HL Deb 14 July 1964 vol 260 cc112-98

2.52 p.m.

Order of the Day for the Second Reading read.


My Lords, this Bill is designed to carry forward the Government's policy of expansion without inflation. In moving the Second Reading I shall not spend time on the smaller proposals, although these are well worth while. There is, for example, the clause exempting from Excise duty vehicles modified for invalids; and there is also the clause increasing the exemption limits for people over 65. This will exempt some 120,000 old people from taxation; and many others will pay less tax. But these proposals have all been discussed in another place, and therefore I propose to examine the Bill against the nation's financial and economic requirements. I propose to look first at what was done by my right honourable friend the Chancellor of the Exchequer in 1963, because it was in the Budget of that year that the foundations of our present economic expansion were laid.

Everyone will remember that that Budget introduced very substantial reliefs on direct taxation, so injecting more purchasing power into the economy. Big incentives—the system of free depreciation for new plant and machinery—were given to encourage industry to expand, as your Lordships will remember, in areas of high unemployment. These measures, and the greatly increased investment and depreciation allowances announced in the previous November, were designed to strengthen and modernise Britain's industrial base; and there is no doubt that the Government's economic policy has achieved a very great success. There were some who accused the Chancellor of timidy in the 1963 Budget, but the Opposition in another place were not sufficiently sure of themselves to press at that time for the rejection of the Chancellors' proposals. I think that this was just as well because I believe, to the fair-minded, it can be seen that the Chancellor's judgment was right.

On any count that you like to take—real income, production, employment or exports—1963 was undoubtedly a year of rapid growth.


Not for the postmen.


Investment is rising rapidly now. The incentives to industry to expand in areas of high unemployment have proved effective. At the same time—and this, I think, answers the interjection—prices have remained encouragingly stable, and we have done better in that respect than many of our Continental neighbours. The June issue of the Treasury's Bulletin for Industry carried a diagram, based on O.E.C.D. figures, which showed that between the fourth quarters of 1962 and 1963 consumer prices increased much less in Britain than in Italy, France and Germany. Of the major industrial countries, only the United States experienced a smaller increase in consumer prices. This was a point which the noble Lord, Lord Sainsbury, will remember that he mentioned in our March debate; but, in interrupting him, I pointed out that for several years in the United States unemployment has been running at well over 5 per cent. of the total labour force; and I would suggest to your Lordships who like to compare America with us that this is a high price to pay in human terms for comparative price stability.

As I have said, expansion without inflation is the aim of this 1964 Budget, as indeed it was for the 1963 Budget. But your Lordships will recognise that the nature of the problem has changed. As I explained to the House in March, earlier this year production was expanding at an annual rate of about 6 per cent. This rate was possible only because slack was being taken up in the economy. Now, instead of generating expansion, this year's Budget has to moderate it. We have to aim at a transition to a rate of growth which can be sustained at about 4 per cent. The central feature of this Bill is that it registers a decision by the Chancellor to bring in about £100 million of additional revenue through increased taxes on tobacco and alcoholic drinks. This will in fact convert a prospective deficit of about £30 million into a surplus of £70 million. In deciding upon this additional taxation, my right honourable friend had to do two things. He had to combat trends in public expenditure and to cope with the economic situation as a whole.

Public expenditure has been mounting heavily and, as your Lordships know, there will be a further increase this year. Consolidated Fund services are expected to cost £49 million more than last year's Estimate, and total Supply expenditure £410 million more. The biggest increase expected in Supply expenditure is £161 million for Defence, or nearly a 9 per cent. increase. But there are bigger—and, indeed, often much bigger—percentage increases in provisions for universities and colleges for advanced technology, roads and hospitals. The non-specific grants to local authorities—the general grant, of which about 80 per cent. is for education, and the rate deficiency grants—show an increase of £93 million. On the other side, reductions are expected in the cost of agricultural support and in grants to the British Railways Board. But I do not think anybody will disagree that a rising level of public expenditure is essential if this country is to stay in the forefront of the advanced industrial nations.

A major innovation in Budget technique was marked by the White Paper on Public Expenditure up to 1967–68, published last December. This showed a most ambitious programme, and, of course, is made possible by what has been achieved over the last twelve years. As my right honourable friend the Chancellor of the Exchequer said in his Budget speech [OFFICIAL REPORT, Commons, Vol. 693, col. 266]: It will certainly involve, even on the most favourable possible estimates of the growth of gross national product, a continuing increase in the proportion taken by public authorities. The first reason, then, for an increase in taxation this year is the rising level of public expenditure.

The second reason is, of course, the economic situation. The Budget is only one of the measures that a Government can use to keep the economy on the path of steady, sustained growth. Sometimes the situation allows for cuts in taxes, and sometimes increases are necessary. No Government worth its salt, Election year or no Election year, should hesitate to increase taxation when this is needed. The adjustment in taxation that is best calculated to achieve this aim is, of course, very much a matter for individual judgment. In choosing an increase of £100 million the Chancellor of the Exchequer steered a course between widely differing streams of advice. The moderating effect of this £100 million extra taxation must be judged along with the increase in bank rate from 4 to 5 per cent., which brought us into line with changing conditions in world money markets.

Some advocates of much stiffer increases in taxation have accused the Chancellor of taking a risk with the economy. I believe that among the many things about which the "Shadow Chancellor", the honourable friend of noble Lords opposite, indicated that he could not make up his mind was whether what the Chancellor was doing was a "risk" or a "chance". But I personally do not think that any such criticism is justified. All decisions involve some kind of risk. We are still waiting to hear—we may hear it in the debate this afternoon—what sort of decision the Opposition would have made. Because once again, as in 1963, the Opposition in the other place were not prepared to ask the House to reject the Government's proposals, although I think it is true to say if their Amendments had been accepted the total of increased taxation would have been whittled down.


My Lords, may I interrupt the noble Viscount? He said he would like to know what decision the Opposition would have taken. I am not quite clear what sort of decision he is talking about. Would he particularise?


My Lords, I am saying merely that in another place no line of constructive policy was put forward indicating what the Opposition would have done, supposing they had been in charge of the nation's finances.


The noble Viscount did say that he was expecting to hear this afternoon.


I have great faith in your Lordships, and it may be we shall hear a great many constructive suggestions, and I know we shall listen to them with interest. The point I was making was that they were not heard in another place.

