a few of the plain words to which we have had to listen; and it is well that we should realise that we cannot just pass them off. During these weeks not one word of regret has fallen from the lips of a single Minister; all seemed determined to brazen it out. There was not a word of dismay that so many imports should appeal to British buyers in preference to our own products, in spite of sometimes higher prices. And, what is worse, on more than one occasion when a friendly hand of help and sympathy in our difficulties was held out to one of our Ministers he remained silent and unappreciative.

This lack of response to the sympathy and understanding shown, particularly by some French Ministers and officials, was an opportunity most regrettably missed, showing what appeared to be both a lack of courtesy and a lack of political nous which was noted with understandable annoyance in Denmark. Denmark, perhaps more than any other country in Europe, regrets the estrangement between France and Britain and hopes to see a change for the better in this relationship.

THE LORD PRIVY SEAL (THE EARL OF LONGFORD)

My Lords, I must interrupt the noble Lord because I have been in closer contact in the last few months with the Ministers to whom he has referred than, perhaps, he himself; and I must totally reject his account of these discussions and of any suggestion that there was any discourtesy on the part of my colleagues.

LORD GRANTCHESTER

My Lords, if the noble Earl reads some of the comments which have been made, and which are on public record, I think he will find that the impression created was as I have recounted. I would say to the noble Earl that I listened to a number of Ministers giving explanations, and I know a number of speakers who were trying to help them; but they did not respond. I observed some of the cases myself.

My Lords, we are not the only country in Europe which has had to face up to unpleasant facts. There is much wisdom in Europe, and I would urge Her Majesty's Government to realise that on the Continent there is still a lot of good will towards this country. If they would go about it differently they would be surprised at the response they would find from countries that share with us a common heritage of greatness, tempered by pain and common suffering over the centuries. But it is necessary to appreciate that it is a fight against inflation that the Continental countries are waging, in which we ought to be joining. It is from this point of view that our actions are judged.

The rate of the creeping inflation which Europe has experienced has averaged 50 per cent. since 1950. Dr. Karl Blessing, Governor of the German Central Bank, said at the Tokyo meeting of the International Monetary Fund in September last: I think it is high time that the process of creeping inflation be stopped. One cannot suffer a continuous erosion of the value of savings without endangering the whole system of free enterprise. Creeping inflation is not compatible with sustained growth which is the primary aim of every European country. Mr. Robert Marjolin warned the European Community in the same sense. Dr. Holtrop, President of the Netherlands Central Bank raised the question at Tokyo of how far temporary over-expenditure caused by excessive investment or unwarranted expansion of consumption, which, he maintained, necessarily exercises an inflationary impact on other countries should be financed too easily by short-term or bilateral facilities. This is the crux of the complaint against countries running a deficit: that this has an inflationary impact on countries which are exercising a tighter discipline in their monetary policy. It is in this atmosphere that Britain's difficulties must be discussed if co-operation is to be maintained with our friends on the Continent and our partners in Efta and Western European Union.

Perhaps I may say a word, in addition to what was said by the noble Earl, Lord Dundee, on the question of consultation. There are in the treaties with our European friends definite agreements to consult. This is a most important provision. What would be the normal process of consultation under these treaties would be to call a meeting of the Council of Ministers. If this is too clumsy a procedure to deal with a crisis, then what suggestions are going to be made? I personally do not believe that it is so difficult and clumsy. The Western European Union is situated in London. The Ministers have deputies, who are the Ambassadors of the countries concerned here in London. They meet at Grosvenor Place once a month, regularly, and could be got together at very short notice. The EFTA Ministers, all of them, can reach Geneva in a few hours. If it is a matter which requires urgent consultation, owing to a crisis arising in one of the countries, surely it is not too much to ask the Council of Ministers to meet at Geneva within a matter of a day of two, at the most. If not, they have deputies who often take the place of Ministers.

It cannot help very much in the long run, as suggested in some reports that have been coming in, that Her Majesty's Government should fall back on discussions with the United States on an alleged inadequacy of international liquidity. The United States themselves are in a difficult position. I blame a number of members of the present Government for having pressed this idea upon the former Government for tiding over a period of difficulty and now for denying that it is a suitable way of carrying on. Anyway, the inadequacy at present of international liquidity is disputed in every country on the Continent. It is disputed by the International Monetary Fund and it is disputed in the findings of the Group of Ten, which investigated this matter during last year.

THE EARL OF LONGFORD

My Lords, I am sure that the noble Lord means to be fair, but he is aware that the former Chancellor of the Exchequer, Mr. Maudling, took a very strong initia- tive in favour of extending international liquidity?

LORD GRANTCHESTER

My Lords, I am aware of that, but that does not mean that I agreed with it. In a speech in this House I urged that he paid more attention to the views which were expressed by the Netherlands, by Germany and by France on this matter. It is interesting to see that the two countries that are pressing for an extension of international liquidity are the two key currency countries, the United States and Great Britain. Both are in deficit, so perhaps it is understandable that they may take a different view from the rest of the countries in the Group of Ten. I differed from the former Chancellor of the Exchequer on this matter, and I differ from the Government, who seem to be adopting the line he took in pressing for an extension of international liquidity at the present time. This is because I believe that it is no more possible for a nation to live for long on an increasingly large overdraft than it is for an individual. If a surplus on our balance of payments account is not earned, and cannot be earned, it is nothing but hypocrisy to talk of helping underdeveloped countries. These are the truths and realities which Her Majesty's Government should be explaining to our people. Unfortunately, Ministers have not been giving the impression that they themselves understood this matter. This is what is said, anyway, and it is not said just in malice.

It may be desirable and necessary to shake up the nation to a consciousness of the realities of its position in a Europe which is feeling its feet and beginning to feel its strength. We needed something more than the statement made by a member of the Economic Development Advisory Council that the average measure of our uncompetitiveness in price in the world market is I per cent. I do not feel that a statement like that makes a great deal of impression, and averages conceal a lot of variations.

I agree that we needed in this country a call for honest relationships and for service one to another, a call to exorcise all that is embodied in the expressions we hear so often—"Don't care" or "Couldn't care less". I shall be told that Her Majesty's Government set great store on the achievement of an incomes policy, but I fear—and the noble Earl, Lord Dundee, also had some doubts—that we cannot be very optimistic on this account, for investigations show that on the Continent the experience has been that No 1ncomes policy can halt inflation and that, without inflation, No 1ncomes policy is necessary. Least of all can the Government afford to shake confidence or destroy trust. Plain speaking, yes; plain dealing, yes.

I have spoken a little of the international repercussions to the subject matter of this Bill and the way it has been presented. The internal effects, I fear, have been scarcely less damaging. Talk to anyone who might do business in the export field and what does he say? "The cost of opening up markets is high. If we fail, we bear the loss. If we succeed, the rewards are small." This Bill makes them smaller still, by raising income tax. What is in store for the man who earns the princely salary, at pre-war rates, of £500 a year? In subsection (1) of Clause 1 of the Bill, there are no words of assurance that the rates over £2, 000 will not be altered. Of course benefits for the needy must be paid for. But I would ask whether the introduction of a direct tax on income may not complicate the administrative arrangements by introducing an element of double taxation in many cases. I will not spend time on this question now, because there are more important matters than this rather technical problem.

Before I finish, may I raise the question of the fundamental defect in the existing monetary system which allows a difficult situation, such as that in which we find ourselves, to assume considerable proportions before remedial action can be taken, which then requires disretionary action, always considered discriminatory, and which therefore becomes a source of international friction? This is one of the undesirable features of the gold exchange standard as it is practised to-day. As your Lordships know, there has been a great deal of study and talk on this subject during the past year. Ministers of the so-called Group of Ten have decided to meet regularly and watch developments, in the light of the confidential information which the B.I.S. are to collect from member countries. These Ministers are instructing the O.E.C.D. to study the most appropriate methods for a country to take to correct imbalances.

All this is to the good; but it is not enough. Studies are hampered by agreements between the key currency countries and the International Monetary Fund. The study last year was hampered by conditions imposed in the terms of reference given in September, 1963, to the Committee set up under the chairmanship of Mr. Rousa, the United States Treasury Secretary. What I believe is needed to avoid international misunderstandings, is agreement upon a code of conduct and rules in the operation of monetary policy, with built-in correctives to restore balance which are automatic in their operation.

There are, of course, many questions involved, into which I cannot go now, but the problems of rising prices, inflation and sound currencies are involved. I have already referred to the difficulties of the United States. I doubt whether they are generally realised here, and they are certainly not generally realised in the United States. During the years 1951 to 1960 the overall deficit of the United States was some 18, 000 million dollars. During this period the gold reserves fell only from 22, 800 million dollars to 17, 500 million dollars. I find it difficult to think in billions, so I have to express these figures in thousands of millions. Thirteen thousand million dollars was added to the foreign holdings of dollar credits in the United States. The United States has been forced to take steps to correct its imbalance in her balance-of-payments account. Up to September of this year the deficit was running at the annual rate of 2,000 million dollars a year, as compared with 3,300 million dollars in 1963, and 3,900 million dollars in 1960. So we are not the only people who experience these difficulties, and a little discussion and consultation is very desirable in dealing with them.

In deciding upon an increase in the quotas of members of the International Monetary Fund in September last the difficult position of the two key currencies—that is, of the United States and Great Britain—was noted, and the Fund was instructed to have regard to their reluctance to transfer any more gold from their national reserves to the International Monetary Fund. This shows the difficulty of building a greater fund with the International Monetary Fund to provide increased liquidity. In fact, the dollar could come under pressure, and there is the danger, if it should do so, that the whole monetary structure might collapse again as it did in the 'thirties.

The position has been disguised for the American public by the acquiescence of foreign holders of dollars to hold them rather than use their rights to convert into gold. The general depreciation of European currencies has been masked so far as the public in the European countries is concerned by the maintenance of stable exchange rates (except with Germany) over the last ten years. It should be appreciated that it is the fear of the repetition of the disaster of the nineteen-thirties, when every nation started raising barriers to try to isolate themselves, that was behind the storm caused by the 15 per cent. imposition in this Bill. It was, they feared, the start of the same process which brought about the collapse of the 'thirties. The reason for this strong reaction was not, I think, realised.

These, I suggest, are some of the urgent problems which the Government should tackle. The Continental Governments are more worried than we have been. Their co-operation in our present difficulties, as well as in solving the long-term problems upon which I have touched, is essential. It is of vital importance to us all that Her Majesty's Government should realise this fact and change the attitude they have so far adopted by moving to a policy of consultation and co-operation with the rest of Europe, with most of which we are linked by specific treaties.

We have been told—and we were told a lot during the Election—by those who support the present Government, that among the most undesirable features of our society to-day are the chase after money, and the comparative affluence of the young compared with the poverty of the aged. The chase after money, surely, is natural while everyone feels its value is slipping away. The young are paid in money adjusted to the current purchasing power of the currency, whereas the aged are relying upon provisions made some years ago, and now sadly depreciated in value. In these comments are expressed the injustices, as well as the evils, accruing from the present monetary system. If the Government are serious in expressing concern at these admittedly undesirable features of our society, they should give immediate attention to the subject of the reform of the monetary system upon which I have laid such stress to-day.

4.58 p.m.

VISCOUNT WATKINSON

My Lords, may I ask your indulgence on this occasion? It is more confusing, I think, because, as with some of my noble friends, this is in fact the second maiden speech that I have made in this Chamber. They have been made from opposite sides of the House, but both in Opposition; so I find myself a little confused. However, I am heartened by the fact that in the last circumstance, anyway, the Government soon changed and we found ourselves back again on the right Benches.

In any event, I should find it difficult to deal with the strict matter in front of us, because I disagree fundamentally with almost everything in the Finance Bill, and therefore it would be extremely difficult for me to keep within the normal rules of relative non-controversiality. On the other hand, it is clear from what the noble Lord, Lord Shepherd, said in introducing the Bill that the Government are paying great attention, as they should, to this problem of exports. I might say that some of us who have spent our political lives trying to preach the doctrine up and down the country that this country either exports or perishes, have slightly wry smiles now at the sudden conversion to exports of quite a lot of people. However, if this means that, on the whole, the country is united in this desire and this recognition of the necessity for more exports, so far, so good. It only remains to translate the universal desire, if it exists, into action.

I may say that I make these comments against the background of some 34, 000 miles that I have just travelled on business to Australia and North America. It is not going to be an easy task to make a major increase in this country's export trade, for the simple reason that most of our manufacturers who are already in this business are trying extremely hard, and, as has already been said, very fairly, are, on the whole, doing extremely well. So there are no particularly easy means to be found.

On the other hand, if I might comment on one or two markets which I now know from a recent visit, the business is there. There is a great deal more business to be done by British exporters in Australia, North America, and in Europe too, but there are plenty of Japanese, German and Italian businessmen who mean to have their share of it, and all of it if they can get it This is why I said initially that I see no particularly easy way in this task. It really is going to require the very utmost that the nation can give to it, if it is the nation's will that this should be done.

What about the machinery for doing it? One hears a great deal of criticism about British commercial services overseas. I can be quite impartial about them now, and I want to say, as clearly and as frankly as I can, that I think most people who criticise these services—the services of the Board of Trade, the services of the Consular offices and the services of the Ministers commercial—have not done their homework. They have not looked into the information and the help which is available. I think that this should be said, because it is true; and it is really very sad that British businessmen who are seeking more export opportunities do not take the trouble to find the help, guidance and assistance that is available to them, both here in this country and in markets overseas. I know that your Lordships will realise that I am not criticising the firms on whom our present large export trade depends. They are doing a first-class job, and trying very hard; but if we are to do any better in this field then we have to persuade more British manufacturers to enter it. I want only to say that the help and practical assistance is there for them if only they will use it.

There are the usual criticisms about British products. Again I do not think that these are nearly so bad as some of our critics would make out. I believe that there are some failings in after-sales service, as there are with other countries' products, too. But on the whole, in my view much of the criticism one reads here at home of the job that existing British manufacturers are doing is somewhat misplaced. It may be that this is thought, therefore, to be a somewhat easy description of everything that is right. Of course, there are a great many things that are not right in export markets, and, as I have said, the task is a very difficult one. One of the more difficult problems is that more and more foreign countries look for a direct involvement by a British manufacturer in their country and in their industry, and straight exporting is not always good enough.

If the Government want to be helpful over this—and I noticed that the noble Lord said he would listen to any points raised—I would hope that in future anything they do for exporters will be done by stealth and not by putting on 1½ per cent. export bonus, or whatever they call it, which has already been deducted off the invoices of some of our foreign customers. However, if they want to look in two spheres I think they might look first at remitted profits from overseas enterprises. I hope that these are not threatened by the proposals of any new corporation tax, because more and more British firms, if we are to build up our business overseas, will have to get involved to the extent of setting up enterprises, either in partnership or alone overseas. Therefore our export becomes largely the remitted profit of that enterprise.

The second point the Government might look at is this difficult problem, particularly for the small or medium manufacturer, of the large sum of money that has to be invested in a sophisticated overseas market merely to test the market out, merely to do your initial promotions and the rest. This, for a smaller manufacturer, can be a very large sum, and it is entirely at risk, because at the end of all this he may well decide that the gamble is not worth it. If these sums could be treated more in terms of capital, and capital investment, and perhaps less in terms of straight expenditure, I think that this, again, might be a useful aid for those people who are at the moment shivering on the brink and wondering whether they should try to do what I hope they will recognise is now in the national interest; that is, to make a greater penetration in overseas markets.

The last genera] point I should like to make is, if the machinery is there, if the markets are there—as I believe they are—are we still acceptable as a trading nation? I will not follow the noble Lord who preceded me, because I am striving to be strictly non-controversial. I believe that recent events have somewhat damaged our status in the eyes of many of our customers, but they have not damaged the long-term belief that this country is a good ally, a good trading partner and, on the whole, the manufacturer of good products. This belief remains, and nobody could have had a warmer welcome than I had everywhere as a British businessman, whether it was from our fellow citizens in the Commonwealth or from the Americans, or anyone else. I think they want to do business with us, and it is a great pity that more senior businessmen do not go and give themselves the pleasure—and it is indeed a pleasure—of meeting their opposite numbers to see whether they can find some mutually profitable way of trading together.

Having said all that, my Lords, I go on to ask: what ought the three partners to do about it?—and I will explain what I mean by "the three partners". If Her Majesty's Government say that they want to increase exports, then I think it is right for them to say that, on the whole, this should not be too controversial a matter. But then it is, in a sense, taking businessmen and trade union leaders into partnership. They must therefore, I think, have regard to certain general considerations for which, if I wished to be more controversial, I think I might say they have had very little regard so far. But let me start with the employers.

The greatest problem here is that too many firms still think there are much lower profits in export markets. This often is true, and therefore these firms want a firm directive from their board, and in a way a defence against their shareholders, that if they take these risks and thus make a lower profit, they are doing something at the moment very much in the national interest. Perhaps the Government could help a little in this, too. I will only add that there are such things in industry as run-on costs, and all the rest, and I must say that among the successful exporters whom I know I do not know many who really regret their export ventures, because in the end they have covered their lower margins by longer runs and greater efficiency at home. But it does need a greater assurance to the chairman or managing director of the company that in giving his salesmen and executives a firm directive that they are to turn away from the softer home market to the harder export market they are doing something which is firm company policy and generally in the national interest.

Subject to that, my only comment would be the one that I have just made—namely, the wish that more businessmen at the top would go and have the kind of fascinating trip that I have had, and find how welcome they are. For example, in British-American Chambers of Commerce in Chicago, Los Angeles and New York, one finds that the predominantly American members of these Chambers are anxious to do more business with us, and only too anxious to take British businessmen around and introduce them to their friends and business colleagues and try to smooth the way for them. The answer, clearly, in my view, is to go and have a look at these fascinating markets, and see if you do not find some very interesting opportunities. I know this is not so true of Europe where, on the whole, British businessmen go regularly and make a good penetration. It is often thought to be a long way to the Pacific coast of America, for example, or to Australia, but it is not very long in terms of jet travel.

Just a word, if I may, with some hesitancy, perhaps, in the presence of my old friend Lord Williamson, about the trade unions. But I must say what I believe, and I have said it before. Most trade union leaders are converted men, but they must do more to see that their members accept a very simple truth, and that is that in strikes, in "go-slows," in trouble in the docks, in all sorts of restrictive methods and practices, there is only one victor to-day, and he is our foreign competitor. He will be very happy to fill the orders we fail to fill through delays at the docks, industrial strife or anything else. Equally, he will be very happy to fill it through industrial mismanagement by directors and managers and all the rest. It bears equally on both sides, but I wish that in the trade union movement there was perhaps a slightly clearer view that, while we have to fight our industrial battles, we really ought to have a very firm eye to-day on the damage that these can do both to our reputation and indeed to our actual orders in overseas markets while we are fighting.

I hope that the Government, our third partner—and again I do not wish to be controversial and I wish, above all things, to be short, but there really are somethings here that worry me—the noble Lords on the Front Bench opposite, will listen to what I say, for it is meant to be aimed at one purpose only, to give our exporters a better chance to do their job. The Government are, in my view, in charge of our national image. We shall succeed in the export field only if we are thought to be an advanced technological nation. After all, what else have we to offer? We have no particular raw materials and no particular assets. We have only the skill of our hands and brains. Therefore, we are cither in the forefront of modern technology and selling our brains and our skills, or we have really very little to sell at all; and if we are going to live on getting tourists to see thatched cottages and no drains, we shall not get very far.

This is why the controversy about the Concord and our adventure into space at Woomera, the TSR.2 and many other projects which lie on the present frontiers of man's technological knowledge are so damaging to our reputation in the world; and uncertainty here is as damaging as anything else. I do not think noble Lords would have enjoyed, any more than I did, addressing businessmen in America and Australia, trying to explain what was in Her Majesty's Government's mind on these matters. I am not saying that the Government were always fairly represented in the Press from which these queries arose among the businessmen with whom I talked, both in public and in private, but the thought that this country is backing out is not a happy situation with which to be faced; and that is how it is looked at with regard to these advanced projects on which our reputation as a skilful engineering nation so largely depends.