As I was saying, the Chancellor did make up his mind, and I think the record shows that his judgment is sound. Let us make no mistake: this Budget is a consciously bold one. Boldness is, in fact, what is needed, because over-caution could have brought a serious setback in expansion. If further action is needed at any time to restrain the economy, then of course it can be taken. There are powers available for dealing with short-term situations, and one of the features of this Finance Bill is the renewal of the regulator in a more flexible form. This will allow one or more of five major blocks of indirect taxation—tobacco, alcohol, oil, purchase tax and the remainder—to be excluded from its use. This will mean, for example, that if at some period in the future it should be necessary to use the regulator there would not necessarily be a further imposition on the tobacco or alcohol duties. Also it will enable surcharges or rebates under the regulator to be applied at different percentage rates for the different blocks of taxation.

Exactly three months have gone by since Budget Day, and this is time enough for the economic situation to move on. The facts now emerging provide a test of the soundness of the proposals in this Finance Bill, and of the extent to which the aims of the Government's economic policy are likely to be realised. First, there is no doubt that expansion is continuing. On the latest information available, fixed investment and exports are both rising. Exports from March to May were 2 per cent. more than in the previous three months, and 5 per cent. more than six months previously. Public investment continues to rise quickly. In the twelve months to last May the number of houses started was well over 400,000. Private industrial investment seems to be rising; the signs are that the expected increase in manufacturing investment has begun, and that a rise in commercial investment has been continuing.

On the other hand, some kinds of demand are not rising as fast as last year. For example, retail sales—which account for more than half of all personal consumption—have been steady so far this year. Hire-purchase and other installment-credit figures are high, but there seems to have been no further growth in recent months. The car boom, which brought new registrations to over the one million mark last year, now seems to be levelling out. Stockbuilding increased quickly towards the end of 1963, adding very significantly to the pace of expansion. The signs are that in recent months stockbuilding has remained high, but that it does not seem to be changing much. On the supply side, industrial production from February to April is estimated at one per cent. more than in the previous three months. This is about half the rate at which it had been increasing earlier.

Imports have been very stable since January. From March to May they were one per cent. higher than in the previous three months. So, although Britain's economy is continuing to expand, we seem to have succeeded in moderating the pace a little from the very high rates which I mentioned of last year. Several commentators have noted that there is not the same scramble for labour that happened in the previous expansion, 1960–61. New plant, new machinery are enabling a more productive use of manpower to be made. While the latest unemployment figures show, for the first time for a long while, more vacancies than unemployed, we must remember that we are reaching the peak of seasonal employment and that we are expecting an unusually large number of school leavers to become available in the near future.

In his Budget speech my right honourable friend the Chancellor of the Exchequer called attention to certain built-in factors which tend to correct an excessive rate of expansion. I would suggest to your Lordships that the facts now emerging, patchy and incomplete though they necessarily are, confirm the soundness of his judgment. The recent survey by the Federation of British Industries stresses that there is still a good deal of spare capacity in industry. But, having said that, I should add that we still have to watch the situation very closely. We must be ready to act to avoid the kind of "over-heating" that would lead us back to the problems of the kind that we have met as a country before.

We have recently had the balance-of-payments results for the first quarter of this year, followed by news of a drop in the reserves in June. I expect that a number of your Lordships will be dealing with these figures during the debate, but the main factor in the balance-of-payments results—the movement of current account from the small surplus in the last quarter of 1963 to a deficit of £67 million in the first quarter of this year—is, in fact, directly attributable to the rapid expansion of the nation's economy. This was expected. It was recognised and expected by my right honourable friend the Chancellor of the Exchequer when he spoke on the Budget and indicated that in so far as we are paying for imports that are necessary for economic expansion, we are…entitled to regard this as a proper subject for financing through the use of our external credit, so long—this condition must never be overlooked—as our domestic economy remains sound. He also pointed out at that time that the net outflow on capital account, recently comparatively small, would increase this year.

The combination of an increased capital outflow with a deterioration in the current account inevitably means a worsening of the overall balance of payments this year. But this should give rise to neither alarm nor dismay. The Chancellor has said on a number of occasions that in fact this is the predictable accompaniment of a vigorous rate of growth, which I think all of us are committed to seek. The deterioration was foreseen, and we are ready to deal with it with greatly improved machinery designed for this purpose.

So far, as I have indicated, this year we have had an encouraging rise in exports. After their big increase, which was necessary to prime the pump and to provide materials for working up into exports, imports have remained fairly steady. As a result, the deficit on visible trade has been falling slightly. I think there are good prospects for further increases in exports. Market conditions have already improved in primary producing countries, so our exports to the sterling area have been doing well. Exports to EFTA countries have been rising steadily, and those to the Common Market now seem to be rising again after being steady since the middle of last year. Again, with economic expansion quickening, the United States is likely to import substantially more this year.

But I must again emphasise what I said in March—namely, it is the inescapable truth that, if Britain is to achieve sustained economic growth and a sound balance of payments, we must take full advantage of the expansion of world markets. At the centre of the Government's economic policy is the aim of increasing the competitiveness of our exports. Many problems arise here, but the chief one is to ensure that our costs and prices compare favourably with those of our competitors. I have already quoted statistics showing that over the past year consumer prices rose less in Britain than with our European competitors. We can take a certain amount of satisfaction in this, but I am sure most of your Lordships will agree that we cannot really relax for a moment on this subject.

By far the most significant of the factors affecting prices is the movement of money incomes, in wages, salaries, gross profit and other trading incomes. Here, the Government's unremitting search for agreement on an incomes policy remains our object. I believe that all sections of the community accept the need for an incomes policy, and to this extent, therefore, progress has been made. But the problems are complex and full of emotion, and often full of prejudice. Members of the Party opposite are apt to claim that they have all the answers, but the other day I noticed a report in the Press of a blunt warning from the Joint Secretary of the Boilermakers' Society that the Labour Party could not count on automatic co-operation from the unions. So it is a problem which I think affects both political Parties. So far as we are concerned, we shall continue discussion in the National Economic Development Council with the unions and the management side of industry; and we shall continue the process of education and persuasion, because, obviously, agreement on incomes policy will bring benefit to each one of us. Meanwhile, we need restraint and responsibility on the part of everyone who has a hand in determining the level of incomes.