Having regard to the Plowden Committee, I do not want to pursue this matter further. I think there could be nobody better than the noble Lord, Lord Plowden, in charge of this very difficult task. But I hope that Her Majesty's Government and that Committee will bear in mind that there is a matter outside pure questions of immediate cost and pure questions of immediate expediency, political or otherwise, and it is this: that if we are not an advanced technological nation, we are nothing. If we are going back to being the industrial hewers of wood and drawers of water there will not be a very fat living for anybody in this small island, and there will not be very many exports either.

This may well present the Government with some difficult problems. I am seeking only to ask that at least they be considered with this sort of background in mind. If we cannot do these things ourselves, it is right to do them with our European friends. I am very fond of our American Allies, but they are so large and the skill of their industry so great and complex that it is rather like being hugged by a grizzly bear: he may love you very much, but you are dead all the same. The size and scope of their technology—and I would pay a tribute to it—on the frontiers of science, in the moon race and all the rest, is such that they are not very easy partners for us in the sense of doing joint projects. The Europeans are nearer our standards of development, science and financial resources. That is why I think it was right to build the Concord with our French Allies, and it would be terribly wrong to let them down on this project.

My Lords, I do not want to go on. I have tried to give a few random impressions about the export business, in which I suppose I should declare an interest for two reasons: one, I am involved in it, and, two, it was the previous Government—and I think the noble Lord, Lord Shepherd, got this wrong—who set up the British National Export Council. It was the previous Government that bullied me into becoming the Chairman of the Committee on Exports to the United States of America. We must go on and try to make a success of this export task because it is in the national interest to do so. And if we are willing to do so—and we in industry are anxious and willing to do so because it is a job to be done—I think we have a right to say to the two other partners, the Government and the great trade union movement, in which I have many friends, that they, too, must play their part.

I do not feel now that I am enough in touch with current Government affairs and politics to give advice to Her Majesty's Government on what they should or should not do, but it is perfectly plain to me that if they do things which inhibit rather than help our export trade—and these are the things we are discussing this afternoon—then they cannot grumble if, however hard we in the business fraternity try, we do not get as many orders as we should like and as would be good for our country. So here is a job that should be done, and I only ask this afternoon—and I apologise if I have been controversial—that the Government see their responsibility on this a little more clearly than they appear to me to have seen it in the first weeks and months of office.

5.17 p.m.

LORD SAINSBURY

My Lords, it gives me very great pleasure to be the first to congratulate the noble Viscount, Lord Watkinson, not on his maiden speech in this House, but on his maiden speech as a Member of this House. He is, as all noble Lords know, a man of great Parliamentary and Ministerial experience. He has recently entered the ranks of big business, and here perhaps I should declare an interest because my firm happens to be one of his many thousands of customers. I feel that what he has said, with his great experience of the export trade, is of considerable value, and I am sure that we on both sides of the House will look forward greatly to his future contributions when he will not suffer under the restraints imposed by a maiden speech.

Taking part in the debate on the Address a month ago, I said: … the present payments crisis is not of financial origin; speculation does not come into it."—[Official Report, Vol. 261 (No. 5), Col. 170, November 5, 1964.] True as it may have been at that time, it would not be possible to repeat that statement to-day. As we all know, we have lived through a very critical period in recent weeks, with the great strain on sterling, but we have also witnessed a great example of international co-operation in the financial field because the countries concerned recognise the interdependence of all trading nations, and our overseas friends acted on the principle of enlightened self- interest when they rallied to the support of our currency.

The Opposition may criticise the Government's handling of the situation, but what they cannot escape by so doing is their responsibility for the country's present economic situation after thirteen years of power. As the Observer newspaper said in a recent article: … The Government's freedom of action was severely limited by the economic situation it inherited from its predecessors. The blame must rest on those responsible for the conduct of the country's economic affairs for the past thirteen years. However, recriminations over the past will not help us at all. It certainly will not sell more goods abroad, nor make our economy more efficient. What is wanted is leadership, with understanding and response from the community as a whole. There is a human problem involved as well as economic and financial problems. The Times recently called for the long overdue re-awakening of the British people, but in my view there are already signs of a new spirit, reflected in the attitude both of the employers' organisations and of the trade unions in their approach to the problems of an incomes policy.

There has been criticism of the November Budget, that it did not go far enough to deflate the economy. In my view, it would be unfortunate if the fact of ours being an international currency forced the nation's policies on to the wrong lines. The sudden application of the deflationary brakes is not the solution, in my view. By cutting down the home trade you do not necessarily stimulate exports. It may in point of fact have the opposite effect, by reducing output, raising costs and worsening our competitive position abroad. Therefore, in view of the fact that industrial production has been static this year and that there is no evidence of consumer expenditure running at an unduly high level, I consider the Government's policy correct. Already we have what the City Editor of The Times describes to-day as A mild and selective credit squeeze … in the way … but certainly"— I underline this— nothing of the 1957 and 1961 varieties. Further deflation, in my view, would endanger the level of private investment, which is so necessary for both efficiency and growth. Our production to-day is still suffering from the effects of the 1961 deflation on private capital investment. It has been estimated that £100 million to £150 million of fixed investment was lost. Without large investments we shall not get the modernisation, the efficiency, the increased production and exports we all talk about.

As we all know, the Finance Bill contains provisions for the export rebate. Criticism has been made that the average of 1½ per cent. is an insufficient stimulant. The German equivalent is already 5-6 per cent., and one might well ask why they are in a position to give this much higher incentive. Immediately we get involved in the intricacies of GATT regulations, and, quite frankly, I am a little out of my depth. One could argue that a decisive new system of export incentive, if it is not to offend GATT, probably demands a substantial re-casting of the domestic tax system. The object would be to put a far larger burden on indirect taxes, which the international codes do allow to be remitted to exporters. But a re-casting of our domestic tax system would, in my opinion, be altogether wrong, because indirect taxes are indiscriminate, bear most heavily on the lower income groups and increase the cost of living.

There are experts who say that one of the mistakes of recent British official policy has been to run too few risks with export credit guarantees, and that the rules are at present too strict to be in the widest national interest. Other criticisms are the all-or-nothing attitude to individual firms and the length of credit available. I do not know the strength of these criticisms, but your Lordships will remember that Her Majesty's Government have already indicated in their statement on the economic situation, that export credit facilities will be improved wherever this will lead to an immediate increase in our overseas earnings". Political and Economic Planning—P.E.P.—recently investigated export problems and said that Tariffs, foreign competition and low profits compared with the home market are stated to be the chief obstacles to the expansion of exports. More competition in the home market is needed to make exports relatively more profitable". But in any discussion of our economy one is always driven back in the end to the basic problem of productivity. Unfortunately one is never short of disturbing evidence of wasteful use of manpower. According to the recent Report of the Iron and Steel Board, productivity in the steel industry is only about 50 per cent. of the United States level. It is also lower than in the European Coal and Steel Community, and our productivity has recently been overtaken by Japan. Two main reasons are advanced for this: the relatively small size of many of the older plants in Britain and, more important, certain labour practices. The Board points out that the present output could be achieved by a considerably smaller labour force than at present and suggests that management and organised labour should take a critical view of manning practices.

My Lords, may I say this in conclusion? It is my view that one is entitled to ask the critics of the Finance Bill and Government policy and actions since they took office, what would the Opposition have done if they had been in power? Would they have devalued? And if they had—bearing in mind that sterling is an international currency—would it not have done more harm to international confidence than the temporary surcharge? Or would the Opposition have favoured a Selwyn Lloyd type of drastic deflation, which would have prejudiced economic growth for years ahead, and caused a considerable increase in unemployment within twelve months? We are entitled, I consider—if not in this place, in the country at large—to challenge the Opposition with two more questions: whether or not they would have increased widows' and old age pensions; and, in view of the statement of one of the leading occupants of the Opposition Front Bench in the other place—namely, Mr. Enoch Powell, who talked of an incomes policy as "dangerous nonsense"—whether or not they truly believe in an incomes policy as vitally necessary for the nation's economic health?

5.30 p.m.

LORD LUCAS OF CHILWORTH

My Lords, before I come to the subject upon which I am going to venture to address your Lordships, I would join with the noble Lord who has just spoken in congratulating the noble Viscount, Lord Watkinson, on what I thought was an excellent maiden speech. I hope that with his vast experience he will often address your Lordships. In a couple of weeks' time I am going to follow the path that he has followed, into Australia and the East. Although I absent myself from your Lordships' House for three months every year in the winter, it is not only to chase the sun; it is also to learn precisely the lessons that he has learned—that there are marvellous opportunities for British exporters if they will use their brains and their energies. But I shall come to that in a moment.

I should like also to congratulate the noble Lord, Lord Shepherd, on his first major speech from that Dispatch Box. In this regard I join with the noble Earl, Lord Dundee. I thought he was excellent. I thought he put up a splendid show from the poorest kind of brief. Unfortunately, he could not say anything new: we had heard it all before. But there is one thing that I am glad he did say, because I am certain that he, and the Government, are right. We do not want any more deflation of the economy of this country. If we have learned one lesson over our history since the war, surely it is that to deflate an economy and to try to deflate home demand never yet exported a single article overseas. As the noble Lord, Lord Sainsbury, said, all it does is to put up export costs. We depend for any good export business on a virile home market. As Lord Watkinson rightly said, profits in the export market are thin, and British manufacturers must cover them by having a good home market.

I sincerely hope that the Government will stop listening to these unpractical economists, from whatever country they come. There is no more real inflation than you get in the ordinary course of conditions under which we live, when we are so close to Europe. There is no shortage of capacity. It is futile for these economists to say that we are over-pressed by our capacity. Our unemployment figures are the most "phoney" figures that have ever come from a Government, because there is so much underemployment. The noble Lord, Lord Williamson, and I tried to impress this upon your Lordships on the occasion of the last economic debate.

I should like to quote again the figures that I quoted to your Lordships then. Out of a gainfully employed population of 23, 393, 000, the total employed in manufacturing industries is 8, 912, 760. Of that 8 million odd one-third are under-employed. Quite one-third of those employed in our productive industry should not be working in these factories at all. May I quote one other figure? This is what I said on March 18: From June, 1959, to June, 1963, the increase in manufacturing industry was 2-8 per cent., and in the distributive trades the increase was double that, 6 per cent."—[OFFICIAL Report, Vol. 256 (No. 52), col. 897.] We are the most wasteful country in this world when it comes to our most precious asset—labour.

The noble Lord, Lord Sainsbury, quoted from an article in The Times on the steel industry. The noble Lord, Lord Thomson of Fleet, made an outstanding speech in your Lordships' House on the Address, when he asked: "Why is it that in America, with higher wages, they produce per man three times more than is produced in this country; yet in America they have a 6 per cent. figure of unemployment?" They are not afraid to disclose their unemployment. We have been hagridden for years, ever since the war, by the sacred cow of the trade unions—namely, redundancy. At all costs we must not have redundancy! So we keep in employment men who should never be kept in that employment. We have too many non-producers.

We have been building up ever since the First World War the position in which we now find ourselves. We have become restrictive minded—anything for restriction; restrictive practices on both sides of industry. One had only to sit and listen to the debates we had in your Lordships' House on the Resale Prices Act to hear the restrictive mentalities at work. I should think that the noble Lord, Lord Shepherd, and other noble Lords opposite, as well as the whole of his Party, must now bitterly regret that they did not give more thought and more support to the then Government in strengthening the Resale Prices Act when it was going through Parliament. That was one of the blots on their escutcheon. They had to play politics instead of economics.

LORD SHACKLETON

My Lords, if the noble Lord will allow me to intervene, I do not know how much he heard of the debate, but I recall that a number of my noble friends—the noble Lord, Lorn Shepherd, the noble Lord, Lord Sainsbury—and I myself all in fact advocated strengthening it, and objected to some of the rather absurd precautions that were put in. I do not think the noble Lord could have heard it.

LORD LUCAS OF CHILWORTH

Oh, yes, I did. I can assure your Lordships that I am not hard of hearing. I heard it.

LORD SHACKLETON

Perhaps misunderstanding it?

LORD LUCAS OF CHILWORTH

No, not misunderstanding it, either. I was not referring so much to the speeches of noble Lords on that side of the House; rather was I referring to the speeches made by those who I always thought were some of the captains of British industry.

LORD SHACKLETON

Lord Shepherd?

LORD LUCAS OF CHILWORTH

No; I would not go so far as that. It was indicative of the fact that you still have this spirit in the country. When we were at that stage which the noble Lord, Lord Shepherd, referred to this afternoon—I think he used the expression "fighting for our lives" some two weeks ago—it was reported that there were about 700 applications made to the Registrar of Restrictive Trade Agreements by manufacturers, suppliers and trade associations for exemption from the provisions of that Act. Right in the middle of this period, these people were trying to get back to the days of restrictive practice.

At the same time, a trade union leader, Mr. Ted Hill, the President of the Boilermakers' Union, was pressing the President of the Board of Trade to consider some form of tax on ships built by United Kingdom owners in Japan, as a protection for British shipyard workers. Sir Donald Anderson pointed out to him, I think quite rightly, that they had to build the ships in Japan. They had to get them down to a price and with a delivery that would enable them to go into the market of the seven seas of the world which was the monopoly of foreign shipowners. It was not a case of either building them in Japan or building them in Britain; it was a case of having them built in Japan or not at all. At that very time, when we were trying to awaken the country to this need, a leading industrialist in the North was being held at pistol point with the threat of strike action to employ twice the number of men he needed on a three-day week basis. That is the sort of thing we have got to battle against; that is the mentality we must fight.

I should like to ask the Government what they propose to do. There is no proposal of which I have learned which is going to solve the problem of great burning priority, and that is how in the future we are to earn our daily bread. It is no good the noble Earl, Lord Dundee, trying to put figures forward that our exports are good. Our exports are bad. We have been losing our place as an export nation. We have gone down in the league table for years. We may have increased our exports on previous years by 4, 6 or 8 per cent., but every one of our foreign competitors has outpaced us by increasing its exports double or treble. Why? That is what we have really got to address our minds to, and it is the first priority. How are we going to increase our exports? We have the 1 to 3 per cent. incentive, but is it enough?

The noble Lord, Lord Sainsbury, was thinking around a complete revision of our taxation system. As he quite rightly said, we come up against GATT. Yet the French manage to get round it; the Germans manage to get round it. I would ask Her Majesty's Government—Lord Shackleton will perhaps tell me, or will pass the suggestion on to his colleagues—to have another look at a turnover tax. I know all about the Richardson Committee; I know the objections. But the the Richardson Committee were considering a turnover tax in the context of a substitution for purchase tax. I am looking at a turnover tax in the context of a rebating exporter. At least it is worth looking at.

One thing which I think the Government could do is to make it possible for exporters to obtain finance. I do not mean the finance which E.C.G.D. provide, for that is an insurance, but finance so that they can give the very long-term credit which they must give to foreign and overseas purchasers. Perhaps the best thing I can do is to illustrate the point by quoting an actual industry, the motor industry. I do not want it to be thought that I am the spokesman for that industry, but it is an industry which I know something about. This coming year they will have exported £734 million-worth of their products overseas. As to the bulk of those products, especially the most expensive ones, the huge vehicles, they have to give a credit of anything from four to six years; they have to find the money. At the beginning of that period they must estimate what the bank rate is going to be for the next six years—a rather hazardous occupation to-day. They have to pay very high rates. I should have thought it would be possible for the Government to give exporters—I am using the motor industry only as an example—finance on preferential terms, terms which are static over the period of the contract for sale. It would help enormously, because a change in the bank rate can mean a difference of as much as £300 per vehicle they sell.

Another point is that the Board of Trade may perhaps be a little narrow in their outlook on this in regard to some of the products we sell overseas. The Americans are very clever in this respect, for they look on an export to a foreign country as only the beginning of a chain. It is estimated in the motor industry of this country that when a vehicle of £5, 000 value is exported it takes with it, during its lifetime, another £5, 000-worth of export value in regard to the spare parts and other supplies which are necessary.

LORD SHACKLETON

It must be a Rolls Royce.

LORD LUCAS OF CHILWORTH

It is not a Rolls Royce.

LORD SHACKLETON

They do not need spares!

LORD LUCAS OF CHILWORTH

The noble Lord should recognise that some of these 20-ton vehicles and 64-seater buses which are exported in large numbers to foreign countries are very expensive items. They are not Rolls Royces. Our heavy vehicle manufac- turers in this country are pre-eminent in the world in this class of vehicle.

While I am on the export question, I would beg Her Majesty's Ministers to be very careful about some of the things they say and some of the utterances they make. I was told the other day by a leading manufacturer in the motor industry that he has had an import licence withdrawn, costing the company a very big order in Spain, because of what the Spaniards thought was the very foolish attitude we were adopting over the naval exercises. Again, in regard to South Africa perhaps the Government have a formula; but when does a 20-ton truck which is shipped out to South Africa become a warlike vehicle? All this talk about arms embargoes is very disturbing to some of the buyers in overseas countries, and, as the noble Viscount, Lord Watkinson, quite rightly said, our competitors are waiting on the sidelines to fulfil the orders which we do not fulfil.

My Lords, those are just two suggestions which I have to make about exports. There is one other that came into my mind while the noble Viscount, Lord Watkinson, was speaking, and when he said that very many of our exporters do not know the services which they can obtain from the Government Departments. That is quite true. But there is also an equal number—and a very large number, I am afraid—who do not know what financial assistance, such as allowances, they can get from various Government Departments. That fact was brought home very vividly in an article written by the Editor of the Financial Times some two weeks ago. No publicity is given by the Board of Trade to all the help that the Government can give developing industries all over this country. The ignorance of some of these people whom we are wanting to help is sad, and they do not know the help is available.

There is only one other point that I would make, and I do it with a certain amount of diffidence. We have talked and heard a lot about an incomes policy. I have not yet been told all the details; perhaps we shall learn something this afternoon. But I must confess I am very sceptical, because, call it by whatever name you like, an incomes policy is a restraint of incomes policy. That is its object. But I cannot think we shall ever get to the stage where a manufacturer or a producer who wants first-class brains will be prevented from paying for them. Also, I do not think we shall ever stop a first-class man from getting first-class money, if he goes out to get it. There is one thing I do not want to see, and that is the wage-earners and the young executives, or anybody like that, being brought down to a level of mediocrity.

I do not think the Government will have much difficulty in persuading the T.U.C. about an incomes policy; I do not think the T.U.C. will have any great difficulty in getting the support of the individual unions. But when one gets down to the bed-rock, the grass roots, on the factory floor, where the conditions to-day are really archaic and where the shop steward's movement, which is now almost an industry in itself, has a grip of the whole position, I have my doubts. My Lords, base wages negotiated between management and labour to-day are but a clocking-in fee. After that, the local bargaining and guerrilla warfare starts. What are we going to do about labour, with the restrictive practices and the unofficial strikes? It is a great problem. Because, my Lords, to-day an unofficial strike starts with somebody who is not being paid a bad wage but being paid a very good wage, but who suddenly hears that somebody is getting more. That is where the strike starts, and I do not know how the problem will be solved.

There is only one thing which I wish the Government would do—and I expect many of your Lordships will think this is harsh and strong. All restrictive practices on both sides of industry should be outlawed. After all, we must do something. We must learn how to utilise our labour to the best advantage. We are the worst country in the world in this regard. I dare swear to your Lordships that in South Wales there are 25, 000 redundant workers in the steel industry. There are 10, 000 in the Steel Company of Wales. What has been done about the position? Nothing.

There is another nettle we must grasp and it must have a high priority; I would say second only to that of stimulating the exports of this country. I refer to Government expenditure upon Defence and similar other matters. From 1952 to the end of last year, £20, 000 million were taken out of the pockets of the taxpayers of this country for Defence. That is what successive Conservative Governments took out of the taxpayers' pockets. How can we go on bearing this expense? Take the case of Germany. It is costing us £80 million-odd a year, and they have never kept their bargain that they would buy their military equipment from us; they buy it from America. How long are we going on with this kind of situation? How long can we, as a nation, with our resources, play the part that we thought we did in the days of Queen Victoria? I think the Government are seeing the dawn. Was it not the Chancellor of the Exchequer who only the other day said that we can be either an economically sound nation and a power in the world, or a military nation and unsound, or words to that effect? We have to do something, and when we start on that path I think we shall be viable, and we shall be able to give the people of this country the economic state they not only desire but deserve.

5.58 p.m.