Our achievements over the past twelve years have been most remarkable, and I do not see why we should be shy of talking about them, despite the problems that we have to face in the future. These achievements are outstanding. Our production of goods and services has increased in real terms by one-third in this period. Investment has gone up even more. In 1963, investment in plant and machinery was two-thirds bigger in real terms than it was in 1951. Expansion of national production has also made possible a great improvement in our living standards. Over the past ten years the total of personal income left after paying taxes and National Insurance contributions rose by 36 per cent., in real terms. As your Lordships know, personal savings have gone up from little more than £100 million in 1951 to a record of almost £2,000 million last year. There are also about 2 million more people in jobs today than in 1951, and over the whole period unemployment has averaged no more than 2 per cent. Therefore, the evidence of this greater prosperity is clear for everyone to see.

Then as regards housing, while, of course, bad spots remain, British people are infinitely better housed to-day than they were twelve years ago. Last year, as a nation, we invested in real terms over four-fifths more in dwellings than in 1951. As well as more modern homes, we have far better standards of comfort and convenience in them. I think this is well illustrated by the fact that consumption of electricity in the home has doubled since 1951. At the same time, there have been big improvements in education, health and other social services. Expenditure on the social services rose from 13 per cent. of our national product in 1951 to over 16 per cent. in 1962.

I am glad to say that we have not forgotten the poorer countries overseas. Our aid to developing countries has risen from £63 million in 1951 to £175 million in 1963–64. By far the greater part of this has gone to the Commonwealth countries. These are some of the considerable achievements to which we in Britain can point. I am not suggesting that they are due solely to the action of the Government; but I am suggesting that the Government have during these years provided the right conditions to give opportunities for our people to exercise their own individual talents.


My Lords, may I ask the noble Viscount one question? I do not want to interrupt his peroration. How is it that other countries have made much more rapid progress?


Well, we can have a long statistical argument. I understand the noble Earl is not speaking in the debate. I would say that these things are difficult to measure. If you talk about the recovery in Germany, or about the recovery of France, following upon the devastation of the war, because that devastation was far greater than ours the figures are difficult to compare. One could have a long and complicated debate on it.


My Lords, we made much faster developments in recovering from the war and did so to an extraordinary extent in the export trade. In addition to having so much damage to deal with, we were up to 25 per cent. of the export trade by 1951.


The noble Earl's noble friend seems to be arguing to the contrary. I was about to finish my remarks by saying that I am quite certain that if we keep our heads and continue as we have been going, there is a great, considerable potential in our country for further economic expansion. The Government—any Government—have a duty to ensure that the economy remains sound, and to create the conditions for further progress. The Finance Bill makes a necessary contribution to such a policy. I beg to move.

Moved, That the Bill be now read 2a.—(Viscount Blakenham.)

3.21 p.m.


My Lords, the noble Viscount is certainly well-liked in this speech, but I can only say that, with the resources at his command at the Conservative Central Office, he might have done better. Furthermore, he might have addressed himself to some of the serious issues which confront this country, instead of giving us a not very convincing account of what the Government have achieved. Some of his statements are very odd indeed. He said, for instance, that we are continuing expansion, the foundations of which were laid in 1963. Our complaint is that the Government should have started laying the foundations for expansion about twelve years ago. He also said that much of this large increase in public expenditure—I believe it is £500 million—was due to the increase in expenditure in the public field. This is obvious.

What we should have liked to see was some indication that Government policy over the whole field of the economy, in relation to exports, and, above all, in relation to international liquidity (on which the noble Viscount said scarcely anything at all), was properly conceived and was part of the policy which "Neddy" had set out. The noble Viscount's speech merely confirms my opinion that, except for the Chancellor of the Exchequer, no member of the Government reads the "Neddy" reports. The Chancellor does not need to because he presides over "Neddy". But there was such a difference between the presentation that the Government in their more serious mood favour and the presentation in the speech to-day, that it makes it difficult to start a serious debate on the economic situation of this country. Let me first say to the noble Viscount, when he asks what our decision is, that budgetary policy is not a decision. It is made up of a whole series of decisions and is based on a whole series of principles. The criticisms which we have of the Government relate much more to the absence of any coherent and principled approach to the economic problems of this country.

After those few opening remarks—I had not intended to start off my speech on a polemical basis, but the noble Viscount has challenged the Opposition—I will try to differentiate between the noble Viscount's approach and the approach which I personally should be inclined to take, and which I think many of my noble friends take in the present situation. I should like first to consider the state of the economy. We have one big advantage these days in debating economic affairs in that there is no shortage of informed, and indeed authoritative, information on what is happening to the economy. The fact that it is authoritative does not necessarily mean that it will work out in the way the authorities think it will. But we have a great deal of information from Government sources, and we have the advantage of bodies like the National Institute of Economics and their Review, we have the Bank of England Review, and unlimited opinion expressed in the Press.

There is one point on which the House as a whole might agree, and it would have been a little nearer to the truth of the present situation if the noble Viscount had started his remarks by stating this fact. It is that this country is now committed to running certain risks for the sake of quick expansion. This is not my opinion; this is taken from the National Institute Economic Review, and I hope we can all agree that this is so. I hasten to say that in the short term I am in favour of our following this sort of policy, but we run a risk that if it does not pay off we shall have to go back to the "Stop-Go" policy. Here I am differentiating again between the short-term and the long-term. Our criticism of Government policy relates not so much to the short-term as to the absence of the right long-term policy—a long-term policy, which as to both monetary policy and industrial and general economic policy has been urged for a long time.

In looking back over the past few months, we have seen the sudden rise in expansion when the Chancellor took, and rightly took, a chance last year; and, on the whole, there was little criticism of the detailed measures in the short term. There was the bank rate increase last February, and whether it was done purely to bring us into line with international rates or was an indication of the desire to take the necessary steps in time, on the whole it has done no harm. But when we come to look at budgetary policy, it is astonishing that the noble Viscount is able to come to this House and say that the Chancellor, by his wisdom, has chosen the right level of taxation.

In last year's Budget he cut taxes by £260 million; there was a saving of £112 million (we were under-spent by that amount); and, furthermore, £51 million extra money came in. So, of this skillfully arrived at £260 million, he got £160 million for which he had not covenanted. If he had not got this, the economy would be running hotter than it is now. This year we have an increase in taxation of £100 million. This is neither here nor there in terms of the broad movement of tax revenue. It is possibly a not unreasonable figure. Most of the experts suggested that it should be twice as much, and I think that their guess would be no better necessarily than the Chancellor's. But to regard this as the most subtle and skilled budgeting is a bit "thick"! Last year the right honourable gentleman reduced direct taxation, and particularly surtax, by a larger amount, only to replace some of this money by an indirect tax, thereby increasing the regressive element in the economy. I know that there are powerful arguments as to the way tax should fall in terms of broad economic policy, but if we are to talk about an incomes policy—and we have a perfunctory reference to an incomes policy—budgetary policy must be designed to achieve the policy the Government want. In this respect neither last year's Budget nor this year's Budget has contributed much towards it.

Looking at the economy, it is true that industry is to-day a little more optimistic—though not excessively so—about business and exports. What the noble Viscount said about retail trade is perfectly true. It was a little surprising that he said that the hire-purchase debt confirms that the retail trade is running away, when the hire-purchase debt, for the first time in our history, now exceeds £1,000 million. It just shows that it is possible to take the figures and argue them any way you like; but certainly this increase in the hire-purchase debt has not gone unnoticed. It is also true that at last the lag in private investment is beginning to disappear, and that private investment is beginning to rise. Of course, one of the most important figures, to which again I think the noble Viscount made no reference, is the sudden increase in these last few months in stock-building. This is of the most profound importance, both in judging the state of the economy and in relation to the balance of payments.

My Lords, I do not want to talk too long on the subject of industrial output. I had meant to agree that there has been an increase of 6 per cent. over the last year. It is, of course, possible to say that there has been an increase of 6 per cent. over the last three years; it just depends where one starts. But the figure has gone up about 6 per cent. in three years, and again I think it would have been fairer if the Government had related this increase in production, and regarded it as a sequel, to that disastrous period, the Selwyn Lloyd era at the Treasury. My Lords, even this increase of 6 per cent. does not yet bring us anywhere near hitting the "Neddy" targets that we have to achieve and sustain over these next few years.

I do not want to make too much of this, but there are signs that the economy is being overloaded. The noble Viscount said that the indications of employment figures suggested that the situation was not getting serious. I think that, if the noble Viscount looks at the position for south-east England and the London area, he will see that it is in fact pretty acute here. At the same time we still find pockets of quite serious unemployment in other areas. I shall have some brief reference to make to those figures, even though I acknowledge that the Government have taken steps, and steps which we support, to improve the position in those areas.

When we come to the trade gap—and here I think we could lose ourselves in the complication of the figures—the fact remains that the crude trade gap is running at a figure equivalent to about £240 million. If we take the "visible" trade gap and the "invisibles" and the capital movements, the combined current and capital account which in the first quarter of this year was £158 million in deficit, we find that it is running at an annual figure of £600 million. This, I would remind your Lordships, is two-thirds of the total size of our present gold and dollar reserves, which of course are no larger than they were in 1951. We do not, of course, know whether that figure of £600 million will be the end figure, because there is this large and extraordinary so-called balancing item, on which the noble Lord, Lord Drumalbyn, on a Question by the noble Earl, Lord Sandwich, yesterday was specially asked to say something. The fact that the situation does not look so serious in the last quarter is due to this huge balancing item of £89 million. I appreciate that this is very difficult to explain, and nobody attempts to do so. When the Minister replied yesterday he said rather less about it than has been said on previous occasions. But it is a vast sum, and it was particularly large in the last quarter.

The noble Lord, Lord Drumalbyn, said yesterday that there was a tendency for it to be positive, especially in the first quarter. It is conceivable that it could be negative over the whole year. In 1963 it was negative to the tune of £129 million. To this extent any discussion on our balance of payments is extraordinarily difficult, because there are no precise figures and it may well be, as I think the noble Lord, Lord Hawke, said yesterday, that we cannot hope to get any closer. Government spokesmen are at the moment making rather a lot of the unreliability of figures. But all this suggests (and I say no more than that it suggests) that the economic situation in relation to the balance of payments is not necessarily a healthy one. The pound is bumping along at the moment. It may well be all right, but there is a possibility of quite a serious deficit by the end of the year.

This brings me now to this whole question of the sterling area and liquidity. The noble Lord said that the Government are, of course, prepared to meet deficiencies by specially designed machinery—I think he used those words—rather implying that this was machinery specially designed by the Government. Of course, it is not specially designed national machinery; it is a measure of the improved international co-operation. This is a point on which I think all noble Lords, and all those interested in the economic progress of the country, would support the Chancellor of the Exchequer. He has shown very considerable initiative. I previously said that it was a pity that something along the lines of the Maudling plan, in relation to which there have come to light some serious disadvantages, had not been acceptable.

The Paris "club" meeting has on the whole been disappointing, except for the proposal of an increase in Inter-nation Monetary Fund grants. Of course our stand-by is the International Monetary Fund, and the backing of the central bankers who have in recent months and years played a much more constructive part than has been played in the past. It is here that we look for help to get through what might be a difficult period. But nothing will alter the fact that the basic relationship between this country's economy and the sterling area is extremely unsound. It has been said that you need a better relationship between the superstructure of the sterling area and the infrastructure of our economy, and the whole sterling area has been described as an inverted pyramid.

I should like to draw attention to a quite admirable book that has recently been written by Christopher McMahon on Sterling in the 'Sixties, and it is worth considering whether the conclusions that he comes to are ones which we can reasonably accept. It is true—and I think this was implicit in what the noble Viscount said, although he put it in a purely partisan context—that the European Economic Community countries seem to be running into some kind of cost inflation of a sort with which we have been familiar. But on this I would say that it would be wrong to expect the E.E.C. necessarily to run into a really serious economic crisis. There are signs of a crisis in terms of prices; but, on the whole, I think the capacity of the E.E.C. economy to go on expanding is strong, and this is important from our own point of view.

Also, it is arguable whether we are nearer a workable incomes policy than anyone else. This is the case when we take into account the date of the General Election, because I think there is not the slightest hope of the Government's achieving an incomes policy when they follow the budgetary policies that they follow to-day. It is no use the noble Viscount saying that they are using all their endeavours to bring an incomes policy about, and I shall have more to say on this. But, clearly, an incomes policy is fundamental to the successful management of this country, as was made very clear by noble Lords in the previous debate. I particularly remember the speech of my noble friend Lord Champion on the subject, and I will deal with this matter in a little more detail.