LORD MOLSON

My Lords, the late John Strachey was not only a remarkable political philosopher but he was, indeed, a remarkable prophet. It was on February 6, 1954, that he wrote in the New Statesman and Nation, The next Labour Government will come into office in a situation which, if it even attempts to implement its social reform 'fair shares' programme without doing anything else, (he national reserves of gold, dollars and foreign exchange will pour out of the country in a torrent. I wish he had lived to see how true his prophecy has been.

But I think that we must realise that the very acute crisis which we are facing is of two kinds. There is the long-term unfavourable balance-of-payments situation, due largely to our inadequate exports, and there is the crisis of credit which the Prime Minister himself has said came on only after this Government came into power. I want to speak frankly. First, we must, I think, recognise that the position of exports was unsatisfactory at the time when the present Government took over. I had long felt that the Conservative Government, like the Socialist Government between 1945 and 1951, had been overdriving the economy.

There is the obsession about never allowing unemployment to rise to a level at which it is possible for growth indus- tries to recruit labour without inveigling that labour away from other existing industries. The noble Lord, Lord Lucas of Chilworth, has referred to the need for reorganisation, and to the excessive amount of Labour which is engaged in various industries. I have recently been reading a remarkable book, which I commend to your Lordships, called The Rebirth of Britain. In this book it is calculated that, with reorganisation—nothing frightfully revolutionary—it would be possible for our present total national output to be produced by half of the existing labour force.

We are, of course, confronted with the problem of trying to do too much at the same time. I well remember the noble Earl, Lord Attlee, making that remark in a philosophical commentary upon his own Administration. I cannot quote his exact words, but I think they were to the effect that with the very best intentions in the world, we have perhaps tried to do too much too fast". If that is a criticism which can rightly be applied, as I think it can, to the Socialist Government between 1945 and 1951, it can also undoubtedly be applied to the Conservative Government between 1951 and 1964. The programme of public expenditure which the late Conservative Government announced in February of this year was an indication that this further inflationary policy was intended to be pursued. It was a forecast of expenditure up to the year 1967-68. It was based on an increase of expenditure of 4-1 per cent. each year, and on the optimistic assumption that there would be an increase in output of 4 per cent. per annum. My Lords, Chancellors of the Exchequer can be quite sure that expenditure will go up, but they cannot be equally sure that national production will go up.

Now Mr. Colin Clark, who is also a contributor to the book to which I have referred, The Rebirth of Britain, has long argued that taxation amounting to more than 25 per cent. of the national income is likely to lead to inflation. In 1957, according to The Times, taxation was 36 per cent. of the national income; in 1963, it had gone up to 40 per cent.; and in 1966, on the late Government's intended expenditure, it was to go up to 41 per cent. Unless it is possible to make sure that production really is going to increase, and that these restrictive practices and this uneconomic use of labour will be brought to an end, it is most imprudent to plan ever-increasing expenditure over a number of years to come.

My Lords, in the same way, this last spring I ventured, in your Lordships' House, to criticise the late Government's Bill, providing for £75 million to be advanced to shipowners to have their ships built in British yards, because the £75 million was made available quite unconditionally: there was nothing about restrictive practices, nothing about strikes due to demarcation disputes and so on. My noble friend Lord Dundee, in reply, expressed kindly sympathy and a good deal of personal agreement with the argument which I had put forward, but was of the opinion that it was impracticable. What do we find to-day, after this "shot in the arm" of £75 million? We find that the Canadian Pacific Railway Company, which has always had its ships built in Great Britain, is now obliged to give three-quarters of a very large order to Japan, and that the P. & O. Company, which, as was referred to by the noble Lord, Lord Lucas of Chilworth, is trying to enter a new kind of shipping activity, has found itself obliged to do the same kind of thing.

My noble friend Lord Dundee has elicited what is interesting about the amount of the unfavourable balance of payments this year that was due to exports of capital, but I wonder whether there was any justification for such large exports of capital as were then undertaken—for example, the £60 million (I think it was) of Shell's investment in Italy. With an unfavourable balance of payments on industrial account, it is obviously impossible for us to go on investing overseas in that way. I fear also that the overseas aid which we have been giving, however desirable in itself, has also been beyond our powers.

My Lords, I have made those remarks in criticism of the last Government, and to that extent I have perhaps been concurring in some of the things that have been said by the then Opposition. But whatever the long-term difficulties may have been, the acute crisis which has now arisen is undoubtedly due to an almost incredible sequence of follies committed by the present Government in the short time, the fifty days, that they have been in office. The first was the 15 per cent. import charge. In the last few years we have heard arguments between the Six and the Seven; there has been criticism from the Commonwealth that we were seeking to enter Europe; and there was a difference of opinion between all these bodies. What a remarkable feat on the part of the new Government to have introduced a measure like this, which has simultaneously alienated the Commonwealth and offended EFTA and the Common Market!

There have been breaches of no fewer than four international agreements: so far as the Commonwealth is concerned, the Ottawa and subsequent trade agreements; then the agreements with EFTA; and, as regards the Six, the European Free Trade Association Convention and GATT. My Lords, I realise the argument in favour of this 15 per cent. import charge. I do not agree with it, but I can see the force of the Government's argument. But I would say there was not at that time that urgent hurry. That was before the crisis of confidence in sterling had started. There was no reason why there should not be at any rate a rapid consultation with the Governments concerned. To say that there was a danger of a breach of confidence is really unreasonable. No one is suggesting that they should have consulted the exporters: it was a matter of urgent consultation with the Governments concerned.

This blunder inevitably led to another. When the Foreign Secretary and the President of the Board of Trade met our EFTA partners, and sought to justify this sudden and arbitrary imposition of the 15 per cent. duty, they had to paint the picture as black as possible in order to justify what they were doing. And when they painted the picture so very black it was inevitable that foreigners with deposits in London should assume that what they were saying must surely be true: and as a result they proceeded to withdraw very large sums from London. How large those sums were we do not, of course, know.

The present published reserves, at £837 million, are the lowest since December, 1957. But that is nothing like the whole story. Considerable withdrawals had taken place in September and October; sums estimated at some £150 million were borrowed from the Central Banks; and on December 2 we borrowed £357 million from the International Monetary Fund. As that was borrowed the day before the reserves were published, it must be assumed that the reserves, which include our foreign exchange, as well as gold, took that into account. Therefore all one can say is that during these last few months there have been withdrawals on a really appalling scale, the total amount of which is not known to us.

The noble Lord, Lord Shepherd, spoke about this not being the first financial crisis we had had. He took pleasure in referring to the last two which happened while the Conservatives were in power. I am sure that he will not mind my reminding him that there have been no fewer than seven crises since the end of the war and the results of two of them were: one, under the late Mr. Dalton, the end of convertibility of the pound; and the other, under Sir Stafford Cripps, the devaluation of sterling. All this goes to show that we have the problem of trying to maintain our position as one of the greatest banking nations in the world with an inadequate export trade and with inadequate reserves; and it is a position which this country cannot permanently maintain. Something far more fundamental is required than anything that either of the two Parties in power since the war have yet undertaken. I would say also something about the proposed increase in pensions.

LORD SHACKLETON

My Lords, if the noble Lord is changing the subject, may I interrupt at this point? I have been following his speech, as have other noble Lords, with great interest. Would the noble Lord care to develop a little his thinking on this fundamental approach to the problem?

LORD MOLSON

My Lords, I will just hand out a prospect to the noble Lords opposite. When I have finished my criticisms, I am going to commend the Government for one or two things that I believe they are doing and which I hope they will have the courage to carry through. Other noble Lords, like my noble friend Lord Watkinson and the noble Lord, Lord Lucas of Chilworth, have referred to the export trade and they know far more about it than I do. I am sure that something will have to be done to foster our exports, very likely on the lines they have indicated.

On the matter of pensions, the Chancellor of the Duchy of Lancaster made a remarkably stupid remark in another place when he said that if the International bankers do not like it, they can "lump it". My Lords, when we are on the verge of a financial crisis, and are borrowing money to pay our way, it is not wise and not statesmanlike to talk in that way. Perhaps, since then, he has noted what the Chancellor of the Exchequer has said about this matter: As to whether one has freedom of action when one goes cap in hand to the Central bankers, the answer is … that that is not a posture any Chancellor enjoys. It is an attitude from which the whole House and the country will want to see us escape at the earliest possible moment."—[Official REPORT. Commons, Vol. 702 (No. 21), col. 1479. 26th November, 1964.] My Lords, on this matter of pensions I do not dissent from what the noble Lord, Lord Shepherd, said about giving increased assistance to those in this country who are in need. But I did criticise the Conservative Government's last Pensions Bill, and I criticise the Pensions Bill introduced by this Government. I give my reason in about four sentences. First, all those who are in need are able to go to the Assistance Board. What they receive in the way of pensions is taken into account when determining what assistance they shall receive. With every year that passes under the ten-year rule, an ever-increasing proportion of those who are in receipt of pensions are not, in fact, in need of them. Almost all Members of your Lordships' House who live long enough will qualify to draw pensions. If the Government really wanted to use the money most effectively, in order to give money where there is need, they would have increased in a suitable way the amount paid under the Assistance Board regulations, and they would not have gone in for an inflationary measure of increasing payments to all pensioners, regardless of whether or not they are in need.

I pass from that matter to the things which have been done by the Government just recently. The blunder which followed was that when the Prime Minister had announced that the Government were going to defend the pound, there was no raising of the bank rate the following week. It was then that the real crisis of confidence set in, and it became necessary to raise the bank rate to 7 per cent. on a Monday morning. I believe that that was entirely the right step for the Government to take; I believe that it will have a salutary deflationary effect.

I noticed that the noble Earl the Leader of the House took exception to a question that my noble friend Lord Eccles asked him the other day, as to when the credit squeeze would begin. The noble Earl was quite indignant about it. He recommended my noble friend to read the Labour Party Manifesto, and said he could only assume that the question was meant ironically. He said, with great dignity and indignation: "So far as we are concerned we regard these matters as too serious for irony." I am glad to say that the Chancellor of the Exchequer on November 24 had already begun to announce a salutary credit squeeze, when he said, in moving the Second Reading of the Finance Bill: As to bank lending, the position of the banks is such that they will wish in the coming months to moderate the expansion of their lending … and the normal seasonal pressure will reinforce this tendency. Some tightening up should have the natural result in the present situation, of making a contribution to preserving a proper balance in the economy."—[Official Report, Commons. Vol. 702 (No. 19) col. 1104, November 24, 1964]: The noble Earl will say that taking steps to obtain a proper balance in the economy is not a credit squeeze, but I do not know what else it is. I am glad to read in the paper to-day that a request has gone out to banks to exercise a discriminating squeeze where it will have the effect of reducing consumption inside this country, and that I imagine is what is going to be done in order to release labour, in the way that was indicated in the statement by the Government, to increase exports.

THE EARL OF LONGFORD

My Lords, since the noble Lord has referred to me and I am sitting here, perhaps it is difficult for me to keep silent. I cannot believe that the word "squeeze" was used by the Chancellor of the Exchequer, by the Governor of the Bank of England or by the banks themselves. They refer to some moderation of the expansive process, but I am afraid that I cannot agree that a squeeze has been adopted.

LORD MOLSON

My Lords, of course, squeezing is a relative term and some people squeeze more than others squeeze, but I think that the House will agree with me that what the Chancellor has indicated, and what has now been officially requested by the Bank of England in letters to the banks, is something which is normally known as a careful and discriminating squeeze where it is appropriate. I believe that this will have the effect of a satisfactory internal deflation, which will have the beneficial effects which the.15 per cent. surcharge may have had without the ill effects. I believe that it will discourage imports, encourage exports and tend to keep down prices, and I think that it will increase the sense of urgency in industry. The great disadvantage of the 15 per cent. surcharge, which 1 [know was imposed purely for balance-of-payments reasons, is that it gives heavy protection to all British industry, including industries which do not need it and industries which do not deserve it.

As regards the future, I am thinking of the rationalisation of industry and the discouragement of restrictive practices, both of which have been referred to in a number of speeches to-day. But I believe that the Finance Bill itself does nothing to solve our two problems, which I would say are, first, the backwardness of many industries and services, especially the docks. At the present time weekend working has not been fully resumed despite the inflationary increase in wages that has been recommended. Secondly, foreigners' mistrust of the way in which we manage our economy, which has been made worse by needlessly increasing taxation and by the feather-bedding of our industries.

I said that I would end on a slightly different note and, having said that the Finance Bill is wholly irrelevant to our problems, I welcome some indications that the Government are tackling our problems now with some realism and, I hope, with some courage. I welcome what they are doing about the bank rate. I welcome what I believe them to be doing about the credit squeeze. I welcome their review of all expenditure, and I hope that they will have success with an incomes policy, without which I can- not believe our problems will be permanently solved.

6.24 p.m.

LORD CITRINE

My Lords, no thoughtful citizen can be without anxiety about our financial situation. It has not leapt on us overnight. The present position has been going on insidiously for almost the whole of the post-war period, with a growth of 2 per cent. in our actual production, as against the estimated requirement by the National Economic Development Council of 4 per cent., and with the decline in our share of world markets, which in 1924 was 24 per cent., in 1957 19 per cent., and in 1962 14 per cent. In the London and Cambridge Bulletin No. 52, published in The Times Review of Industry and Technology, December, 1964, the survey on the economic position contains this conclusion on exports: The brutal fact remains, however, that exports have never reached the NEDC line, and that the United Kingdom's share of the world's exports of manufactures in the second and third quarters of 1964 established new low records. I do not suppose we can assume that the Finance Bill before us is expected to cure all the basic causes which underly our present position. They are not temporary causes. What we are seeing now are symptoms rather than causes, the causes lie very much deeper than that. I firmly believe, as I have said before in this House, that the fundamental cause lies in the character of our people. We have an innate conservatism, not, I hope, of a political kind. We are reluctant to change. We always ask first of some new idea: what is wrong with it? If we find it is no good or if we think it is no good, we go on saying so for about forty years and then finally adopt it, and do it better than anybody else.

This attitude of mind runs right through our people, not merely on the side of the employers in industry, but equally on the side of the workers and our citizens generally. It is the basis of all the restrictions that honeycomb our present industries, and I am not nearly so optimistic as the noble Lord, Lord Lucas of Chilworth, that they can be effectively outlawed. I do not know what kind of mechanism will be established to achieve that result, and I think that the attempts which have so far been made, through the restrictive trade practices courts and their attendant legislation, have shown how complicated and how slow the process is in dealing even with the most obvious restrictive practices. If and when legislation is introduced to deal with the practices which exist among workpeople throughout industry—in addition to dealing with business practices, as existing legislation docs—goodness knows how long it will take to identify these practices and propose some cure which will not be worse than the disease itself.

Last night, as many others must have done, I saw a programme on B.B.C. television. I forget its title, but it might have been called "The Sins of Management" because almost the whole of the witnesses (as they might be called) who were interrogated or gave their opinions in that broadcast blamed management for the difficulties we are in to-day. The managers themselves, practising managers and managers of American firms in this country, gave similar testimony. I would not go so far as that. I do not believe that all the sins lie on the said of management. I think that in a period of full employment the powers of management to do the things they want to do for efficiency are very much curtailed. I would not lay all the blame on their shoulders. I think it lies in the apathy of our people; the sort of sublime indifference that we have to things that concern us very deeply. I can recall in two wars, when we were actually fighting the enemy, the difficulties there were in the way of convincing people of the need to change their mode of life and adapt themselves to the circumstances of a war-time economy.

Side by side with this, the inevitable is going on with inflation. Incomes are high; profits are good; and wages and earnings are higher than they have been for many years. So, as I have said once before in this House, I can hear workers saying: "If this is inflation, let's have more of it"; because, as they think, they benefit from it. Everybody is used to this. Yet it is the most dreadful canker which lies at the roots of our economic position to-day. I am well aware that it has been going on from time immemorial. I am not much of a Biblical expert—I know very little other than what I learned at school and in Sunday School—but I recall the parable of the men who thought they were not properly paid when they received 1d. a day for a 12-hour day.

There have been, of course, periods of stability; but they have been relatively short, and the decline in monetary values has been going on steadily throughout my lifetime. Some years ago I came across a report in The Times which was evidencing a question that had been put by Mr. John Diamond, a Labour Member, who asked the Secretary of the Treasury to publish in the Official Report a table showing the internal purchasing power of the pound sterling at 20s. in 1914, and then the value for each year since in shillings and pence. I am not going to read it in detail to your Lordships, but the 20s. sovereign in 1914 had declined by 1938—that is, the year before the war—to 12s. 10d. In 1960, four years ago, it was 4s. 6d. I am certain that its value to-day is considerably lower than that, and it would be interesting if we could receive figures which brought the present value of the 1914 pound up-to-date. So that a man now earning, say, £12 a week—and let us remember that there are many who do not receive anything like that sum—receives the value of about £2 14s. a week in 1914. Of course, hours of work have been reduced considerably since that time, but this shows the real value in purchasing power of these fantastically high wages. No wonder there are claims for continuous high earnings, with this inflation going on all the time. No wonder that wives, to a greater extent than ever before in our social history, go out to work to supplement the income of the family. That is not the only cause. I know—there are other things which induce them to do this—but I think it is the most serious one.

So far as I can judge, in no quarter of the community, except such as the Members of this House and Members of another place, economists and people engaged in the study of these questions, is there any sort of awareness of the tragedy that lies ahead of us unless something is done. I remember Mr. Hugh Gaitskell, when he was Chancellor of the Exchequer, warning the Trades Union Congress in 1951 of what would happen if there were continuous increases in wages, year after year. He dealt with that subject very adequately, and showed the disaster that would result in unemployment, as well as poverty, unless those tendencies were checked. That was in 1951. We are now in 1964. I well recall, too, Mr. Thorneycroft, when he was Chancellor of the Exchequer, going to the National Production Advisory Council on Industry, of which I was then a member, and telling them that we were paying ourselves about £900 million per annum more than we were earning. I tried to follow that up. I asked those present to make an analysis of that statement and say how far they thought the facts presented were correct; whether they were challengeable; and, if they were, in what respect. Needless to say, there was no follow up, except by me, and the whole thing lapsed.

Following that, and almost simultaneously with it, we had an appeal for wage restraint, with the very natural consequence that the trade union people said: "Why wages only? If we are in a situation that requires something that we did not do even in two world wars, then it should cover the whole community and not merely the wage earners". Then, without attempting to make political capital out of it—I am not intending to do that in any way-one cannot forget the mistakes that were made by (I will not mention the name) a Conservative Chancellor of the Exchequer in the wages pause, which antagonised not only trade unions generally, but people who normally in their dealings with their employer—the teachers, civil servants and others—are well-balanced and not extravagant in their demands.

A White Paper followed that, in February, 1962, which took away almost every one of the major arguments that can be presented to justify wage increases, and said that these were not, in the then circumstances, relevant. If ever there was a method of whittling down our traditional systems of collective bargaining, that was it. In the circumstances, many people who normally had faith in arbitration, and unions who were ready to submit their claims to arbitration, lost faith. They believed that the arbitration courts were receiving, in substance, a direction from the Government. As for the Government themselves, the normal distrust which existed in labour circles was very much intensified.

Now a Labour Government have to deal with this situation, and they are trying to work out an incomes policy. A prominent Conservative has said that an incomes policy is nonsense, but I am glad to see that there is not complete unanimity on this point. Certainly the Labour Government are trying their best to come forward, after adequate consultation, with some kind of equitable policy which will apply not merely to wages but to all forms of income. They have had consultation with the representative bodies in industry. I cannot think of anybody they have left out who is really in a representative capacity. They have consulted the British Employers' Confederation, the Federation of British Industries, the Trades Union Congress and a body that was called the National Union of Manufacturers, who now have a title which I do not recall. These have all been brought together in consultation and in serious discussion, and to give their advice to the Government on this question. And we have been told that it is possible that a wages policy, at least in outline, will be worked out by Christmas.

I have no doubt whatever that restraint in wages applications, as in demands in all other sections of incomes, is an essential ingredient in trying to cure this situation. I have said this publicly and privately, and there is no need for me to expand it. But there must be some firm assurances that the same kind of action is going to take place with regard to dividends and profits, not merely by limiting dividends which can be postponed or put into reserve or something of that kind—and this sort of thing can easily be done—but by devising mechanism which can cover the whole of the incomes of this country. This is going to be a very difficult task indeed.

I do not know whether it is feasible, for example, to control prices. I have read something about European experience on this point, and it seems to be very patchy. For a time it seemed to be effective and then, as in the last war, irrefutable cases could be made for increases in costs, and legislation had to be modified until we had what we called permitted increases; and as the war developed even that broke down, so far as my memory serves me. So let us not minimise the task of the Labour Government. Let us have a little more charity for them in struggling with this position. It would tax the ingenuity of the cleverest body of men who could be brought together. After all the consultations are done, we have still to convince those people on the shop floor, who form the bulk of our purchasing power and create the pressure of demand which in the main causes or is one of the causes of inflation, and about whom the noble Lord, Lord Lucas of Chilworth, spoke.

I have for years seen the defects in trade union organisation which—how can I say it?—widen the gap between the trade union official, negotiating with the employers' organisation, and the men in the workshop. There should be many more trade union officials; and bargains made in the workshop between bodies of shop stewards (some of them very irresponsible) and the employers in the workshop (some of them completely unknown to the trade unions) can lead to a measure of inflation by reason of the employers, rather than have trouble, making concessions which are basically unjustified. All factors of that kind will be involved in trying to work out an incomes policy.

I do not know enough about the methods available to Governments, but while it is quite demonstrable what will be the effect of, say, a wages restraint, a wages pause, a long-term agreement, or whatever method may be used for the time being to stablise wages, it must be seen and understood by the men. But what means are going to be taken to show workpeople on the workshop floor that the men in the higher income brackets are making anything like a comparable sacrifice? I do not mean to say that the means cannot be found to make that sacrifice essential, and inescapable perhaps, but how is it going to be administered? How are the workpeople going to be shown that? At the moment I am not able to suggest an effective remedy. Of course, it is too much to expect in any policy devised under pressure, as this incomes policy must be, to be able to deal effectively in a first round, as it were, a first pronouncement, with this problem. Whether we can get beyond or expect to find anything more than a declaration of intent on this matter, a declaration of a readiness to co-operate and to show the measure of good will that exists between the various consulting bodies, is extremely dubious.

That brings me back to the inevitable, the need for adequate and sustained publicity. It is rather amusing to anybody who has tried in any way to develop a system of communciations in a large-scale industry or firm to see how crass are the methods employed to-day. It is regarded as some kind of waste to spend money in this respect. Large sums of money are spent by progressive firms without cavil on new machinery and on the latest devices. But when it comes to getting down to their human material, which is the most precious of all and the most precarious and difficult to deal with, the methods taken are elementary in the extreme. So when I speak of adequate and sustained publicity, I am thinking of something much better than anything we have attempted to do up to now.

I think all available means will have to be used to get this policy understood and accepted by the public and the workers at large through the organisations, through the B.B.C. and on the platform, too. To-day, the platform does not play so extensive a part as in my young days, but it is still a medium and one of the few media left where speakers can be questioned at length by their audiences. So I hope that that will be used to try to get over to the public how important it is, how crucial to the success of the new incomes policy and the prosperity of this country, that that policy should be accepted and loyally worked by all of us; and all of us must hope that it will succeed. I have a long experience of the trade union movement behind me, and I know something of the difficulties. So far as I personally am concerned and, I am sure, so far as your Lordships are concerned, the greatest measure of good will will go out to those who are trying to devise this essential national policy.

6.46 p.m.

LORD DENHAM

My Lords, may I first of all add my congratulations to those which have already been expressed to the noble Viscount, Lord Watkinson, whose maiden speech we all heard with so much pleasure earlier this afternoon? In the gracious Speech from the Throne at the opening of Parliament, Her Majesty's Government undertook to pay special attention to the interests of consumers. The previous sentence in the same paragraph referred to the Government's intention to promote reforms in taxation. This juxtaposition seems now to be unfortunate, as certainly one aspect of Her Majesty's Government tax reform programme will have a disastrous effect on the interests of consumers. I refer to the proposed capital gains tax.

The efficiency of small tradesmen is vital for providing for the needs of the consumer. It may be larger businesses which manufacture most of the consumer products, but it is to a large extent the small man who deals direct with the public. The small man provides services. The raw materials are made by the manufacturers, but the quality of the finished product is the responsibility of the small man, and he provides after-sales service for larger consumer products. The retailer has to ensure that he stocks the kind of goods best suited to the needs of his customers, and, since the passing of the Retail Prices Act, he also has the opportunity to supply them at the most competitive prices.

What I am going to say this afternoon refers to the problems of small businesses. It may be that some of the points I have to make also apply to a greater or lesser extent to large businesses, but on this I cannot speak from experience. I speak from the viewpoint—perhaps rather unusual from these Benches—of a small shopkeeper. I have a small business which consists of a workshop and two retail shops, and as such I should like to declare my interest. In the interests of the consumer, it is vital that new small businesses should continually be formed, and for two reasons: first, in order to provide goods or services not at present available and, secondly, to provide competition to existing businesses which will force them to make sure that the services they supply are kept up to the mark. It is also necessary, in the interests of the consumer, for existing businesses to expand. Your Lordships will realise that no organisation can with impunity sit back and feel that it has achieved its target. If you are not continually trying to improve and expand, sooner or later standards are bound to go. If you do not try to go up, sooner or later you are bound to go down.

The first essential for starting a new business or expanding one is capital, and, broadly speaking, there are three sources from which the owner of a business can hope to get the capital necessary. He can get the capital from himself, he can use his own savings; he can approach other private individuals with a view to their investing money in his business; or he can go to his bank. To take the third possibility first, it is almost impossible to borrow money from a bank of an amount between £1, 500 and £10, 000 on the security of a business and its assets alone. In the end, a bank will only lend money to a business proprietor either if he has outside assets of his own against which an overdraft can be borrowed, or if he can persuade a third party to guarantee the overdraft, which brings him back eventually to the necessity of either putting up his own money or of getting a third party to come in on the venture.

To invest money in a new business or one that needs to expand is of necessity speculative. The Oxford English Dictionary defines the verb "to speculate" as: make investment, engage in commercial operation that involves risk or loss". I mention this because "speculation" nowadays seems to have become a dirty word, not least in the mind of Her Majesty's Government. If you speculate and lose you are looked upon as a fool; if you speculate and win, you are looked upon as a knave. In fact, someone who puts money into a business, either his or somebody else's, balances the chances of a partial or total loss of the money against the extent to which he can gain if the investment is successful. The greater the risk—and there is always risk—the greater must be the prospects. Conversely, if by taxation the prospects are cut down, the more difficult will it be to find people prepared to take a particular risk with their money. This must mean that a number of businesses which would otherwise have started and, if successful, have proved of great benefit to the consumer, will now never get off the ground for lack of capital.

This will be true when the full details of the capital gains tax are known next April. The present state of uncertainty is even worse. Nobody in his senses will lend money—unless he is absolutely certain his investment is going to be successful—until several questions about this capital gains tax have been answered. First of all, he will want to know what is the fullest extent of the upper limit of the capital gains tax; secondly, whether the tax will be graduated according to the length of time the money is invested; thirdly, whether any allowance will be made for change in the purchasing power of the pound; and, fourthly, whether a capital loss will be allowable against income tax if it represents the entire capital of the investor. Surely, if a small investor puts his limited capital into one thing and stands the chance of losing it, he is in a very much worse off position than a richer man who has a lot more to invest and will probably have a capital gain or two against which his capital loss can be offset.

Until these questions are answered, and satisfactorily answered, a small business will not be able to get the capital it needs to provide the best services to the consumer. I do not expect answers to these questions from the noble Lord. Lord Shackleton, or the noble Earl, the Leader of the House, this evening but I must say that I did expect them from their right honourable friend in another place yesterday. The answer to these questions will probably at this moment be: "Wait and see". This may be all very well as far as the investor is concerned, because the lender may be able to wait six months, but in any case the borrower will not be able to. It is from the point of view of the man who needs to raise the money that I think this matter wants to be considered.

My Lords, who will suffer most from these difficulties? The man who wants to start a new business will suffer to a certain extent in that it will be harder for him to raise capital and he will have much less incentive to risk his own; but he is not compelled to start his business, and if he thinks the risks are no longer worth while he probably will not do so. The man who wants to expand his business will also have difficulties in raising the money; he will also have No 1ncentive in putting up his own money, and he will not, if there are fewer businesses started, be forced so much to make his business efficient by new competition. The one man who is going to lose all along the line is the consumer. Perhaps Her Majesty's Government will bear in mind their undertaking to look after his interests when considering how. and, indeed, whether. to impose a capital gains tax.

6.57 p.m.

LORD SHACKLETON

My Lords, the noble Lord, Lord Denham, is quite right; he will not get an answer tonight. I must say that what I was going to call his moderately Poujadist speech was very pleasantly delivered, and I would equally say: would he rather have had a warning or not? This is the difficulty: it is almost impossible to find the right time to make any announcement. Either you do it without telling people and you are in the wrong, or you tell people and you are equally in the wrong. It seems, listening to some of the speeches that we have heard to-day, to draw attention to the total impossibility of government in any form at all.

I do not propose to make a very long speech. I am in fact going to endeavour to deal with some of the more long-term aspects of the Government's policy. My noble friend Lord Shepherd dealt mainly with the immediate measures which the Government are being compelled to take in order to deal with the balance-of-payments problems. But he also referred—not. very fully because there is never time to do this, I fear—to the more positive and more enduring side of the Government's policies which are designed (and I stress this) to bring about what I hope will be a fundamental improvement in the efficiency of this country's economy in the longer term: the fundamental improvement that the noble Lord, Lord Molson, in, I thought, an extremely interesting but very depressing speech, seemed to think impossible. He said that fundamental changes were necessary, but when I asked him what they were, he rather slid away. I thought it rather unpatriotic of him, if he knew the answer to the country's problems, not to give them to us. Perhaps if he returns later he will do so. I am therefore going to deal with some of the longer-term measures.

I should like to remind noble Lords, particularly the noble Earl, Lord Dundee, that when we criticised the last Government's economic policy, especially in the debate last June, this criticism was not directed so much at the short-term as at the absence of a long-term economic policy; and it is, I think, rather characteristic that certainly his speech and certain other speeches, but not all, from the Opposition Benches have concentrated solely on the short-term aspects of the Government's Budget.

Admittedly we are technically debating the Finance Bill, but we in this House have always sought to turn this into a general economic debate, and when we look at the remarks of noble Lords who spoke for the last Government—and I shall leave this aspect mainly to my noble friend Lord Longford—last June, there was not the slightest sign of any alarm. They are so tempting that I should like to quote those very complacent speeches. My criticism has been of general complacency among the members of the Party opposite, and certainly their official spokesman, about the longer-term prospects.

I am not sure that I would accuse the noble Lord, Lord Drumalbyn, as much as certain other noble Lords. But it was quite obvious last summer that we were going to be in a difficult situation on balance of payments; and, indeed, at the risk of trying to boast that I was a prophet—because it was a very easy sum to do—I would say that I did hazard a guess that the deficit for the year on combined current and capital account was likely to be at least £600 million; and I think it was the noble Lord, Lord Molson, who said that on this very narrow base of our reserves this confronted us with a difficult problem. But I would entirely agree that defences were erected, and I would admit to the noble Earl, Lord Dundee, that those defences are valuable. We have from time to time congratulated the Government, and particularly the former Chancellor of the Exchequer, on the initiative he has shown in these matters.

Where I find it so difficult to deal with certain noble Lords on the other side is that they apparently do not seem able to interpret the facts. The noble Earl, Lord Dundee, referred to stock building. I have not checked the figures of stock building that has taken place during this year. There was an increase in stock building. The rather distressing and surprising thing—or it may be in certain circumstances a good thing—is that stock building has fallen off again. There has been a steady rise in investment. I must draw to the attention of the noble Lord, Lord Drumalbyn, if he is checking on the long-term aspect—and one has to look at it long term—that it will not be found that the stock building is abnormal. I hope he can get through to the end of the rather lengthy article he is reading before he comes to speak.

May I now turn to the long term? This Government has not had a very long time, as a Government, yet to formulate its policies, but certainly some of the patterns of them, which were already foreseen in the Party policy statements, are beginning to take effect. I would deal first with prices and incomes policy, mainly because the Government attach the utmost urgency to it. I am sure all noble Lords will particularly welcome the very constructive and wise speech of my noble friend Lord Citrine. The noble Lord, Lord Watkinson—and we were all delighted to hear his maiden speech—will know that among the leaders of industry and trade unions the gap is not so great. It may be difficult to obtain a satisfactory policy, and it is fair for noble Lords opposite to ask, "Why should the present Government think that it has a better chance than its predecessors of introducing an effective incomes policy?" It is at this point that I think the fundamental disagreement or difference of approach takes effect. I think the answer must lie—and this is the case we maintain—in our general approach to economic and social issues and in the specific measures we have already taken in this Budget. That is why I would firmly say that this Budget is not irrelevant in regard to these particular social improvements: to help the economically weaker members of the community is essential to a policy of some measure of control over incomes and prices.

If we are to achieve an incomes policy and to frame it and implement it in a free society, it must depend on the voluntary co-operation of all sections of the community, and this in turn depends on the country's being persuaded that the Government's policies take proper account of prevailing inequalities of income and capital wealth. One may argue that the 6d. increase in income tax must militate against this. No one can deny that there are certain disadvantages—certain rather painful disadvantages—but we must face this question fairly and squarely. It has been a fundamental part of the policy of the Labour Party that we should be able to achieve more against a socially just background, quite apart from the desirability of obtaining it. It is the Government's view that the present Finance Bill sets the stage for a really purposeful drive to secure an incomes policy.

The Government propose to advance as quickly as possible in three main stages. The first stage will be to secure with both sides of industry an agreed statement of general intent. The second will be to decide what machinery and procedures are needed to keep trends and development over the whole field under review and to deal with exceptional cases. The third stage will be to agree on a normal annual rate of wage and salary increase consistent with sound economic growth and on a code of rules to determine exceptions.

As regards the first stage, my right honourable friend is at present discussing with industry the need to agree upon and publish a statement of general intention which will both set up the broad objectives of policy and express the determination of all concerned to work together to achieve them. I am glad to say these discussions are being carried on in a spirit of good will and mutual understanding, and I am sure noble Lords will not expect me to be in a position to give any details at this stage. But of course this statement of general intention is no more than a first step along a very difficult road. It will need to be followed by further discussions designed to make the agreed policy effective. Here there are several aspects to be covered, of which I will refer to two—namely, profits, and wages and salaries.

If a reasonable degree of stability can be assured in the general level of prices, there is no reason, in my view, to suppose that profits would in total grow too fast. Nevertheless, this is something that will need to be kept under review. If the Government were to find—and I stress again against the socially acceptable background—that aggregate profits were outpacing the growth of total wages and salaries, after allowing for short-term fluctuations, they would want to consider dealing with the situation by fiscal methods or in any other appro- priate way. On the other hand, it is no part of the Government's policy to say that profits are in any sense a bad thing. I am very anxious to put the case as fairly and as unemotively as possible. The Government are fully aware—anybody who has been in industry must be fully aware—that to penalise the making of profits unduly and rashly, without purpose, might well be damaging to the economy. Let us face reality. The United Kingdom has a mixed economy, part of which is in public and part in private ownership. Both sectors need all the enterprise and competitiveness which can be injected into them.

On the side of wages and salaries and other personal incomes, the need will be to secure agreement on a normal rate of annual increase which will be consistent with the objective of overall price stability. But it is quite clear from experience that a rigid policy in this matter will never be effective. That is the trouble with the sort of pay-pause approach that was introduced by the late Government. This is the straitjacket which the present Government are trying to keep out of. We must get on to long-term policies. This again is a reflection of what Radcliffe and others have said about monetary policies. But if we do get on to this long-term policy, I think it will be easier to provide room and techniques for exceptional treatment of exceptional cases. At the same time the policy would fail if the exceptional became the normal.

What I am saying about this, my Lords, is that it is not enough in this field simply to establish principles. If the policy is to be effective, procedures and machinery will need to be devised to make it effective. The Government have already announced their intention of creating a body to which could be referred for examination the more important cases in which the behaviour of prices appeared prima facie to conflict with the public interest. It seems likely that some parallel machinery will be needed to examine individual cases in which movements of wages and salaries, or other types of personal income, are thought to justify departure from the norm.

Some of your Lordships will no doubt think that the difficulties inherent in what I have just said are such as to make the attainment of this policy unlikely. But this is so essential, in my view, that it would be a counsel of despair if we were to give up seeking a policy which both the last Government and this Government regard as of primary importance. In the economic situation, especially, in which this country finds itself, with the dangers to which we are exposed, and to which the noble Lord, Lord Molson, referred, particularly our vulnerability in relation to the balance of payments, the alternative will be a slower rate of economic growth with a lower level of employment. This would not merely be an unwelcome setback but would seriously handicap our determination to bring about a more just distribution of the national wealth and to help those members of the community who are least able to look after themselves. Of course, it would continue to endanger our world-wide responsibilities in the Defence field, too.

I would criticise the last Government for the fact that they went about this rather rashly. I will not go into details. But I think the noble Lord, Lord Molson, will probably agree that the approach to the National Incomes Commission was an unfortunate one at the time. We hope possibly to profit by the experience of our predecessors and the mistakes that they made. But I would also maintain that we are in a better position to bring this about; and I hope that one of the achievements of this Government will be to take us a very considerable way along the road towards attaining a viable incomes policy.

I should like now to turn briefly to other ways in which the Government's strategy for strengthening the underlying position of the United Kingdom economy is being developed. All these measures are directed towards one end—namely, fostering a faster rate of increase in productivity. You can say, if you like, that this is the other facet of an incomes policy; or, equally, that an incomes policy is a facet of increased productivity. I had intended at this point to say a few words on exports, but my noble friend Lord Shepherd dealt with that matter fairly fully. I would only say that certainly I and the Government have noted the points raised by a number of noble Lords—the noble Lord, Lord Lucas of Chilworth, the noble Viscount, Lord Watkinson, and the noble Lord, Lord Molson, and others—on the export question.

Many of us who have had experience in exporting will be aware of the difficulties. It is extremely difficult (and I appreciate the difficulties in the board room) for a board responsible, in the main, to the shareholders to enforce a policy that may be damaging to their apparent short-term profitability. But, of course, they are endangered anyway by a failure of the country as a whole. I strongly support the views of the noble Viscount, Lord Watkinson, that somehow we have to get across that it is in their own long-term interests for companies to go into a field which will always (except for the obvious enjoyment which the noble Viscount, Lord Watkinson, obtained from his tour) present certain difficulties.

Perhaps the last Government had not so many people with business experience in the days when they talked about exporting being an "adventure". This was just a laugh to any businessman, including my noble friend Lord Shepherd and myself, who had attempted to indulge in this rather painful and trying occupation—there are more attractive forms of adventurous activity. Nevertheless, this matter is fundamental, and certainly any suggestions that come from anywhere in industry towards developing exports are of great value. I agree that the morale of the businessman is important. It is surprising to find, when you go abroad—here I agree with Lord Watkinson—how little value is attached to the services of commercial Ministers and others. When you find yourself alone with a number of the more responsible members of the community, they will admit that these people give great help. In fact. in certain areas our missions are doing possibly more than those of any other country. I have seen some of this in South America. Time is short, and I am afraid I shall have to leave the question of exports to deal with certain other aspects of the Government's long-term plan.

The Government's purpose is to achieve increased productivity. This involves pursuing a five-year national plan. I hope that we shall not be depressed at the phrase "a five-year plan". I know that we have often heard other countries talking about five-year plans. But the Labour Party take planning seriously. I admit that there has been a good deal of conversion in the Conservative Party to this idea, but accompanied by a slight reluctance to face all the semantic implications of the policy which, rather unwillingly, they adopted in the face of hard facts. This five-year national plan will guide the general development of the country and influence all aspects of the Government's economic policy. Our main task must be to create the conditions in which a rate of economic growth of 4 per cent. per annum may be achieved. This was the objective set by the last Government, but it is clear that more purposive action is needed if such an objective is to be won.

We have seen the depressing aspect of a really plateau situation with regard to production figures during this last year. We have seen a decline in exports—and this is. another figure that I would give noble Lords. During the course of 1964 exports have actually fallen by 4 per cent. in volume between the first and third quarters of the year, while imports have continued to rise. I should be the first to admit that there are various ways of presenting figures that can give different implications, but none the less the basic nature of our problem has been that imports have continued to rise while exports have either stood still or fallen back a little. It is against this background that we see that it will not be possible to attain the 4 per cent. per annum growth this year. We are determined, however, in order to achieve this in the future, to create the conditions necessary for a high and steadily rising level of industrial investment. Let me admit that there has been some improvement in industrial investment, especially in the private sector, in the last year.