The point is, then, that we are stuck with the sterling area. There are prospects, with reasonable management and the right economic policies, of getting by, but when we look at the fact that the failure or success of this country in terms of balance of payments depends on a mere 3 or 4 per cent., a mere £300 to £400 million, against a total overseas trade of £7,000 million, it suggests that we are at the mercy of a particularly narrow and arbitrary factor. It would be perfectly possible to have a temporary, weak current account when the economy was strong. This is the very basis of the problem; and when the noble Viscount says, "Of course, the balance-of-payments situation is worsening because we are expanding more", as if this is a desirable thing, he is merely stating the problem which has bedevilled us ever since the war. It is in dealing with this rather than merely stating the problem that we are most interested. As I say, our future may depend, in the short term, purely on the level of stockbuilding that goes on in this country.

The first thing we need to do is to be realistic; and in this I think the present Chancellor has been more realistic than previous Chancellors. It is simply no use our thinking in terms of independent national power, any more than it is possible to think, in ultimate terms, of national military independence. My Lords, we are much more dependent on others. We are dependent on the I.M.F. facilities—and here again I would give a pat on the back to the Chancellor of the Exchequer for the swap arrangements which have been introduced and which are available. But what is needed is a more purposive approach to the economy; and here, as I say, we have the advantage of the National Economic Development Council. I would say that the measure of progress in indicative planning, as set out in their documents, is quite encouraging.

But does Government policy conform to overall national needs? Here I should like to say what I think those are. First of all, budgetary policy must harmonise with the rate of expansion. In the short term I do not particularly quarrel with this Budget, although I do purely in this respect. Secondly, it must selectively help various parts of the economy—and here it does very little. Thirdly, we must get the right sort of social climate; and it is at this point that the Government fail time and again. That is why it is so futile for the noble Viscount to ask, "What is your decision?" Our decision is based on a fundamentally different approach to the management of the economy of this country.

On the first point, on the control of industry, I should like to suggest that it would be possible—and the Government have done a little of this, so they can have no grumble on the principle— to discriminate between industries, between firms and between areas. They have already begun to do something about it. There is discrimination, for instance, between the rate of depreciation; there is discrimination between the types of industry, and whether they be commercial buildings or whether they be factories. But while we do not want to encourage an autarchic situation in which to live within this island, or even within the Commonwealth, there is more that could be done to develop industry in order to give us the increased production that we need, and that we need to sustain. The Government have moved far away from the laissez-faire policy of the past, but we have not gone anything like far enough.

In case there is any misunderstanding, may I say that I am not advocating a revival of the Capital Issues Committee; but I am suggesting that more help of the kind that has already been given in the development areas could be given for industry in the way of special allowances. More could be done by way of development contracts. For years, I think ever since 1952, the Advisory Council on Scientific Policy has been calling on the Government to make use of development contracts, and only now are they beginning to do so. There is probably scope for more actual partnership between Government and particular industries—and by this, in case noble Lords are inclined to pick on these words, may I say I am not suggesting nationalisation; I am merely saying that where Government money goes into an industry and where it is in the public interest to encourage that industry, it may well be, as in other countries, that there should be Government participation, at least in the profits; and certainly the Government will bear the losses.

We need a more coherent form of national planning. My noble friend Lord Taylor showed how the South-East England Plan was a negation of a planned approach to this nation's economy. What do the Government give us in dealing with this subject? They give us a fiddling little Bill on resale price maintenance, which they do not believe in themselves, which contains some absolutely unintelligible clauses, and which is intended to play a part in suggesting to the housewife that the Government are looking after them and stopping the prices from rising. Incidentally, the noble Viscount tried to suggest that prices have not risen. They have risen three points in the last twelve months. I do not know whether the noble Viscount was unaware of that.


My Lords, I am sorry to interrupt, but I am sure the noble Lord does not want to misrepresent what I said. I said they have risen less than in certain European countries, and I actually named those European countries.


I agree they have risen less, but I think it would have been fairer to give the full figures, and I shall have something to say about comparative price rises with other countries, as the noble Viscount has brought the subject up. The important thing, clearly, is that we need a much more conscious approach to planning, and we need the use of budgetary policy in this matter. The first and most important need is an incomes policy. We shall not achieve a socially just society, we shall not get the co-operation of the trade unions—a Labour Government will not get the co-operation of the trade unions, perfectly rightly—unless we follow a socially just policy; but the trade unions know perfectly well that the present situation is unsatisfactory and is unfair. My Lords, I suggest that if we are asking people to forgo their power to raise their pay, then it is necessary that they should be satisfied that others are making similar sacrifices—and the tax system must be used for this purpose.

Here, again, the real trouble is that the present taxation system is on a very narrow base. It is weighted heavily against the salary and wage earner; and certain people escape very lightly from paying taxes at all. My Lords, the Government, whatever Government it is, simply must face this. There is not time to go through all the possible taxes. We know that "Neddy" said that a wealth tax—and this was at a meeting of "Neddy" presided over by the Chancellor of the Exchequer—might be a useful factor in growth. There might be selective National Insurance contributions. We know that the added-value tax and turnover taxation since the Richardson Report are now "out". But it is likely that we have to face a corporation tax; we may have to face taxation on capital gains; and there are other things.

I should like here to refer to the Richardson Report, in case it is suggested that this country is overtaxed. If we look at the figures, we see that the rate of tax in this country is 34 per cent. as opposed to West Germany's 41 per cent. and France's 41 per cent. But what is really striking—and I draw the attention of noble Lords to paragraphs 159 to 173 of the Richardson Report in which it is made clear—is that, whereas the marginal rate of tax in this country is probably comparable (it is not as high as in West Germany, but it is comparable to that in the United States and Canada), the actual rate of tax is probably very much lower. Indeed, it has been suggested that company taxation is somewhere around 35 per cent. as opposed to the 50 per cent. in the countries I have mentioned. The system of capital allowances—and I quote Richardson— is generous by comparison with others". Then: the rate is higher in this country than in others". This country compares favourably when we look at the percentage rate of taxes by themselves; when we look at tax allowances given for favourable investment. Capital gains are in general", says Richardson, treated as taxable income of companies by all countries except Canada and the United Kingdom. One could go on quoting from this to suggest that, if we are to pursue an incomes policy, it is in this field that a major re-thinking on taxation is necessary. I am sorry that the Government have not considered Professor Malet's very interesting proposals for an incomes equalisation tax. It was published in the Observer, and in it is a direct correlation between the indices showing wage rates and the indices showing dividend rates. This might well be fundamental to achieving a satisfactory incomes policy.