Secondly, we propose to press vigorously for the removal of restrictive practices. We shall engage in a massive effort to modernise British industry. We shall do our utmost to increase the mobility of labour: and we shall embark on a vigorous policy of regional development. Perhaps I can say a few more words about each of these items. I shall be dealing a little later with industrial investment, because it is within the framework of the national plan that industrial investment will be considered. I would only say now that, in our view. the comparatively low rate of investment in this country since the war is one of the main reasons why the rate of increase in productivity in this country has lagged behind that of many of our competitors.

It is not the only thing; there are other factors with which we are all familiar. Restrictive practices are certainly recognised to be among the more serious obstacles to economic growth and efficiency. Existing legislation on monopolies will be strengthened, though this alone will not solve the problem, and we shall talk with industry about the more efficient utilisation of labour. It is against this background that the speech of my noble friend Lord Citrine was so valuable. Our efforts in this direction, we believe, will be strengthened by what we have done, and are now doing, to evolve a socially just approach to the country's economic problems.

Modernisation and innovation in industry, in methods both of production and of management, are in the Government's view a task of the first priority. It is for this purpose that the new Ministry of Technology has been set up and this Ministry is actively preparing its programme. I would say to the noble Viscount, Lord Watkinson, and others who have spoken on this subject that the debate in this House last week on technology, in which my noble friends Lord Snow and Lord Bowden both spoke, is perhaps almost more fundamental to the advance of this country than some of the fiscal measures which we are talking about to-day.

Several Noble Lords: Hear, hear!

LORD SHACKLETON

It is in its approach to the development of a more professional and more energetic attitude to modernisation and innovation, that this country, which has been lagging and which has certain basic difficulties to overcome, has suffered in the past. This is something on which I would take issue with the noble Viscount, Lord Watkinson. I do not wish at this stage to enter into a debate on the subject of the Concord or the TSR 2, but it was the present Prime Minister and other members of the Party to which I belong who in fact gave very much of a lead. I admit that in both Parties there has been talk of modernisation, but I would not for one moment accept that there is anything other that an absolute determination on the part of the Government to develop innovation and improved technology. This is going to be difficult in a situation when the economy is so stretched. This is the basic problem with which we are faced, and this is why it is so necessary to establish priorities.

Lack of mobility of labour I think we all recognise to be a serious impediment. It is our intention to do everything possible to remove disincentives to changing jobs. Greater inducements will be the key to this, and the Government are examining ways of improving existing schemes for facilitating the transfer of labour from one place and, even more important, from one occupation to another as the technological revolution goes on. We intend to implement vigorously the Industrial Training Act, for which we are indebted to our predecessors. We criticised it as being a rather small start in a very important problem; but none the less it was a start. We shall certainly consider urgently the scale of provision of Government training centres. Work is also being done on a new scheme for severance payments and on an improved system of transfer grants.

It is true that, rather late in the day, the last Government in office instituted the National Economic Development Council. On these grounds it is fair for them to claim some credit for the reintroduction of economic planning. But the national plan of which I am speaking will, in our view, represent a significant advance upon the work done by the N.E.D.C. First of all, it will be a Government plan and it will produce not recommendations but policy decisions. I shall explain this a little more fully. Secondly, public expenditure plans will be fitted into the plan and will form part of it. Thirdly, the plan will provide a framework for regional development. This plan will, I hope, still be a co-operative effort, with industry playing a major part in its construction, as well as in putting it into effect. We shall not depart from the principles of indicative planning in this matter.

Individual industries will be asked for estimates of their output in 1970 corresponding to a level of national income following a period of substantially (we hope) faster growth than in the past. They will also estimate exports and the resources of manpower, capital and materials and fuel they will need. These estimates will be compared with one another, with the estimates of Government expenditure and with the estimated manpower available and the needs of the balance-of-payments situation. They will be adjusted to form a consistent whole and to indicate the changes that are necessary if this level of national output is to be achieved.

Throughout the process the Government will be responsible for co-ordination and will take responsibility for the plan's fulfilment, not by directing firms—again I would stress this—as to what they should make and where they should sell it, but by creating conditions in which they will be willing and, as we hope, able to play their full part, and by helping them to deal with the difficulties which the planning process reveals in advance and with the unforeseen difficulties as they occur. The first estimates of public expenditure will be adjusted to fit in with the rest of the economy. I could go on at some length, but I do not wish to take up the time of the House for much longer. All I can do is to give some indication of how, in the long term, the Government are approaching this problem.

Within the framework of the national plan, regional planning, where again there was a beginning on the part of the previous Government, will play an important part. My right honourable friend the First Secretary of State will, I believe, be making a statement, possibly to-morrow, but certainly shortly, on regional planning. The aim is that unused resources, particularly of manpower, in some regions of the country shall be brought into use, and that the congestion which threatens other regions, such as South-East England, is dealt with. Regional planning will therefore make an important contribution.

I would say only one further thing on communication between Government and industry. This will be achieved under the auspices of the economic development Committees. These committees will include representatives of both sides of industry, the Department of Economic Affairs and the industries' sponsoring departments. Nine of these smaller committees, the "little Neddies", have already been set up, and it is hoped to add to their number very soon.

My Lords, I think I have said enough to demonstrate that, despite the serious short-term situation, the Government are losing no time in adopting measures which we genuinely and confidently believe will increase the underlying strength of this country's economy. The policies are ones which the Government are confident that, with the good will and co-operation of both sides of industry, they can carry out. Whatever may be said in Party political exchanges, I am sure it will be possible to harness the good will of the people of this country, bearing in mind that we have to operate under particularly difficult conditions in relation to liquidity. I am sorry that the noble Lord. Lord Boothby, is not here to make his regular speech on this subject. Unless we take steps of this kind, we shall continue to be vulnerable to the sort of situation in which we now find ourselves. It is the determination of the Government that we shall somehow or other help the country to get itself on to a more stable long-term basis.

7.29 p.m.

LORD COLERAINE

My Lords, may I add my congratulations to those which my noble friend Lord Watkinson has already received on a speech which struck me as a model, not just of a maiden speech but of a Parliamentary speech. It was concise, it was cogent, it was fertile in ideas and suggestions and it was altogether constructive. I think my noble friend felt slightly at a loss, inasmuch as he felt himself debarred from the more controversial aspects of the debate. I am not sure that that really is such a loss, because the matters that we are discussing to-day ought not, I think, to be matters of Party controversy. Of course, there are differences of opinion about the remedies to be applied in our situation, but I think it is extremely dangerous to take too violent a Party attitude on these matters. The plain fact is that all of us, wherever we sit, are living in glass houses, with all the limitations on our activities which such a habitation imposes.

I remember in the years immediately following the war how we all congratulated ourselves on the fact that we had made the transition from war to peace so much more easily than we did after the First World War. There were none of these strikes, none of these social tensions, none of the mass unemployment and the poverty and the misery. That was true. But I think we deceived ourselves in saying that we had achieved the transition more easily. I do not believe that we have achieved the transition at all. In the summer of 1945 we were faced with that hideous problem of how to maintain and improve our standards and, at the same time, maintain the balance of payments. In the winter of 1964 we are faced with exactly the same problem and, I think, possibly in a more dangerous form.

Our position is not due to want of trying. Whatever Governments we have had have done their best. We have tried everything. We have tried physical controls. We have tried, and are trying again, monetary controls. We have tried "Neddy"; now we are going to try, as the noble Lord has just told us, a "super-Neddy" with teeth in it. We have tried every expedient. We have tried a free economy and a planned economy. Now we are to have that ominous plan, a five-year plan, which has never worked, I think, anywhere in the world where it has been tried. We are trying that again. And after it all we are back to Square 1. All we have done at the end of the first 50 days of the "dynamic economy" is really, I think, to exchange an economy of "Stop-Go" for one of "Go-Stop".

I agree with my noble friend Lord Molson, who said earlier on that no Government that we have had since the war has really tackled the fundamental problems which face us to-day and which have faced us for twenty years past. The noble Lord, Lord Shackleton, rebuked him for this and said that he should develop that argument. I shall try to develop it briefly now. It seems to me that in everything we have done since the war we have taken the view that the economy is subject to some relatively minor disorder, and if only we can find the right specific, the right pill, the right poultice, the right patent medicine, we can put it right—I think the noble Lord, Lord Shackleton, said just now that he was taking a wide and long-term view and, certainly, he trotted out a great number of different remedies—and I am afraid that is still true. I am afraid that the Government still believe that, fundamentally, this is a minor ailment or some minor series of ailments which can be put right if only we can find the appropriate specific.

My own view, for what it is worth—I am not an economist, though I think, like most of your Lordships, that I devote a good many of my working hours to pondering these problems—is that the malady is a grave one and a general one. My noble friend Lord Dundee said that, fundamentally, there was nothing wrong with the economy, and that anybody who said that there was, was in some way doing a disservice to his country. I do not agree with my noble friend on either point. I think there is something fundamentally wrong, and that the greatest service we can do is to try to focus attention on it. I know from my own experience, and I have no doubt other noble Lords know it, too, that a great deal of criticism comes from our foreign friends, from industrialists and so on, with whom we are in contact, not because we are not making efforts to get out of our difficulties, but simply because we do not seem to realise the gravity of our difficulties and we seem almost to wear an air of complacency over a situation which to the rest of the world seems almost desperate when they look at this country.

It seems to me that the economy is suffering from a grievous and general disorder, and it is no use just shopping around for patent medicines, whether you call them a "pay-pause" or whether you call them an "incomes policy." I am perfectly prepared to accept what the noble Lord, Lord Shackleton, said about an incomes policy: that the Government, with their own special social philosophy, their own approach to these problems, have a greater possibility than the late Government had of achieving an incomes policy. I think they probably have a greater possibility, but I think, too, that the possibility does not really exist. I agree entirely with the prominent Conservative to whom the noble Lord, Lord Citrine, referred in his speech. I believe that an incomes policy is a shibboleth which cannot be imposed; it is only an incantation. But we have this malaise, and it seems to me that what we must do for the first time since the war is to submit to a pretty searching medical examination, and to submit after it to some fairly rigorous medical treatment. This will not just be a question of find- ing the right pill and swallowing it, but will involve diet, exercise, discipline and, possibly, even an operation.

Perhaps I should put what I mean in these terms. The noble Lord, Lord Shackleton, said very rightly that we were a mixed economy; there was the public sector and the private sector, and both had to be encouraged. I think, if he were honest with himself, he would probably go further than that and say that the private sector is more important even than the public sector, because the private sector is carrying the public sector on its back. I would submit to the House that the crucial task of any Government, of any complexion, is to try to create an atmosphere in which the private sector can develop and thrive. The private sector, if one can use disagreeable terms, is based on the idea of profit and on the idea of competition.

I think I would say that there were two essentials for the efficient working of a profit-making economy: the first essential is that profits should be very hard to get, and the second essential is that they should be relatively easy to keep. If profits are not hard to get it means that there is lack of competition; things come too easily; it is just a question of exerting oneself to the necessary amount and letting things take their chance. I am quite sure that in this country ever since the war profits have been far too easy to get, and I think that applies pretty well over the whole field of industry. They have been easy to get and they become increasingly difficult to keep. That means that not only do you have no competition, or imperfect competition, but you do not even have a sufficient incentive to try to put the lack of competition right.

The noble Lord, Lord Citrine, referred in his interesting speech to a television programme that he saw last night and which I saw—and I have no doubt others of your Lordships did, too. The message of that programme was, as the noble Lord said, that what was wrong here in this country was the fault of management; and I think, broadly speaking, that is true. I think that, if anything is wrong with a firm, whether it is labour relations or anything else, it is ultimately the responsibility of management to put it right. What this programme also underlined was that, although we told ourselves perpetually that we were in a period of over-full employment and that all the strains and stresses under which we labour came from over-full employment, we were in fact in a period of under-employment, and a great deal of labour was being wasted throughout industry.

That is probably quite true; but, if it is true, it is partly the effect of heavy taxation combined with easy profits. The noble Lord, Lord Shepherd, raises his eyebrows. Perhaps I could very briefly develop what I mean when I say that it is the effect of too heavy taxation. It works in this way. If you have a firm which ought to dispose of labour so that that labour can go to some other industry where it is more badly needed, that firm will tend to hang on to that labour, even at some cost, because it knows that the Chancellor of the Exchequer is carrying half or more of that cost. In that sense, I think taxation is definitely a contribution to inefficiency.

The lack of competition, of course, derives from tariffs, protection, restrictive practices and so on; but, at the risk of being called a Poujadist I should like to stress the important and, I think, the dangerous rôle that Government expenditure plays in all this. I do not say that all Government expenditure is bad—obviously, it is not—but it is probably fair to say that it is a characteristic of Government expenditure that it generates purchasing power without generating any production to offset that purchasing power. My noble friend Lord Molson referred to Mr. Colin Clark and his calculations, and certainly it would appear that those countries which have the highest level of public expenditure, where Government expenditure takes the biggest part of the national income, are the countries where inflation is highest and costs are highest. Where public expenditure is lowest, that is where inflation is least, and costs are lower, too.

Now if that is true of public Government expenditure generally, as I think it is, it is especially true of social expenditure, and I think it is time we all took a good hard look at the Welfare State. We were told by leaders in The Times and elsewhere that the last General Election was a very disappointing show because it was not about any particular issues; it was a matter of personalities; it was dull, and so on. But the thing that depressed me about the last Election was the way in which both the Labour Party and the Conservative Party—for all I know, the Liberal Party, too, but certainly the Labour Party and the Conservative Party—went on the basis that, as growth occurred, so expenditure on the social services would increase; that nobody would be any the worse off but everybody would be the better off. I think that is one of the prevailing assumptions that we ought to examine.

I am not suggesting the dismantlement of the Welfare State. Like everybody else of my age, I remember conditions as they were before the war. I remember them in my own industrial constituency in the North of England in the early 'thirties, and I would not, for any consideration, go back to those conditions. We have advanced tremendously, and I am myself perfectly willing to give the Party opposite the credit for that advance. But it is one thing to say, "Yes, there has been a social revolution; it has been a beneficial one": it is another thing to say that this great ark and covenant of the Welfare State must never be examined. I do not think it should be dismantled, but I think that probably it ought to be reformed. A lot of the things the Welfare State does I am sure could be done more economically and more effectively by other agents. But what I am convinced is wrong is the assumption on which both Parties seem to be proceeding—and that is that it is right to extend the idea of the Welfare State infinitely, provided growth continues. It seems to me that as long as that is our attitude, growth will not continue.

My Lords, I think the economic situation is far more serious than does my noble friend Lord Dundee, but, on the economic level, I do not think the problem is at all insoluble. Where I think the weakness lies is at the political level, and what I am afraid of, looking to the long future—and perhaps not so long; looking only five or ten years ahead—is that this political machinery of ours, this Parliamentary democracy of which we are so justly proud, may of itself make a solution to our economic problem impossible.

THE EARL OF LONGFORD

My Lords, may I interrupt the noble Lord, whose speech is of exceptional interest, if I may say so? Does he not feel, though, that as our society grows richer and our standards of civilisation rise we should recognise, quite irrespective of Party politics, a greater duty to provide for those who cannot provide fully for themselves—including, for example, a tremendous expansion of university education, which I am sure the noble Lord would support?

LORD COLERAINE

My Lords, I do not think I would go the whole way with the noble Earl. I think that, as standards advance, so people ought to be able to make provision for those standards themselves, or, if they cannot, to go without them. I agree that university education should be made as widely available as possible, but I do not think that the Health Service should be extended indefinitely. I do not even think that university education should be extended indefinitely. I think there must come a point, if you really want growth, where you must say, "The Welfare State looks after the unfortunate; it locks after those who are incapable of looking after themselves; but it cannot look after an increasingly higher level of society." I think that is an abuse of the Welfare State; and I think, too, that it really and effectively inhibits any possibility of economic growth.

What I was going to say before the noble Earl made his, perfectly legitimate interjection, my Lords, was this. If I could be quite sure that the Party opposite was intent on solving this problem without any thought of the next General Election I would support them with my voice and my vote. Similarly, if I could be quite sure my own Party was thinking out its own policy primarily in terms of this economic problem, this tremendously important problem, and not primarily in terms of the next Election, I would give them even more enthusiastic support than I give them now. But I do feel very strongly that this is not only a test of our economy; this recurring crisis is a test of the workings of our Parliamentary democracy.

7.51 p.m.

LORD ELLENBOROUGH

My Lords, in the last Election the impression was given by the Party opposite that there would not be any increase in direct taxation; but, despite that, they rushed with almost indecent haste to do just that, even though there was clearly no necessity to do so. It has been pointed out by others, far better than I could hope to do, that the increased social services and benefits—that is to say, the increased pensions, National Assistance rates and the abolition of the prescription charges—will cost about £345 million, and that these will be paid for by taxes and contributions other than income tax. There will be £215 million coming from the increased National Insurance contributions and the balance from the import surcharge estimated at about £125 million net after allowing for the export rebate. So I think it is difficult to resist the conclusion that the increase in direct taxation is prompted by little else than doctrinaire Socialism. It is bound to add to the cost of industry, as will, of course, the increased petrol and oil duties, and it will act as a considerable disincentive and depressing influence at this crucial time.

In the months before and the weeks during the Election campaign we heard a great deal, especially from the Prime Minister, to the effect that this was to be a dynamic, exciting, modernistic and technological age; that he would do away with the dead wood of the board room and the "old boy" network. The Labour Party at the last Election went all out to appeal for support from that vital section of the community, the tens of thousands of highly trained young and rising executives, scientists and technologists, and it is many of these people who will now have to pay the price. Earning as many of them will be, perhaps, about £1, 500 to £2, 000 a year, they will now have to pay some £20 or £30 a year more in tax, plus, of course, the additional cost of insurance stamps and of petrol. And such people as these will hardly be encouraged by news of the possible, even probable, scrapping of important technological projects such as the Concord. These men will have to make some economies somewhere, and I suggest the most likely source will be savings. And so the Government can congratulate themselves that they will have done much to encourage the "brain drain" about which they waxed so eloquent when they were in Opposition.

In less than half their hundred days of dynamic action the Government have managed, as we have heard this afternoon, to convert a serious economic position into a crisis of the worst order. I think it was the noble Lord, Lord Molson, who quoted Strachey. It was, I think, Sir Stafford Cripps who said that he could not imagine the Labour Party coming into office without a first-class financial crisis. This time the crisis is aggravated by the tactlessly imposed import restrictions and so on. But I feel that a major contributory factor was that opinion overseas, as well as at home, considered that the proposed new tax reforms as announced by the Chancellor of the Exchequer were likely to increase uncertainty and prove dangerous for investment.

As one who works in the City (I must confess, as a member of the Stock Exchange) I think I may have some idea as to what has been going on in those parts during the last few weeks. I know only too well that the Chancellor's premature announcement of his new taxes demoralised and knocked the stuffing out of the City and the Stock Exchange in particular. We were told that we were to have a corporation tax and we were told we were to have a capital gains tax; but we were not given any details for such information to be of any use. The whole thing was left looming in the air, a menacing source of fear and uncertainty, causing indecision and dismay to private and institutional investors alike both at home and abroad. The whole thing is rather too much like reading a children's horror comic: one always has to wait for next week's thrilling instalment.

It was the noble Lord, Lord Shepherd, who, in speaking on behalf of the Government last Thursday, said that there was no evidence that the statement of the Chancellor of the Exchequer on November 11 in regard to the capital gains tax and corporation tax had in itself resulted in any loss to investors. I cannot say that I agree with that, and I am sure that if the noble Lord were to address a meeting of investment trust holders who perhaps have had something like 20 per cent. knocked off the value of their shares at one time in the past few weeks, he might get a somewhat hot reception. This was perhaps not entirely due, but was substantially due, to the Chancellor's premature announcement, the implications of which had not been thought out properly. The Party opposite has had 13 years in Opposition in which to think out the details of these new taxes.

LORD SHEPHERD

My Lords, I appreciate that there has been a falling in price in the stock market. May I ask the noble Lord whether there has been a large sale of stocks and shares in the last week?

LORD ELLENBOROUGH

My Lords, there have not been large sales but there has been quite a substantial fall in values since the last Election, and particularly in investment trusts.

LORD SHEPHERD

My Lords, surely the noble Lord will agree that there will not be a loss to the investors unless they sell. I think it is true that there has not been a large sale and I would suggest that my reference on Thursday was quite accurate.

LORD ELLENBOROUGH

My Lords, no one expects the Labour Party to have very much time for the City; but I think it is rather frightening if now, in 1964, the Government are so naive as not to understand that confusion in the City, utter indecision, and a weak and demoralised stock market is a luxury that cannot be afforded for long even by a Labour Government. The rottenness that infects the market will infect industry and business throughout the country. However, perhaps some noble Lords opposite will realise this. We know the noble Earl the Leader of the House has a long and distinguished career in the City. Perhaps the Chancellor of the Exchequer is now making amends. Certainly his statement yesterday will help to some extent, but not, I am afraid, nearly as much as one would have hoped. There is bound to be a lot more uncertainty, which will continue to have a bad effect on business activity.

Recently the Association of British Chambers of Commerce said of the corporation tax that The uncertainty and confusion which will prevail during the next few years, while the corporation tax is being introduced and its inequalities removed, will certaintly not provide any company with an incentive to rapid development; rather will it set a high premium on costs. Again, Britain's 500, 000 miners have something to say. Mr. Roberts, who is chairman of the management committee of the National Coal Board staff superannuation scheme, said: The next Budget might seriously affect the fund's future. It would be ironical if taxes levied to enable us to pay the higher pensions had the effect of reducing the pensions of retired honorary officers and their widows. Perhaps I may say a brief word on the capital gains tax. The capital gains tax will increase taxation by broadening the scope from the limited field of the speculator, as it is supposed to do at present, to the mass of long-term investors. It will be a powerful disincentive to investment in industry. It is sure to mean that money, instead of going into savings, will tend to go to such inessentials as collector's items and various forms of gambling. I cannot really believe that this is what the Government wish to happen. The fantastic position will be that only those investments which help industry and raise the prosperity of the country will be singled out for special taxation. I am afraid that it is hardly a coincidence that personal saving, which was only a paltry £100 million in 1951, rose to something like £2, 000 million in 1963. I am very much afraid that the events of the past few weeks will have done much to arouse fears that savings in the form of long-term investments are a prey to punitive taxation under the Labour Government.

8.2 p.m.

LORD FRANCIS-WILLIAMS

My Lords, your Lordships' House seems to have reduced itself to what I may perhaps describe as an economic minimum. For that reason I shall deny myself the pleasure, which I had otherwise hoped to have, of revealing in all their decrepitude some of the more bizarre claims of noble Lords opposite that a situation arising directly from thirteen years of their Administration is not really their fault. Nor shall I even follow the noble Lord, Lord Ellenborough, in his extremely partisan and biased interpretation of affairs, much as I should have delighted in dealing with it at an earlier hour in the evening. I will devote myself, briefly, I hope, to one point which seems to me of some importance and which has not perhaps, so far, been dealt with at any length. I do not wish to examine in any detail the general economic situation. That, I think, has been very well covered. The usual shots have been made from both sides, but a number of wise, intelligent and valuable things have also been said.

I want to consider more particularly the position of the pound as an international currency. The history of sterling crises is a very long one. It goes back certainly to 1924, when it was resolved under a Conservative Government, with Mr. Churchill, as he then was, at the Treasury (and Mr. Churchill's genius never flowered most profusely when dealing with finance), by the decision to return to the gold standard at the pre-war rate in order that the pound should "look the dollar in the face"—a decision which led directly to the coal strike and the General Strike, and ultimately to the financial crisis of 1931.

I suggest to your Lordships that, important though the pound is as an international exchange currency, we must avoid the danger of surrounding it with a kind of emotive, emotional aura, which makes it impossible to look at the international monetary system in a cold and practical way. I well remember in 1931, when I was writing on financial matters, being invited to the Treasury for a conference with the then Permanent Secretary of the Treasury, Warren Fisher. After we had been told about the serious situation and so on, I said, as I had written publicly, that it seemed to me that the sensible thing to do was to leave the gold standard and pay the exchange rate. Warren Fisher rose, with all the might of the Permanent Secretary of the Treasury, and said to me, "Sir, if Britain were to leave the gold standard, I should feel it as a personal affront to my own honour, and I believe that every man and woman in the country would feel the same." About four days later, I was invited to another conference at Hoare's Bank in Fleet Street to meet Warren Fisher, along with a number of eminent bankers, to be informed that Britain had decided to leave the gold standard and that, therefore, everything would soon be all right and trade would expand—as, indeed, it did.

I well remember, 20 years ago, when I had the privilege of attending some part of the Bretton Woods Conference, the attempt that was made by Maynard Keynes, who was to a substantial extent the architect of the International Bank and of the International Monetary Fund which emerged from Bretton Woods, to get agreement on a much more flexible international monetary system, giving a greater degree of liquidity. Although he and the British delegation succeeded in getting a good deal, they did not get enough. They laid the foundations, but not the full structure. Of course, when the American loan came along and we were required, as part of the price of that loan, to agree to sterling convertibility, again we headed for a sterling crisis and a devaluation.

What I want to suggest to your Lordships is that it is time for us to consider whether, in fact, for sterling to act as the main instrument of international exchange is not as out of date and, in its way, as dangerous as it would be if we were still to believe that the British Navy could alone defend the freedom of the seas. What we ought to be bending our minds to, and what I hope the Government are bending their minds to, is the creation of a genuine international bank, issuing its own international currency certificates and accepting the maintenance of an international currency as a genuine international responsibility.

I think one thing that this latest crisis has done to great advantage is that it has brought out, in a clearer and more definite way than ever before, the fact that so long as sterling is an international currency its maintenance is a world obligation, and not simply a British one. The great credits to maintain sterling were not given to save Britain or to save the British Labour Party, or because the Governor of the Bank of England has nice blue eyes which all international bankers like: they were given primarily as an appreciation of the American Federal Reserve Bank, which played the greatest part in mobilising these credits, in the realisation that the maintenance of an international exchange is as much a matter of international obligation as the maintenance of world peace. I suggest to your Lordships that the development of a genuine international bank with its own monetary certificates, in order to take the strain off the pound, is as important for the future stability of the world as the maintenance, in another field, of NATO or the United Nations.

My own hope is that, having accepted the obligations, the Government will accept, also, that they should be conducting a holding operation until the time comes—as I hope it will before too long—when that historic responsibility can be passed to international institutions, in the same way as other historic responsibilities which fell upon Britain when she was the great imperial and industrial Power of the world have also been passed on to international organisations and international alliances. I think we were right not to devalue at this moment. I think we were right to appreciate that we have a responsibility to maintain this international currency. But I think we also have a right and an obligation to insist that the price required of the British people for doing so shall not be too high. Deflation is a respectable policy in banking circles. I hope that the Government will not allow themselves to be pushed along that road, because, like other respectable projects and policies, deflation, if carried too far, can be as deadening as other respectability is.

8.15 p.m.

LORD MILNE

My Lords, I had not meant to-night to follow other speakers, but the remarks of the noble Lord, Lord Francis-Williams, bring to my mind that I have long wondered whether we can afford the sterling area as it at present conceived. The noble Lord, Lord Shepherd, mentioned the Government's tax proposals, and he included in his remarks to-day's printed statement. The paper is so recent. and really so incomplete in detail, that only rather cursory and perfunctory remarks are possible, and, on a subject that is not really very gay, I will do my best to be short and, therefore, I am bound to omit many points.

I have nothing against a capital gains tax as such, although, in fact, in a Report in 1955 it was rejected. At this moment and overnight it seems a pity to jettison something—and I refer to income tax—which has proved fair, and of which the effects are known, and to take on something which is untried, unthought-out and, as the noble Earl, Lord Alexander of Hillsborough, said, probably unfair, when meantime—and perhaps only meantime—the adjustment of the present system could perfectly well achieve the same result.

The Chancellor of the Exchequer at the bottom of the first page invites suggestions. This rather reminds me of the advice that you always give a chairman of what not to do at a meeting when he wants to do something quickly. I dread to think what is going to happen at Somerset House during this year, for they will be swamped with representations and by the fan-mail of angry taxpayers. On the general proposals, the most notable one is on the question of preference shares. A highly-geared company with large preference capital will be penalised. So presumably there will be a rapid changeover again to loan stock and loan issues. Then capital allowances, unless the corporation tax is at the rate of 55 per cent., will, so to speak, have a devalued value. This is a discouragement to investment at the very moment when change to technical plant is wanted for our economy.

The position with regard to overseas taxation is so complicated and obscure that I will say very little about it now. But the statement says that relief for corporation tax will be only in this country; relief here will be given on the rate of corporation tax. So, if the rate abroad is high, how the surplus is suffered we do not know. What happens in regard to the negotiation of foreign tax treaties in a year, I cannot think. Then, on the basis of charge, it will apply to the year following the 1965-66 assessment. The company year up to April 4, 1965, is the basis of that year, so that companies whose year ends before that date will probably be heavily penalised and will want to change their basic periods.

On dividends, we are told there is a forestalling provision. So, presumably, if dividends are paid out of past profits they will have already borne tax. So dividends paid, which it is theoretically thought to forestall, will, from the look of it, suffer corporation tax again. On the franking provisions—that is, where income comes in that has already suffered the tax—we find that investment and unit trusts will not bear double tax on the dividends or incomes they pass on. So, presumably, on that which they retain they will suffer twice. The income of subsidiary companies will be franked in the parent company. So, presumably, there will be some grouping notice. Under the special classes we find that the usual classes to-day exempt from income tax will be exempt from corporation duty.

To turn to the capital gains tax, in spite of what the noble Lord, Lord Denham, said, I think it is more or less accepted by all reasonable people that the principle of taxation of capital is a reasonable one, in spite of the effect on capital formation. The present tax is highly discriminatory and is unfair. Provided the rate is not unreasonable, I think the new tax will really be welcomed as a preference. But I should have thought that it would be better, or fairer, for there to be two rates—a higher rate for the more recent investments in the more speculative fields, and a lower rate for investments which have been held for some time.

LORD COLERAINE

My Lords, the noble Lord said, as I understood him, that most reasonable people agree that a tax on capital is reasonable. Did he mean on capital, or did he mean a capital gains tax?

LORD MILNE

My Lords, I do not remember exactly how it was said, but I understood it was felt that a tax on capital as such (and, after all, a tax on capital gains is a tax on capital) effectively damages capital formation. But I think we have come round to realising that a tax on capital gains is not an unreasonable thing.

LORD COLERAINE

The noble Lord is not advocating a capital levy?

LORD MILNE

No, I am not. On the occasion and the charge, we learn that the difference between Budget-day value and subsequent realisation will be the method of computation, and presumably the words later on are put in as some comfort for the points that have been raised recently with regard to gilt-edged investments. The statement says: Moreover, the charged tax on a gain realised after next Budget day will not be on a greater amount than any gain that is realised. On transfer of ownership, there appears to be no provision for reinvestment, though on exchange of investment one is taxed one way and, no doubt, in due course will be taxed or carry forward a loss the other way. It is interesting to note that capital gains tax will be liable for estate duty. I think this is rather misleading, because if my mathematics are right it appears to me that this is really a veiled increase in estate duty. There are provisions for company reorganisation.

THE EARL OF LONGFORD

My Lords, since the noble Lord raises that point, I would say that I do not think he is right. I do not think we can draw that conclusion from it.

LORD MILNE

I can only say that in the short time I have had the paper I have done some exercises, and that is how it appeared to me.

THE EARL OF LONGFORD

I do not think that is right.

LORD MILNE

That may be—we shall see. On the provisions for company reorganisation, the provisions referred to here are those where the shareholder or the party is the same before and after. Of course, this proposal will definitely slow down mergers and amalgamations where the parties are different. I should have thought that that was a great pity, because the smaller companies are not the high exporting companies. It is the groups that export, and I should have thought that this provision was rather damaging to merger capability. On the assets chargeable, I feel it is rather a quaint comment on our feelings to-day that pools wins, betting and Premium Bonds gains are exempt, whereas gains on chattels, where the price exceeds £1, 000, are assessable. Presumably here the restrictions in the losses which you can carry forward on chattels will deal with the rather complicated question of depreciation where it is applicable.

Lastly, commenting on this subject, I feel that the taxation of capital gains is acceptable, and that the present system needs so much improvement that a new one can hardly be worse. But I think the corporation tax raises the most appalling problems. I wonder how on earth Somerset House can deal with it in a year. It seems to me that the Government are attempting too much too soon. As for the remarks which have been made before, about the damage to confidence, I feel that it might have been better not to say anything and to produce the tax suddenly, rather than to let us have this incomplete information at this point.

8.26 p.m.

LORD GEDDES OF EPSOM

My Lords, I cannot forbear to comment, although he is absent, on the opening speech of the noble Earl, Lord Dundee, because, as I understood him, he said this. He was challenging the noble Lord, Lord Shepherd, who was suggesting that the late Government had made no attempt whatever to warn the country about the economic position. The noble Earl said, "But Mr. Maudling on many occasions drew attention to the lowering clouds and the hoisting of the cone." This may well be true. But there is equally no doubt about one thing: if that is true the cone was immediately pulled down when the date of the General Election was fixed, and thereafter it was the late Chancellor of the Exchequer who, in the course of the Election, blamed the Labour Party for daring to refer to the fact that there was anything like an economic crisis.

The noble Earl's comments, and some of the speeches of noble Lords opposite, remind me irresistibly of the neglectful housewife who, having swept a lot of dirt under the carpet, blamed the husband who revealed it—and not only blamed him, but challenged the instruments he used to sweep up the dirt. It seems to me that if noble Lords opposite, and the Party they represent, had the cure for the economic difficulties of the country and did not bring them in, then they were guilty of the greatest dereliction of duty. If they did not have the cure, then it ill-behoves them, it seems to me, to criticise those who are now trying to bring about a change in the economy of the country.

The speech which terrified me more than any other was that of the noble Lord, Lord Lucas of Chilworth. He was followed—to a lesser extent, I agree—by the noble Lord, Lord Molson, who, like the noble Lord, Lord Lucas of Chilworth, terrified me, for this reason. He appeared to be trying to solve, or to make a contribution to solving, the economic ills of the country, and his cure seemed to be a very simple one: all that was needed was to reduce the number of people employed in this country. He argued that it was possible, by the introduction of machines, to reduce the labour force by one-third. He went further: he suggested that the same amount of steel as was produced to-day could be produced with 20, 000 fewer men in South Wales. He went even further than this, as I understood him—and I apologise if I misquote him—when he said that it was possible to justify the 6 per cent. unemployment in America because they paid high wages.

Does the noble Lord really seriously suggest that he could obtain the co-operation of the workers of this country by telling them that 20, 000 of the men in the steel industry ought not to be there at all, but ought to be unemployed? Do he and noble Lords opposite really believe that it would be possible to secure the co-operation of the workers in this country over the introduction of machines by telling them that the machines are being introduced for one purpose, and one purpose only—to save labour and reduce the number of people employed? This is quite fantastic. There can be only one real justification for introducing machines into the economy of this country, and that is in order to increase the gross national product and to improve the productivity of the country.

My Lords, if you are going to try to tell the workers of this country that what you are really striving to do is to find ways and means by which the number of people employed can be reduced, you cannot expect to get, and will not get, the co-operation of the workers in achieving increased productivity through machines. The only way in which the co-operation of the: workers will be obtained is by impressing upon them the absolute need for an increase in productivity. You must induce into them a sense of urgency, convince them of the critical stage in history through which this country is now going. You must impress upon them that the aim is not to dismiss them and put them on the unemployment market, but to put so much more power into their elbows and their hands that they can produce more and more, and so bring this country out of the crisis and, as it were, safely into harbour.

I wonder, my Lords, whether we are right in setting our sights as low as we do. I know that it is said, and said with truth, that when "Neddy" fixed the increase target at 4 per cent. per annum this had never been achieved and was unlikely to be achieved. But can we, in fact, induce this sense of urgency by merely trying to survive—because, as I understand it, 4 per cent. is no more than that? Is the only way really to sink to the point at which the only possibility of our taking a place in the councils of the world is to have a weapon that can destroy mankind? Is it not far better to have the power within us, the industrial power and wealth, to be able to relieve the sufferings of mankind and achieve greatness that way?

Can we do this merely by thinking only of our own survival? Have we not to set our sights much higher? Have we really not to think in terms of increasing our gross national product by 10 per cent., so that we not only can help the underdeveloped countries, but can prove to the world that we are still a great nation, capable of still greater things, and can throw back into their teeth the words of those people who tell us that we are now only a third-rate or fourth-rate nation? We can do this; but only, as I have said before, if we can induce into the minds of management, and the minds of the men and women who are working on the floor, the sense of urgency and the need to become great through wealth and productivity.

One of the things that I believe will prevent this possibility of increasing our production and getting a good incomes policy—a policy in which I am a great believer, and have been for many years—is the unofficial strikes. I know the difficulties, to which the noble Lord, Lord Citrine referred, but this is something which is not to be dismissed because of difficulties; it is something which has to be met and overcome because of the difficulties. For the greater the difficulty, the more essential it is that it is overcome.

We must find some way in which we can prevent—not merely discourage—unofficial action. I believe this to be true for this reason: this sort of action undermines the ability of management to take steps which they otherwise would take; because all the time they are faced with the possibility that, having reached agreements at the proper national or local level through the proper machinery, the agreements may be repudiated by people who have a complete disregard for their rights. If we are going to allow that, and if we are going to allow the trade unions and the employers to get together and decide what is a reasonable norm for increased wages and then to have that agreement completely undermined by these, as I call them, little Hitlers, out on the various shop floors, it will be impossible to get a proper incomes policy.

I believe that we cannot stop these insidious murderers, as I call them, of industrial relations unless we have a different attitude. We cannot stop them merely by creating a law which allows a civil action to be taken against a trade union. That is no good. In my view, what we have to do is to use and strengthen the laws of conspiracy, and I cannot believe that the noble and learned Lord on the Woolsack could not find some means to do this. I know there are difficulties of trying to distinguish the people who are responsible, of singling them out and of being able to prove that it was this or that man, or these or those men. But in these circumstances everyone knows who are the people concerned. I agree that it may be difficult to distinguish them, but I believe absolutely firmly that you cannot deal with unofficial strikes on the basis of civil action. You have to make it much more emphatic and you have to make the punishment more severe. I mean this and, believe me, I am not talking on behalf of the T.U.C.; I am sure the T.U.C. will completely repudiate every word I am saying on this. Nevertheless, I believe that I am right, and I think that a much stronger law can be devised to prevent this unofficial action. I am absolutely certain that if we are going to succeed in overcoming the diffidence of management in introducing new ideas and in making an incomes policy possible, we must make it impossible for people to disrupt and to undermine agreements by unofficial action.

My Lords, my last comment is perhaps an unusual one. We have been talking about the need for exports. No one will challenge or deny the need for incentives to be offered. Whether the 1½ per cent. rebate is big enough or small enough, and whether it ought to be applied in a different way, I am not going to argue. But I want to put forward what may to some of your Lordships be a novel idea. At the present moment it is possible to recognise public service, and from time to time we do so. Surely we have now come to the stage where encouraging exports, taking part in exports and improving exports has become a public service. It is a service to the community. Is it not possible for us to recognise this sort of public service in the same way as we recognise a political or other public service?

It may well be that I shall be told that this is No 1ncentive at all. I would profoundly disagree with any of your Lordships who suggested to me that any recognition of this kind of those people who are obviously making a great contribution to the export trade would not be an incentive. I agree that at the moment you have to be—perhaps I should not say what I was going to say—a certain type of person who can always be recognised, but I will leave that aside as a sheer transgression. However, I believe there is something to be said for this idea. If we can look a little wider when we are considering this sort of recognition, if we can look at industry and particularly at those industrialists who are making a great contribution to exports, then we ought to do so. I think it is our duty to do so, and I believe it would make a not inconsiderable contribution towards improving our export trade.

8.40 p.m.