I could go on at great length about the failure of this Government. The noble Viscount did rather "stick his neck out" on one or two things. He was talking about production. I did not intend to go back to these boring league tables, but I have them. The percentage increases in production between 1951 and 1963 for about ten countries show us to be at the bottom at 38 per cent. The figure for Belgium is 43 per cent.; for the U.S.A., 43 per cent.; for Sweden, 53 per cent. And these are countries which have not been devastated by war. Then the figures for Holland, France and Germany increase to an enormously greater degree. And the same with exports. In prices this country has, in fact, done rather badly in comparison with other countries over that period. The Belgian increase was 16 per cent.; for Canada it was 17 per cent.; for Germany, 22 per cent.; and for this country, 50 per cent. I cannot understand how the noble Viscount, in a serious economic debate, can attempt to produce the figures that he did related to the short term.

We know that the public debt has gone up and the gold and dollar reserves are about the same as they were twelve years ago. I have already referred to prices. Exports, as my noble friend Lord Alexander of Hillsborough said, went up by 75 per cent. in the first six years after the war, and in the last twelve years they have gone up by 33 per cent. The fact is that we are still working longer hours than the majority of the countries that we are competing with. This is the most astonishing figure of the lot, and if the noble Viscount wants these figures I can give them to him, but he should know them because he was Minister of Labour.

This is the moment, when there is a need to expand the economy, when there is a need to achieve a more just basis for the taxation system, that the Government choose to put £100 million taxation on tobacco and alcohol, and, incidentally, they used up a part of the regulator resources at their disposal. It is no good the Government saying that they can use them again. I do not believe that they would have the face to give another "upping", although they have the power. They have limited regulating resources. This is the moment, when our economy needs to be more efficient, that they choose to go to the nationalised industries to ask them to cut back in their investment programme. We know from "Neddy" targets that there must be a large increase in production of electricity and gas. We need more efficiency on the railways. And the only thing the Government do at the moment is to ask them to cut back. We will say this for the Chancellor of the Exchequer. He is walking this particular tightrope with a surer foot than his predecessors, who were inclined to fall off it altogether.

My Lords, we are standing still. Certainly there is a short-term improvement, which we acknowledge; and in this respect we acknowledge the virtues of the present Chancellor of the Exchequer's policy, but there is still no sign of an approach to a rational incomes policy. The approach to planning is still a "fiddly" one; and, if we are to go in for the expenditure over the next five or seven years to which the Government have referred, we cannot achieve that, or our "Neddy" target, without a much more fundamental and more socially-based approach to our economic policy.

3.55 p.m.


My Lords, I am afraid I shall be putting a point of view rather different from those of the noble Viscount and the noble Lord who has just sat down. I want to do this as shortly as possible. I feel tempted to call this Bill insignificant, but then I recall that it imposes something like £100 million of additional taxation on a people already fed up with the burdens it has to bear. This quite simply is the purpose of the first four clauses of this Bill and of five Schedules attached to it. The chief reason given for this additional taxation is not so much that the money is needed to balance the Budget, but that some purchasing power must be "mopped up" to slow down the expansion of the economy from 6 per cent. to 4 per cent. Four per cent. is the maximum under the present methods of directing our economy that we are supposed to be able to afford without a strain on our balance of payments. Unfortunately the Government are again relying upon an increase in Treasury bills to balance the current account, increasing the national debt by the issue of these Treasury bills by some £200 million.

I need hardly say I do not accept what is called the "new approach", with emphasis on growth, as soundly based so long as there is no fixed standard of value to which our money is related. It may be called by those who believe in it a dynamic concept to look to the future objectives of the economy and the rate of growth needed to obtain these objectives, without preoccupation with a satisfactory cash balance of income and expenditure or concern with the national balance of incomes and expenditure. I am sorry, but to me this does not make sense, and I can quite understand that Mr. Cousins fights shy of co-operation in basing any prices or incomes policy on such a theory, irrespective of the Party from which it may come. The studies, to which the noble Lord who has just sat down referred, done at the request of member Governments within O.E.C.D. during the last two years on costs of production and prices and on policies for price stability, show the improbability of any Government being able to find a way out of the difficulties in which they would become involved if they tried to solve the problem of runaway prices by regulations applied to wages or incomes of many varied types.

For a moment may I return to the ever-mounting expenditure disclosed in the Budget year after year? There may come a time when, on review, we might think that what we get for our money is not worth the cost we pay for it. But to judge this we need a simple account which everybody who does a personal housekeeping account can understand. I think it was either the second or third Chancellor of the Exchequer back (if I may put it like that) who promised both a simplified account and a simplified structure of taxation, which we were told was being studied in the Treasury. What became of these good intentions? That is the first question that I should like to ask the noble Viscount.

In 1958 the O.E.E.C., as it then was, made some suggestions for a common form of national account to be used in all European countries. Comparisons as between one country and another in Europe, based on the same form, would be very useful and might help to show up some injustices in our taxation programme. This brings me to the second question I should like to ask the noble Viscount. Has any consideration been given to the possibility of a common form of account in different European countries? Personally, I should like to see a consolidated account bringing in profit and loss from each of the nationalised industries. We cannot have a proper account without such a consolidated balance sheet.

The sooner the Government return to the practice of justifying their proposed expenditure and then confine themselves to telling us simply how they propose to raise the money, the better. In these days we are just told that we are committed to this and that expenditure; that the cost of these commitments has gone up, or that the population has gone up, or that the number of children in schools has gone up, or that the number of pills and drugs being taken has gone up; so there is no argument; expenditure must go up. It is all inevitable.

That is why I have been pleading for a simple account so that our expenditure under various headings could be reviewed. Personally I have never been able to ascertain clearly, for instance, how much of our military expenditure is due to decisions in NATO or whether there is any watchdog against waste in the expenditure of the combined national contributions to that organisation. I would suggest that a little more clarity on points like this is desirable in our accounts.