LORD ST. OSWALD

My Lords, at this relatively late hour, and in a fairly depopulated though evenly divided House, and seeing how anxious noble Lords opposite are about dinner, I do not intend to follow the noble Lord, Lord Geddes of Epsom, with his permission, either repudiating or corroborating what he has said; he clearly expects both from others. I intervene very briefly to raise two points. The first concerns extension of the capital gains tax to include works of art and other personal chattels. This was included in the Chancellor's statement yesterday. I am making no reference to the personal effect it will have on vendors, but to the effect it will have nationally, and I am bound to wonder whether this has fully been taken into account by the Chancellor.

It is well known to noble Lords and many others that in recent years London has become famed as the centre of the world art market. This has been achieved by a small number of highly reputable dealers and auctioneers. Their achievement is significant not simply in terms of prestige but in terms of foreign exchange. Two particular firms of auctioneers alone last season—that is, the season from October, 1963, to July, 1964—brought into this country something like £5 million in foreign currencies, mainly in dollars and Swiss francs, as a result of direct sales to foreign buyers. This, I am told, is no more than a small proportion of the full amount in foreign currencies earned by this market. Most foreign buyers in fact appoint a British representative to bid for them in pounds and will later pay him in their own currency. Here, therefore, is an important source of foreign exchange flowing into this country.

I am told that to-day dealers in London have been asking, "Is the art market dead from April onwards?". It is fair to say what they mean is "Is the reputable art market dead?". People will continue, no doubt, to sell works of art, but they will sell them under the counter in private undeclared deals, and it is the reputable, respected firms, by whose efforts this market has been created since the war, which will suffer. There will emerge a new black market and a new lively population of "spivs", and since in many people's minds, fairly or unfairly, these are concomitants of Socialist Governments it is very much in the interest of the present Government to think again more carefully of whether this is to be worth while, or whether doing it will prove as contra-productive as other intended solutions applied in the first rollicking fifty days of their reign.

I am not asking the noble Earl the Leader of the House to think fast enough to answer to-night, but I should be grateful if he could clarify one phrase used in the Chancellor's statement—that is to say: Gains arising out of the sale of chattels will not be within the charge to tax except where the price realised from a single transaction standing alone: is £1, 000 or more."— [Official Report, Commons, Vol. 703 (No. 29), col. 166, December 8, 1964.] Does "standing alone" mean a single lot in a sale or a whole property in a single sale which may consist of ten, twenty or a hundred separate lots?

The second point I have in mind I shall touch on very briefly indeed, since my noble friend who follows is infinitely more competent to deal with it. During the speech of the noble Earl, Lord Dundee, earlier this afternoon the noble Lord, Lord Shepherd, assured him that proper warning of the 15 per cent. surcharge was given to our trading partners, and when questioned further he said it was given over the week-end. Furthermore, he said this information had been given to the House by his noble friend Lord Rhodes in debate. The only reference by the noble Lord, Lord Rhodes, that I can find is in column 156, on November 5, during the debate on the Address. The noble Lord, Lord Rhodes, then said: … before I sit down, I want to say just a few words on the 15 per cent. surcharge."—[Official Report, Vol. 261 (No. 5).] The noble Lord was commendably as good as his few words, but those few words did not include any reference to the warning given to other countries. However, it may be that the noble Lord, Lord Shepherd, was referring to some other instance that I have not been able to trace.

LORD SHEPHERD

My Lords, I suggest to the noble Lord that he might look at some supplementaries. I cannot give him the date now, but I will afterwards. The noble Lord, Lord Rhodes, did give definite assurance in regard to this in supplementary answers.

LORD ST. OSWALD

I am delighted to hear it. I am sorry I did not check more carefully. I must say this. In spite of what the noble Lord has said, to my own personal knowledge and dismay a firm impression exists among our foreign neighbours in Europe that virtually no warning was given. An authoritative and specific correction of this idea from the noble Earl the Leader of the House, to-night or at a later date would undoubtedly be given the proper publicity by our many friends abroad. It is only right for me to say that in the visit I paid to the Continent shortly after the surcharge had been announced, I was told the only man who had made any sort of persuasive excuse for the Government's action was my noble friend Lord Aldington when he addressed a gathering of eminent European bankers. It is, therefore, perhaps providential for Her Majesty's Government that he is about to wind up for the Opposition.

8.50 p.m.

LORD ALDINGTON

My Lords, by some accident I have been chosen to speak last for this side of the House. It is an accident to the bottom of which I have not yet been able to probe. It is the first time I have spoken at this Box, and I hope I may ask from my noble friends as well as noble Lords opposite a measure of understanding. Indeed, having listened to practically every speech in the debate, one cannot but feel very humble after the wide-ranging and often very challenging speeches from both sides of the House. I think that in order to put the fears of some of my noble friends at rest, and those of some of my right honourable friends and honourable friends in another place too, I should hasten to add that I am not attempting to speak, for certain at any rate, for all my friends here, or for the official Opposition. There are some things that I should like to say to your Lordships with which I hope they will agree, but I have not been able to assure myself that they will before I speak, except, I think, in one respect, and that is about the speech of my noble friend Lord Watkinson. I have often listened to him in another place and in industrial gatherings, and I was delighted to be here to hear his maiden speech to-night. He has been complimented by many of your Lordships, and I would only say how helpful it is to hear his wise advice on exports and on other matters in which he is a master in our industrial affairs, particularly in industrial understanding. I look forward to hearing more often from him than I was able to when we were separated by the long corridor in this building.

I think the next thing I have a duty to do is to remind your Lordships that I have an interest to declare in some of these matters—various interests, as I happen to be chairman of a British overseas bank; and I think in the face of the noble Earl opposite it is nothing very disadvantageous to be chairman of a British overseas bank. I also happen to be chairman of a great industrial company and am connected with one or two others. Perhaps I should add that what I say is not in any way designed to commit them or any of my business colleagues. But I hope the House will feel—I know there has been some differences of opinion about this—that in a debate like this it is not a disqualification to have this kind of interest; indeed, it is rather the reverse. Perhaps the House will remember that some of the things, at least, that I am going to say I have to practise as well as to preach.

I should like to group my remarks under two headings: first, the pound and the balance of payments; and, secondly, national output, efficiency and exports. If I am critical from time to time I hope I shall also be constructive. First, the pound and the balance of payments. I think it is generally agreed now between us that the crisis that we have is one of confidence. This is acknowledged by the Prime Minister himself. Who has lost, or who first lost confidence? I think it is fair to say that the people who have to decide where to place their money, whether in London or elsewhere, were the first people whose confidence affected us. These are not speculators, at least in the pejorative sense of that word. My noble friend Lord Denham reminded us that the word "speculation" in the Oxford English Dictionary has a more respectable sense. But they are not speculators in the sense that some friends of noble Lords opposite are apt to use the word. Indeed, the noble Earl, as a banker, will know that speculation is the one thing that they must not do. They are entrusted with other peoples' money, and they have to look after it.

Others whose confidence mattered in this field are those concerned with deciding whether payment in trade transactions should be early or late—those concerned with what is called the "leads and lags", which can greatly affect the size of our reserves at any given time. And, finally, when confidence gets disturbed, there is always the danger that our own industrialists may lose confidence in the immediate future. I say there is that danger. Among those with whom I work I do not myself detect any presence of that feeling of loss of confidence yet.

If we are to understand this crisis of confidence, and if we are to put an end to it, then I think it is essential to examine its causes. It would be a mistake to try to single oat any one of several components of the cause as decisive by itself. But one must, at first and at once, start with the underlying economic situation and the balance of trade. The problem is well known to your Lordships: exports not up enough, imports up too much and for many more months than most of us expected. I should like to examine part of this point later, but for the moment it is enough for me to say that until October there were several possible explanations for the rise in imports to justify delay in deciding on what, if any, action was necessary. I think I should also add that in the present Government's policy statement of October 26, as my noble friend speaking from this Box earlier has already reminded your Lordships, the Government stated, in paragraph 7: Apart from special problems of individual areas and a limited number of industries, there is no undue pressure on resources calling for action. Lord Shepherd, in moving the Bill in what all of your Lordships thought, I know, because many of you have said so, was an agreeable and informative speech, said that action ought to have been taken in September or October. But though I am being asked to amplify what I have just said, he did not tell us what action, when action should have been taken, or why. Perhaps the. noble Earl who is going to reply will enlighten us upon that. Lord Shepherd also told us that the present Government had inherited a weak and dangerous economic base, but later he went on to say that our manufacturing costs are competitive with the world, which indeed I know to be true, and I think we all know to be true; and he also went on to confirm again that there is no overloading.

I am not complacent about the economy. There are some things I have to say in the second part of my remarks on the lines of Lord Shackleton's speech that indicate that I think there are some things which need improvement, and there always will be. But I do not regard a situation in which our manufacturing costs are competitive with all the world as a weak and dangerous economic base. If it is, then the noble Lord and I do not use the same form of language. Certainly, as my noble friend Lord Dundee said, the situation in October was not of the kind of panic urgency that required any action without thought. It has passed through the minds of many people to ask what would have happened had a different Government been elected. That is a purely hypothetical question.

LORD SHEPHERD

Interesting, though.

LORD ALDINGTON

It is an interesting question. One thing on which I feel fairly certain is that there would not have been even this crisis of confidence.

Furthermore, I go so far as to say that those people who told us that immediately a Socialist Government was elected there would be a run on sterling, were proved quite wrong, too. The crisis did not occur until the present Government began to take action.

LORD SHEPHERD

My Lords, might I ask—

LORD ALDINGTON

It was not a crisis caused by the world's distrust of noble Lords and their friends opposite just because they are Socialists: it was a crisis that occurred when they had begun to take action. Does the noble Lord wish to interrupt me?

LORD SHEPHERD

No; that is all right.

LORD ALDINGTON

The noble Lord follows me so far, at any rate.

LORD SHEPHERD

Oh, no!

LORD ALDINGTON

It is in the field of Government action that I find the main components in the cause of crisis. Here we come to the import surcharge.

As my noble friend Lord St. Oswald has said, quite early on I had the task of defending the Government's position on this surcharge in front of a half-yearly meeting of European bankers. My noble friend was kind enough to say that I did quite well. The arguments I used then, because I believed what the Government said, were that this surcharge was going to be temporary; that it was more sensible than quotas; that Britain was not seeking to be protective again, nor was she retreating from Europe. I reminded the bankers that our costs as manufacturers had, in fact, risen less than theirs. Mr. Paul Chambers has reminded us all of that in a recent speech, which was printed by Mr. Harold Wincott in the Financial Times yesterday. In the end, I persuaded them to wait and see how the British Government and the country were going to tackle the problem that faced them; and I ventured to say that I thought the size of the problem had been overpainted.

But the Government, as it were, pulled the carpet from under my feet because, far from doing anything like that, they proceeded to go on overpainting the crisis. And when I made another visit overseas I found the position, looked at from the overseas point of view, to be that the Government themselves appeared to take no notice of the inflationary position which they were describing to the world and appeared to be most surprised when other people did. I was told—I hope it is an apocryphal story—that one of the leading Ministers of the Government actually told an audience, in Switzerland, of all places, that our economic position was much worse than anyone had imagined. Then he went on to explain why the import surcharge was necessary. But its effect in Switzerland—well, we know now what happened.

Then there were many other confusing and rather disturbing things happening here, in what I can describe only as the artificial, high-pressure hose of Government statements and actions about that time. They have been referred to to-day: taxation statements not cleared up; not explained to begin with, and still, I think (though one must be grateful for what the Chancellor of the Exchequer said yesterday), not cleared up, because they cannot be until the time comes for the Budget next year. Then there were the Concord comings and goings, or what some wags have called the Concord discords; the rumours about overseas forces and bases, and so on.

I cannot help thinking, too, that the members of the Government have underestimated the effect upon thinking, both overseas and at home, of the possibility of devaluation; the effect of the inclusion among their economic advisers of a self-avowed believer in devaluation.

THE EARL OF LONGFORD

My Lords, since the noble Lord is referring, not obscurely, to a leading economist, I must say that, though I have not a complete review of his works in front of me, I am under the impression that any views which he expressed on devaluation were not up to the minute. In other words, they were views expressed some little while ago.

LORD ALDINGTON

My Lords, I have in mind, though not in front of me, a letter or series of letters written to The Times in the early part of the year. I must admit, of course, that the other economic adviser was the man who contradicted him, so that there is room for some fun. Nevertheless, I venture to say to noble Lords opposite that this has had, in my opinion, judging from conversations I have had, some effect which they may have underestimated.

The main point on this is that in economic and financial affairs it seems to many people that the Government have been talking, and indeed shouting, about a very bad inflationary situation—a situation which I believe to have been greatly over-stated—but until recently appeared to be doing nothing about it. If we are to get out of this crisis mood, all this has to be corrected; and I think quite soon. I believe that some people think that there may be a period as long as six months. Perhaps there may; but I understand that a substantial part of the large loans and credits recently negotiated with such skill by the Bank of England, and also, I would add, by a bit of courage by the Chancellor and the Government, last only for 90 days, so that does not give us much time.

A little earlier I was interested to hear the noble Lord, Lord Francis-Williams, recounting to us some of the background of earlier troubles with the pound. He explained to us that he looks forward to an international currency taking over from the sterling area. That may be right, but for the time being we have the sterling area, and I believe that the existence of that area is a substantial net gain to our economy. And even if we did not have it, it would still be necessary to run our economy properly. I consider that we should be making a mistake now if we were to blame the existence of the sterling area for any of our troubles. I do not think noble Lords opposite do so.

I believe that we should also be making a mistake if we thought that devaluation of the pound would do anything to solve our troubles. It would be bad for the world as well as for us, and must not be allowed to happen. I agree very much with what was said by Harold Wincott in his article in the Financial Times. I also agree, as I have said before, that devaluation is quite unnecessary because our costs are competitive with the world, though, of course, if they were substantially to increase, the position might alter. Finally, devaluation would not tackle the roots of the present problems which face us.

I think those problems can be put under two heads: our nation's resources are subject to too high a demand; and, secondly, efficiency is growing, or has been growing, too slowly. I say that there is too great a demand on our resources because that frankly is the effect of what the Government have explained from time to time and, indeed, again to-day as the facts of the situation.

Here I would come back to the balance-of-payments position and imports. There have, of course, been too many imports. How does one tackle them? My experience, both as a member of the Government and in business, has led me to regard a policy of import controls as a mad and wrong-headed policy for Britain. It is wrong-headed because we want everyone else to abandon these controls against our exports. And wrong-headed, too, because when we apply them they disturb the proper pattern of our industry. They are postponing, even to-day, the shift of resources to modernisation and to more profitable and efficient purposes. To that extent they lead to waste. It is simply no use our making things here which are not competitive in our own country.

Why have we had this high import bill? One noble Lord, I think it was the noble Lord, Lord Shackleton, said earlier that it was a mistake to say that this was due to stocking up or expansion. He said there had not been abnormal stock-building. I know that statisticians do not always record the same things in each table which is presented to us, but I have here the latest edition of the National Institute Economic Review, and on page 59 appear the figures of the gross domestic product. They show quite clearly that in the fourth quarter of 1963 and in the first and second of 1964 there was abnormal stock-building. I know of nothing from my own experience which would prove that to be wrong.

LORD SHACKLETON

My Lords, what does the noble Lord mean by abnormal stock-building? Is he looking at the whole trend of stock-building? Has he looked at the relation between stock-building and production?

LORD ALDINGTON

My Lords, I have read the economic trends very quickly where all this is written down. I am now quoting from a summary statistic of the gross national product, and I am quoting figures which show the increase of the physical stocks. In the fourth quarter of 1963 the increase was £151 million, whereas previously it had been up and down by twenties and thirties. In the first quarter of 1964 it was up by about £96 million; in the second quarter up by £146 million.

LORD SHACKLETON

Not abnormal.

LORD ALDINGTON

My Lords, I do not quite see what the noble Lord is getting at. I thought it was generally accepted that there must be some increase in stocks if we were to prepare for expansion. I am not saying that these are the only two reasons. I am merely try to analyse the situation accurately. There must have been some forestalling, after mention by the previous Chancellor of the Exchequer that he was prepared to consider import controls. But the other part of the reason—

LORD SHACKLETON

My Lords, I am sorry to say this to the noble Lord, but the rate of stock-building has declined since a date before the Chancellor of the Exchequer announced this. The noble Lord really must get his facts right on this matter.

LORD ALDINGTON

It may be, but the figures I have given explain quite clearly why, in the course of the last nine months, imports have been higher than they have been before. The noble Lord has at the back of his mind some abstruse point on something that is not relevant to my argument, and perhaps we can have a discussion about it at some other time. The other reason for the high imports is that there has been—and this was mentioned by Mr. Paul Chambers in his recent statement—sufficient money here to buy from outside what industry could not supply out of its present resources and methods. It is not just that I think there is a shortage of labour. There may have been—and, in fact, the noble Lord, Lord Lucas of Chilworth, and my noble friend Lord Molson both mentioned this point—and there almost certainly is, quite severe under-employment. I suppose there is a similar explanation for the failure of exports to rise. That can only be corrected—and here I agree with Lord Molson—by tackling home demand and also by tackling our efficiency. It cannot, I think, be corrected by annoying our friends overseas.

Then it is said—not said to-day by noble Lords opposite, but said by some of their friends—"But we cannot have 'Stop-Go' again." In the first speech I ever made to your Lordships I inveighed against "Stop-Go", and I am still against "Stop-Go". All I would say is that "Stop-Go" is better than "Stop-Stop". But I am not here referring to "Stop-Go", nor, I think, in the delightful phrase that the noble Earl used in the course of an interruption when he referred to the "moderation of the expansive process" was he referring to "Stop-Go". He was referring to the proper methods to keep the economy in balance.

It is, I think, the great virtue of my right honourable friend Mr. Reginald Maudling and of the present Chancellor—because this is what he must want—that they both sought, and seek, to avoid "Stop-Go" by taking early steps to keep expansion to a reasonable rise. The trouble is that in this field of economic policy we have got used to just these two words, "deflation" and "inflation", which have become very emotive. I thought I detected something emotive in a remark of the noble Lord, Lord Francis-Williams, when he said that deflation is very respectable for bankers. If it is respectable for bankers, I must say that it is not at all profitable. I am against policies of deflation, but I am greatly in favour of policies that keep our economy in balance. I think the present Government have been keeping our economy in balance, and I do not here say whether they have been driven to it, or whether they have decided to do it on their own account.

We shall always have to quicken up and slow down the economy as it is required, and all this talk about "Stop-Go" being wrong, of which I, myself, am guilty, must not, I think, allow us to hide the fact that we shall always have a problem in keeping our knife-edged economy in balance. I would say that, whether or not the word "squeeze" is the right expression, the present Chancellor of the Exchequer has, as a net effect of his Budget, the increase in bank rate and the new "squeeze" instructions, given a definite "slow-down" to the rate of expansion. I would say that he was right to do so. I would only question whether he would not have been more right to impose them all together, because I think they are always then that much more effective.

Whether more is needed, I do not know; we do not have the facts. I think the Government are right to take account of the fact that when there is a lack of confidence growth is, anyway, likely to be temporarily impeded. In my view, the noble Lord, Lord Sainsbury, was quite right to remind us that there is no consumption boom. In that respect this is different from earlier crisis periods that we have had in the last fifteen or twenty years. But even though we may say that there is no consumption boom, if it is proved that the demand upon our resources is still too big we shall have to do something to get that demand down; for if we do not, costs will go up.

I am detaining your Lordships much too long, but in the nature of things I have been extremely interested in the debate and I have still some few things that I wish to say on the other side of the problem, on the question of output and efficiency. In the long term—and here I agree with much of what the noble Lord, Lord Shackleton, had to say to us—the key to our problem is to be found as much in output, efficiency and productivity, as in the handling of our financial affairs. I would say that we sometimes make a mistake in avoiding the use of the word "efficiency". The noble Lord talked about growth. He also talked about efficiency. I should like to concentrate noble Lords' attention for a few more minutes to-night on this question of efficiency.

Efficiency is related to the overstrain on our resources, for when we say that there is too much demand on our resources we often forget that this is caused by the failure to use many of them efficiently, and that we should be able to do much more if only we got efficiency right. We often talk about the components of a policy of efficiency—more competition, abandonment of restrictive practices, technological progress, computers, automation and so on—about which the noble Lord, Lord Snow, was talking in that very interesting and encouraging debate last week. All these things help or hinder efficiency.

The noble Lord, speaking last week on technology, told us that "the climate is stale", and that "we still do not believe in the technological revolution". I took a note of both of those statements and, with great respect, I think he is right. I think he is right, too, to remind us of the importance of attitudes, which are just as important as the installation of new plant. I think that the noble Lord, Lord Citrine, was absolutely right to remind us to-day that efficiency includes the right attitude on the part of management to its employees, and that this is every bit as important as the right attitude on the part of management to new plant.

Therefore, I suggest to the Government that they should have as their test of policies now: Do we believe in efficiency? Do we reward it or do we hinder it? Do we encourage it? Here I would say that I thought that in his attitude to profits—which has to-day become a dirty word; I think very wrongly—the noble Lord, Lord Shackleton, was saying exactly the right things to encourage more efficiency. Another question I would raise is: do we spend public money on propping up inefficiency? I have sufficient respect for the Parliamentary Secretary to the Ministry of Technology, and for the Minister himself, to know that they will not do that. But I think that mistakes have been made in the past in spending public money in propping up inefficiency; and this is a mistake.

Further, do we encourage those who delay modernisation, whether in industry or transport? Do we encourage those, whether managements or unions, who block the changes in techniques? Do we encourage those who arouse public clamour every time a factory is closed, even when there is full alternative employment for everyone in the district? We have to ask ourselves these questions, and if we get the answers right we shall be helping industry to become more efficient.

On Government organisation, I agree with what the noble Lord said about regional development. I have a question to ask the Government about the new organisation affecting the important industries, about which the noble Lord, Lord Snow, spoke to us. Have they got the right relationship between the Economics Ministry, the Ministry of Technology and the "mini-Neddies"? Are there not too many bodies dealing with electronics, machine tools and other things? Does it make sense having a "mini-Neddy" for electronics and a "mini-Neddy" for machine tools when the noble Lord is the sponsor of the subject? The Minister of Technology, besides being a powerful man in himself, has the power and the responsibility of being a Minister. The "mini-Neddies" have neither the power nor the responsibility.

I could go on with other matters. I have often wanted to challenge statements about growth. I am sorry that the present Chancellor of the Exchequer has selected particularly bad months for his comment that our growth rate has dropped 2 per cent. He could have looked back a bit and made the average considerably higher. One thing I would say to the Government on these growth targets is that the figure of 4 per cent. is itself a very misleading figure. Many people think it is very small, but if we are going to get a 4 per cent. average for the nation the industries that are really going to grow and achieve that rate must grow by more than 10 per cent., which is very difficult indeed. I think the Government would be wise to issue publicity to management and the unions to stress that aspect of the matter as well.

We have had, rightly, a great many speeches to-day referring to exports. When I was a member of the Government it fell to me to encourage exports and to go all over the world. Since then I have tried to practise some of the things that I used to preach, and to learn more, too. I am afraid I did not agree wholly with what the noble Lord, Lord Shackleton, said about the need to export even though it was unprofitable. I think we have to make exporting profitable. We do that if we make industry efficient. If we do not, we deprive management of one known test for deciding what it is they should be doing.

I am not so gloomy about exports being profitable as the statements of some noble Lords indicate they may be. On the other hand, we know that other countries give export incentives. I think the idea behind the Government's 1½ per cent. incentive was a good idea. I do not take the view that this is no help at all; it is some help, but not a very great help, and I hope the Government will be examining some of the other export incentive schemes which are practised by our competitors. One possible one arises in connection with the redundancy payment schemes and other social service schemes to which industry may be forced, and rightly forced, to contribute. I would ask the Government to consider whether it would not be right, in these kinds of cases, that the Lord of social charge borne by industry should be borne by them on the home front and not on the export front. I think it is the Italian Government which has a scheme which gives effect to that.

My Lords, I must apologise again for having detained your Lordships at this late hour for more minutes than I meant to speak for, and for a great many more minutes than many of your Lordships would have wished. In the nature of things, many of the points I have made have been rather too "moneyish" or industrial, and perhaps too little human. I do not intend that to be so. We are all partners in this enterprise of greater efficiency and greater output. Change, with whose opportunities we are blessed by science and technology, brings with it much hardship unless those who manage our affairs have humanity. This has long been realised. Training schemes, redundancy payments and schemes for all kinds of improvements and movement have been discussed for some time now, and have gained support—and many of them have been put into practice. But there are other aspects of change which I think want more acceptance even than this. I am in favour of the publication of more information by companies, not just for Stock Exchange reasons, but so that the free enterprise system can react more immediately in various ways to the troughs of inefficiency, and to changes in technology and demand.

In so much that I have been saying there has been nothing very Party political. I have been away from active Party politics now for eighteen months or so, and I have probably forgotten about it. Some of your Lordships may feel that I have not said anything very profound, but this is largely because I have developed a feeling that very often we are over-complicating the problem that faces us, and therefore the answers that we give. Sometimes, when we take pride in arranging foreign loans, in bank rate changes, or in organising science, technology or business schools, we are apt to make the mistake of thinking that, just by having accomplished this particular success, we have done something of real importance. Some of these things are important, but they are not the fundamental point.

I may not agree with everything that my noble friend Lord Coleraine had to say to us about the fundamental problems—in fact, I do not—but I agree with him that we must, all of us, look to the fundamental problems more than we have been doing in recent years. Some people, I think, forget the simpler truths that underlie any economy. We cannot spend more than we earn, and we earn more only if we are more efficient. It does not matter, I think, whose fault it is, but it is the simple fact that we have very few months to show ourselves and the world that we acknowledge these simple truths.

9.25 p.m.

THE EARL OF LONGFORD

My Lords, I am sure that all noble Lords for whom I can speak, and I have no doubt many others, will be very grateful to the noble Lord for the notably fair-minded speech that he has just delivered on his first appearance at the Dispatch Box in this House—although, of course, he is an old Minister. I had the feeling—it is not always easy to achieve this in Opposition—that he was genuinely trying to help and would be pleased if we in fact did better than perhaps, in his gloomy moments, he thought we were doing. One cannot ask for more than that in an Opposition speaker. The noble Lord, Lord Elleborough, announced at one moment that we had knocked the stuffing out of the City, but this I venture to question, in view of the words at this late hour of the noble Lord, Lord Aldington; and I think it will take a lot more than any Government to destroy the indestructible City.

I was struck by the speeches on our own side for more than one reason. There were, or are, altogether, three Ministers speaking from this; Bench, all of whom, at some point or other in their lives, have been or are businessmen. I think this must be a record in the history of the Labour Party; so one must not assume that nothing changes in the history of great movements. A fourth spokesman, also very powerful, was the noble Lord. Lord Sainsbury, whose name is better known in business than that of any of us taking part to-day. But, from our point of view and I think from the point of view of the House as a whole, the two most powerful speeches were made by the noble Lord, Lord Citrine, whose speech I unfortunately missed, and the noble Lord, Lord Geddes of Epsom, whose remarks will certainly be studied with particular care by the Government, as will be those of other noble Lords.

I must now attempt to refer to some of the Opposition speakers. I was going to say a few minutes ago that they had all gone. There was a moment when the Conservative Benches—not just the Front Bench, but all the Conservative Benches—were void of humanity for the first time in my many years in this House.

A Noble Lord: They are always void.

THE EARL OFLONGFORD

No; we are all sweetness and light this evening. But I must at least join in the tributes paid to the noble Viscount, Lord Watkinson—visibly restraining himself from partisanship, but giving us a most interesting account of his journeys and the lessons to be learnt. The noble Lord, Lord Molson, and I must agree to differ on the semantic point of what is and what is not a "squeeze", but I think we have pursued that particular topic so far as it can be carried this evening.

I must also refer to, among other speakers who have stayed with us on the opposite Benches, the noble Lord, Lord St. Oswald. I will not attempt to answer his main point about the taxa- tion of works of art. Of course, I will certainly see that the Government study his observations carefully, but it would be quite wrong for me to give the impression at this stage that a change of policy was likely. But he raised a point within a point, so to speak, about the £1, 000 limit. While I will give him a longer answer afterwards, if he wishes, perhaps I could tell him this now. The answer is that the £1, 000 limit is intended to apply to single lots. That would allow a number of pictures, even belonging to the same person, which were being sold separately on the same day and in the same sale room to be treated individually. But there is a qualification: it is the definition of what is really one asset. A set of chairs—and this I know might interest the noble Lord very much—

LORD ST. OSWALD

Not because I am selling them.

THE EARL OF LONGFORD

I was under the impression that no one had a better set of chairs in the country than the noble Lord.

LORD ST. OSWALD

They are not for sale.

THE EARL OF LONGFORD

We are sometimes pushed. At any rate, the qualification to what I have just said is that where there is what is really one asset—for example, one lot—it cannot be split up for the purpose of avoidance of tax. I hope I have answered the noble Lord in his entirely altruistic inquiries.

LORD ST. OSWALD

Correct.

THE EARL OF LONGFORD

I am sorry to express a certain sadness about the speech of the noble Earl, Lord Dundee. When he was a Government spokesman, I always admired him because I felt sure that he had never shown his speech to the civil servants. He would also make admissions which I am sure no official would ever have tolerated. To-day he seemed to have fallen under the influence of a new set of officials, Central Office officials whom he has not defied in the way he used to snap his fingers at the old gang. In other words, I did not think his speech to-day was quite so balanced as those he has made for many years as a most acceptable Government man.

Surely, my Lords, we start from the point that this year, 1964, has been, on any objective assessment, a deeply disappointing year. I am anxious to follow the example of the noble Lord, Lord Aldington, to go as far as I can with the noble Lords opposite to find some sort of consensus. I should have thought one had to agree about that, whether it gives one any pleasure to say that the economy is full of underlying strength, and certainly so long as there is a Britain—and we know from President Johnson that there always will be—there will always be an underlying strength, in the British economy, just as there will always be in the British character. But that kind of remark does not help a great deal, and this has been a very depressing year on the economic front.

As was explained by my noble friend Lord Shackleton, exports have tended to decline in value and still more in volume. That could be seen from the figures for the first three quarters. The figures for the last month which are not published yet showed a marginal increase but as a whole it is right to say that exports have tended to go down.

THE EARL OF DUNDEE

My Lords, I must repeat what I said. I said that in the first nine months of this year our exports are 4 per cent. higher than for the first nine months of 1963. That is a perfectly reasonable comparison to make.

THE EARL OF LONGFORD

My Lords, it could be a very misleading comparison. But let me pursue the point. I do not intend to speak for as long as the noble Earl—not that he spoke for too long; but I do not intend to speak as long as he did.

THE EARL OF DUNDEE

My Lords, I spoke for only 20 minutes. I wager the noble Earl will speak longer.

THE EARL OF LONGFORD

My Lords, if the noble Earl continues to interrupt me then he will win his bet. But assuming there is a reasonable quiescence I shall get through in less than that time. The point is that exports did increase at the end of last year but during this year they have in fact tended to go down quarter by quarter and it has been really a very disappointing year. I do not want to dwell on these figures; but in April, Mr. Maudling was pinning a good deal of hope to an improvement in exports. He said that the prospects for exports—he said this on April 14 in the Budget debate—were encouraging. On November 4 he went on to explain that the opposite had occurred. He said the figure in respect of exports was by far the most disappointing. That he said on the November 4.

THE EARL OF DUNDEE

My Lords, the noble Earl must do him the justice to add that he said that in September before the Election. For the last few months of the summer, they had been disappointing.

THE EARL OF LONGFORD

My Lords, I am not arguing on that point; I am saying this has been a disappointing year. Those exports that we hoped to go up tended to go down. That is the simple fact and nobody can dispute it. We must try to proceed in some correspondence with the facts before we impute motives and all the rest. Those are the facts. It has been a very disappointing year.

THE EARL OF DUNDEE

My Lords, there is no inconsistency between that and what I said.

THE EARL OF LONGFORD

My Lords, I was not setting out to see whether there was inconsistency. Your Lordships may find some before I have finished. But I am saying that it has been a very disappointing year for our country and it would have been so whoever had won the Election. I will quote once more. The National Institute of Economic Surveys in November commented: A completely flat trend in exports seemed at the start of the year an unbelievably depressing prospect. That was thought at the beginning of the year. This is how it turned out. Against that background it is fair to ask—and I come on to something the noble Earl is interested in—the question of whether warnings were given. I do not want to go over ground that has been covered elsewhere, but let us turn to the last debate on these subjects in July. The noble Viscount, Lord Blakenham, on that occasion deputising for the noble Earl, Lord Dundee, was, I am bound to say, a great deal more optimistic than the noble Earl, Lord Dundee, has shown himself on these occasions. In July, the noble Viscount, Lord Blakenham, speaking for the Government, struck a very cheery note indeed. He said that there would be some deterioration in the overall balance of payments, but he said that this should give rise to neither alarm nor dismay; that the deterioration was foreseen and it was ready to be dealt with. So far, as I have indicated, this year we have had an encouraging rise in exports."—[Official Report, Vol. 260 (No. 99), col. 119, 14th July, 1964.] In July the noble Lord informed your Lordships' House, speaking for the Government, of an encouraging rise in exports.

THE EARL OFDUNDEE

For the first six months.

THE EARL OF LGNGFORD

It would not have been true for the first six months. In July he had only the May figures. I am trying to remind the House of what we had been told this year. In the last main debate we were told that there had been an encouraging rise in exports. He went on to say that there were good prospects for further increases in exports. In the light of that, without going on with endless quotations, I can say that we, the public, have been seriously misled, no doubt unwittingly, by the noble Viscount and his colleagues in another place; not once, but again and again. I could quote many illustrations of that. It may be said that they were doing it deliberately; but I know the noble Viscount well enough and I certainly would not impute this disingenuity to him and to his colleagues. I think they hoodwinked themselves. No doubt the noble Viscount, Lord Blakenham, believed everything he said. But things turned out differently; and not long after those statements were made.

I do not want to pursue that topic much more except to remind the House, and to confirm what my noble friend Lord Shackleton said, that Lord Shackleton gave the clearest warning of what he thought would happen in respect to the trade balance this year; and he has been proved right—though perhaps he was not pessimistic enough—and the Government spokesmen were proved wrong.

THE EARL OF DUNDEE

My Lords, can the noble Earl say in what respect he means that the late Government spokesmen were proved totally wrong?

THE EARL OF LONGFORD

In respect of the statement of the noble Viscount, Lord Blakenham. I gave him notice, but he is not in the House; we do not seem to see him much these days. The remarks of the noble Viscount, Lord Blakenham, look remarkably foolish now. Even if the noble Earl does not accept that, I suspect that his colleagues versed in these affairs will be inclined to agree with me. However, the noble Viscount, Lord Blakenham, is on record and I think that we have, in fact, been misled, even though unwittingly. The noble Earl still feels that all is well. And here I am bound to say, but not on all the points, that I find Lord Blakenham's observations very strange indeed. But, in his absence, we have done full justice to that speech of his in July.

On that point only I think I tended to agree with the very deeply interesting speech of the noble Lord, Lord Coleraine, who has apologised for leaving. He feels that there is a serious, a grave, problem in regard to our economy. The noble Earl, Lord Dundee, does not. I cannot coerce him; but he is still as cheerful as ever. He does not look very cheerful, but I can see that inside he is enormously cheerful at the prospect; and I suppose in these hard times it is better perhaps that the Opposition should bear up. But all I am saying is that, if he were now in a responsible position in the Government, he would have to face very grave problems: he would have to face the mess, the very grave mess that he and his colleagues left us. Having said that—

THE EARL OF DUNDEE

My Lords, I must remind the House that my argument was that this grave mess has been caused very largely by excessive pessimism of the Government since they came into office.

THE EARL OF LONGFORD

My Lords, that is not worthy of the noble Earl. I think, for the moment, I am in possession of the Box. When the Government took over they faced a deficit for this year of £700 million to £800 million, and a very heavy deficit next year—and I am at liberty to call that, and I intend to call that, a grievous mess. I will not try to attribute the blame. But it was the case that these facts had not been fully disclosed to the Government or previously disclosed to the public.

LORD ALDINGTON

They have been fully disclosed.

THE EARL OF LONGFORD

My Lords, I assure your Lordships, after careful thought, that when my colleagues, particularly my senior colleagues responsible for policy, found what the real situation was, they said it was much worse than they supposed and, if anything, there was not sufficient warning given to the public. That was the situation inside the Government when they took over, as I happen to know.

Let me proceed to one or two other main issues. We have not really been challenged seriously to-day about what we ought to have done. If noble Lords opposite had been in office I do not know what the noble Earl, Lord Dundee, would have done.

THE EARL OF DUNDEE

My Lords, it would not have been in such a mess if we had been in office.

THE EARL OF LONGFORD

My Lords, I will not reply to a sort of running commentary, because sometimes one sinks to the level of the commentator. I am afraid that I must be allowed to finish my remarks. The noble Earl, who is deeply esteemed on this side of the House, would, I feel, not necessarily have taken strong action. I think that the rest of his colleagues would have taken strong action. The question, of course, is, what action would they have taken? They have not shown their hand about this. It has been suggested that they would have continued borrowing to keep going, in the hope that it would turn out all right. I do not think that was the mood of the noble Lord, Lord Aldington, or the mood of the late Government, but I am sure they would have taken strong action of some kind. From what the former Chancellor of the Exchequer said when surcharges were first announced, I am inclined to think that he would have taken steps of this sort. I cannot be sure, but noble Lords opposite have not given any indication at all that we should have done other than what we did do.

I should like to say one thing about the increases in old-age and widows pensions. Here I want to be careful to avoid saying anything which seems to imply that the other side are less humanitarian than we are. I think it is right to assume that noble Lords opposite would have increased these pensions, whether to the precise extent or more readily I do not know, but it seems to be fair and honourable to make that assumption. But we must face the fact that this increase of pensions, given at the time when we were admittedly describing the situation as grave, was liable to be misunderstood in certain quarters abroad; that was inevitable. I deliberately pitch my remarks as low as possible, and I do not try to link this particular measure with any particular loss of confidence; but the problem of how to carry out a radical programme, and at the same time retain the full confidence of those people abroad who may not understand our proposals as well as we do, does arise, and it has arisen in a very acute way.

Having worked as the chairman of a bank for many years, I am fully aware that there are more ways than one of looking at a great programme of radical legislation. Yet I very much hope that the House agrees—if I have said anything more or less aggressive to the noble Earl, Lord Dundee, I apologise, because I know that he is very soft-hearted where people in distress are concerned—that we are absolutely right to go ahead with this essential legislation. If that is so. it places on us a responsibility for making sure that in every case our immediate friends will understand our principles and our methods and appreciate what we do.

It is not for me to say that every step taken, every diplomatic move, every pronouncement, was inspired, but I cannot accept the picture which the noble Lord, Lord Aldington, gave of our going round shouting about inflation. I think that that is being said a good deal, but I should like to see some of these statements. I do not accept these reports about what Ministers are supposed to have said at some hour of the night in some smoke-filled room. I do not agree that this crisis must have been created in this way. But it places a heavy responsibility on us to make our policy and our short-term and long-term remedies understood. I hope that they will become better understood now, and that my noble friends have contributed to that to-day.

I must say this for myself, and I say it as carefully as possible: that we in Britain, and in the Government in power, could not allow what we regard as a right and just social programme, one for which the British people had voted, to be set aside because our purposes were misunderstood, even by enlightened foreigners. So, in the last resort, our social programme must and will proceed. But I do not accept the view that there is here a conflict, and that one side of the equation has to give way. I do not accept the view that we cannot go through with a radical programme without disturbing confidence. I believe that in many ways noble Lords opposite have as big a part to play in making sure that, not in the interests, Heaven knows! of one Party or of one Goverment, but in the interests of Britain, what we are trying to do is properly understood. It may or may not be successful to the full, but I am sure that we are going forward on lines which, in the end, will be calculated to benefit everyone in this country, irrespective of class interests, and which, in the end, will be the interests of the world.

I do not ever claim infallibility. The noble Earl, Lord Dundee, was so wise in that: he did not, either. Every Govern- ment makes mistakes. But we have a great purpose. We are filled with determination to achieve more than any Government has ever achieved. If we have tried to move too fast, it may be that that could be right—better perhaps than lagging by the wayside. But if we obtain reasonable co-operation, which I think one can ask for, not in vain, from an acutely, patriotic Opposition, we shall achieve far greater things in a way that will do credit, not just to our Party, which is one element in the State, but to the whole of this country, Britain, which is equally dear to all of us.

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