The remaining clauses of Part I of the Bill deal with our commitments within EFTA to make competitive conditions in the countries of the Association equal; that is to say, in so far as industrial production is concerned, because agricultural production is not covered, as we know, by this Treaty. I should like to ask the Minister, if he can tell us when he replies, whether any benefit has resulted to British consumers from this Free Trade Association and from the reductions of tariffs which have taken place between the EFTA countries.

Passing to Part II, which continues the income tax and surtax rates as before, I would suggest that at a time when savings are vital to Government policy and National Savings alone this year reached a total of £8,000 million, it seems to me incongruous that distinction is still made on the rate of taxation between income earned and income derived from savings at a level of the pre-war equivalent of something like £500 a year. In those circumstances, is it any wonder that anti-evasion clauses clutter up every Finance Bill; and if Opposition speakers think that those who are on P.A.Y.E. arrangements do not know a thing or two about tax avoidance they must sometimes turn a deaf ear to what they hear. I suggest that anti-evasion clauses might in future be reciprocal; that compensation should be payable when the Government pay out their obligations contracted some years before in currency which has deteriorated in the meantime.

We hear a lot from members of the Opposition about taxing increments of capital. If the value of money falls, as it has been doing, at a rate of some 25 per cent. over a period of 7 years, how is increment to be calculated? Of course, it is obvious that there can be no justice where there is no stable money. When Government place in the hands of their citizens a currency the value of which they do not maintain, they forfeit, in my view, all claim to be the judge of commercial morality and honesty.

This brings me to the main point I wish to make to-day. To make the indictment clear, may I quote the index figures for consumer prices, to which the noble Lord, Lord Shackleton, briefly referred, as recorded by O.E.C.D.? As noble Lords will remember, a new start was made in Europe after 1948, when all Governments pledged themselves inter alia to maintain stable currencies. The figures I shall quote show the complete failure of their efforts. For Great Britain, starting with an index figure of 81 in 1950, it rose to 100 in 1953, and to-day stands at 133; an increase of just under 3½ per cent. per annum over the last ten years. In Europe only France had a worse record over that period. In Italy, after a remarkable effort of recovery, a serious deterioration recently set in, when the consumer price level mounted to the same figure as ours and to-day probably exceeds it.

My Lords, the Bulletin to which the noble Viscount referred takes a year which includes the last quarter of 1962 and three quarters of 1963, to show that over this particular period the position of Italy, France and Germany deteriorated more than it did in this country. It is much fairer, I think, to take the longer period to which I have referred. Because all European countries, with one exception, have more or less kept in line: actual devaluation has been avoided. All European countries have let their currencies slide downwards and because of this there has been no alteration in the exchange rates between them. The exception was, of course, Germany. On one occasion Germany was forced to up-value her currency to avoid a devalution by the rest; and it is now being suggested, in some quarters, that this process might be repeated "to save face" on the part of the rest of Europe.

To talk of growth or expansion or annual increases of 3½ per cent. earnings in such conditions is pure hypocrisy and instigates anarchy in the strong, who have sufficient bargaining power, despair in the weak. I sense that at last this is beginning to dawn upon Governments. Europe has been on the slippery road and there is no way to restore sanity to our economy or justice to our workers until we have some standard by which we can test the value of the currency we are given.

For the past year a Committee of the International Monetary Fund called the Committee of Ten has been studying the question of liquidity and monetary policy. We should like to see the Report of this Committee as soon as possible. It is, I believe, to be presented at the annual meeting of the International Monetary Fund to be held in Tokyo in September. May I say that I hope that at that meeting the British representatives will stand with the representatives of France, Germany and the Netherlands, who seem to have become aware of the danger of putting expansion before stability, before it is too late to stave off a more rapid deterioration which threatens all our currencies.

The former managing director of the International Monetary Fund Mr. Per Jacobsson said, not long before his death, It seems to be a lesson of history that without stable money neither justice nor progress can be assured. Without it nations lose their self-respect and the esteem of other nations. If the meeting in September makes it clear that it is monetary order that is needed to restore confidence rather than increased liquidity, Governments may get down to the problems they have to face to give their peoples a sound currency with which to go about their daily business. Surely this is the first duty of any Government. Until we have achieved this basic necessity, I shall continue to doubt figures based on a currency continually falling in the value of its purchasing power.

4.12 p.m.


My Lords, the noble Lord, Lord Grantchester, has done well to remind us of the importance of the value of money, and I hope later to make some reference to his remarks. But, in general, I should like to return to the more political tone of the two opening, and very interesting, speeches which we have heard.

Can one imagine a more difficult and daunting situation than to be a Conservative Chancellor of the Exchequer in the year of a General Election which the Labour Party might conceivably win? For the time being he must expect foreigners to be cautious in their dealings with this country, and some, at least, of our own exporters to remit their earnings less promptly than usual. Above all, he cannot hope to receive that help in putting across an incomes policy which would be accorded to him were we at the beginning and not at the end of a Parliament. I think history will show that, in these unenviable circumstances, Mr. Maudling has managed our affairs very skilfully. He has steered the economy into a period of sustained growth, greatly benefiting the areas of less than-full employment; and he has done this without running into a crisis on the foreign exchanges. Sir Stafford Cripps was not able to do that; and Mr. Hugh Gaitskell was not able to do it. We on these Benches may be forgiven if we doubt whether any future Socialist Chancellor of the Exchequer can do it.

Mr. Maudling has undoubtedly been helped by a cheerful circumstance, of which he no doubt took full account. Since he went to the Treasury the efficiency of British industry has increased much faster than at any previous time. This has been most obvious in the growth industries; but a sharp and widespread increase has taken place in the number of firms in all industries, which now deserve to be called a growth business. As a result of the shock of being shut out of the Common Market, and of the rigours of the credit restrictions imposed by Mr. Selwyn Lloyd, a great many companies began a successful search for economies. Very substantial advances in technology have been made, which no doubt owe a good deal to the general improvement in our technical education. I can give the House one sign of the times, which I do not think is an isolated example. A telegram from Japan was received the other day by a British fibre-making company begging them not to undersell Japanese fibres in world markets. That is quite a new situation.

I do not doubt for a moment that this spurt in efficiency, which I believe will continue, has much helped the Chancellor to expand the economy within the safety limits. The Budget and the Finance Bill seem to me to have gauged very accurately all this complex of influences in a pre-Election summer. The Chancellor should be congratulated on a shrewd estimate of what would be required.

But, looking further ahead, we shall still be faced by that baffling conundrum, how to maintain stable prices, full employment and free collective bargaining. Most people now feel that one of those three objectives must be in part abandoned. Which one should it be? To abandon stable prices (here I entirely agree with the noble Lord, Lord Grantchester) would be to throw overboard all those virtues of thrift and steady living which we know to be morally right. It would be intolerable deliberately to bring about that demoralising situation. Full employment has equally strong claims to be cherished and defended. So we are left with the third objective, the free-for-all in demanding and getting increases in incomes. I agree with my noble friend Lord Blakenham that opinion has moved a long way on this third objective. To-day it seems pretty generally agreed that somehow we must keep rises in incomes within the limits set by the rise in output at costs which are competitive in overseas markets. The problem is how to do this fairly and in a free society.

In aiming at such a policy, a Chancellor of the Exchequer has two preliminary duties to perform. He must proclaim the need for the policy in words and actions which leave no doubt that he and his colleagues really believe in it. After a little hesitation, and especially after hearing the speech of my noble friend, I am sure we can now say that the Government are doing this in a convincing manner.


My Lords, may I ask the noble Viscount whether, when he refers to incomes, he includes rents and profits?


My Lords, I do indeed; and I will come on to that point in a moment. Secondly, the Chancellor is responsible for the amount of money in circulation. As a student I was taught that purchasing power is a combination of the amount of money and the rate at which it changes hands. Therefore the Chancellor has to see that monetary policy helps, and does not hinder, a reasonable restraint in incomes. If there is too much money about, it is not human to expect employers and trade unions to abide by the rules of a reasonable incomes policy. The bargaining power of labour is too temptingly strong; it is too easy to pass on rising costs, and it is too easy to make profits. Therefore, the Chancellor's first duty is to stop this situation from developing.

My own view—it is not much more than a hunch—is that Mr. Maudling has had to allow rather more money to get into circulation than would be prudent, were it not for the check to spending and investing imposed by the coming Election. It may seem, looking around, that there is plenty of spending and investing, but in fact there is also a great deal of money set on one side. If, as I feel confident, the Government win the Election, the Chancellor is going to have a considerable boom on his hands. But far better that than another dose of nationalisation, of higher taxation on the sinews of industry; and, worst of all, discrimination in taxation between one firm and another inside the same industry!

So much for the preliminaries for an incomes policy. Its success will never be assured by wise monetary management alone. There are also the moral and political issues which demand any Government's attention. The noble Lord, Lord Shackleton, has said, in so many words, that his supporters would not allow the national interest to be brought in as a reason for restraint in wages, if the national interest is not also brought in in respect of dividends and profits. That is a condition which I fully accept in principle. But what I cannot accept is the ways and means by which Labour spokesmen say they would accomplish this all-round restraint in incomes.

I would invite the House for a moment or two to consider this very complicated problem. Of course, profits take many forms. When they are in the hands of individuals, no matter how they arose, they can be spent as income; and taxation is the proper instrument for dealing with incomes. We already have surtax and a capital gains tax, and though I much dislike the form of the latter tax, it is at least something that it has been accepted by Parliament in principle. I hope, therefore, that we can agree that taxation of all kinds of incomes—and I mean what the noble Lord, Lord Shepherd, said in his intervention—must be seen to be fair if an incomes policy has any chance of success.

Where the Party opposite are doing harm, is in saying that they want to tax more heavily company profits as well as dividends and capital gains. Company profits are not readily susceptible to what one might call the "guiding light" technique. When the Chancellor says that wages and salaries ought not to rise by more than 3 or 3½ per cent. in a year, we know what he means in a rough and ready way, which serves a useful purpose. The Chancellor's figure acts as a guide in wage negotiations, although, of course, overtime earnings and fringe benefits can influence what actually happens. But company profits are very different. They vary far more widely than wages from one industry to another, and from one firm to another inside the same industry. The extent of this variation is not only inevitable, it is highly beneficial, since profits in a market economy are the impulse behind growth, and the nation needs growth in an increasing measure.

Even supposing we were foolish enough again to nationalise steel, the great bulk of all British manufactures would still come from the private sector. How, then, can the "guiding light" or a tax, which is the equivalent of the "guiding light", be produced for such widely assorted rates of profit as are earned by joint stock companies? It has been suggested that we should use an index of aggregate profits and then automatically put the profit tax up or down as that index falls behind or goes ahead of the index of wages and salaries. This idea was too quickly put on one side. It ought to appeal to those who fear that restraint in wages must lead to higher profits. This, of course, is by no means inevitable. If Mr. Heath's measures to make the economy more competitive really bite, then these profits will be harder to make in any case. But the idea has the attraction of linking some representative figure of profits with wages and salaries.

But I find here a really substantial difficulty. We do not know with any certainty what the real profits of industry are—by which I mean those profits which it would be fair to compare with wages and salaries. Companies report to their shareholders the profits which their auditors and the Inland Revenue officials will allow them to declare. But the fact is that all too often, within the law, they can, and do, declare far more than they have strictly earned. Take, for example, the sums not distributed as dividends, but retained in the business. A favourite theme of Labour speakers is that these sums are added to the assets of the business, and are therefore deferred income which, sooner or later, will come into the hands of the shareholders, either in the form of bonus issue or higher dividends. In actual fact, this is not happening in a very large number of cases. A substantial portion of these retained profits do not increase the assets at all. They have to be used to prevent a decrease in the assets, which is a very different thing.

In our age technical change is so rapid that machines and processes must often, before they have been worn out, be replaced by quite different and very expensive new equipment—that is, if the business is to stay where it is, let alone make any further profits. I believe that careful analysis would show that not only substantial portions of retained profits, but also a good slice of the dividends paid since the war were not really earned in the way in which I have described. I think your Lordships have only to reflect upon the history of the shipping industry to know that what I am saying is abundantly true—and it would be true of considerable parts of other industries.

It follows that, before we think of using an index of declared profits as a comparable measure to the index of earnings, we ought to deduct from the declared profits the sums necessary to maintain a business where it is now. If we do not do that, the prospect for those employed in the business of further increases in wages and salaries must clearly be prejudiced. In my view, this would require more than simply allowing replacement cost for depreciation. It would have to take account of the fact that the more rapid technical change becomes, the more often a machine or a process must be replaced by something quite different, and costing very much more. How, then, could anyone who understands and really wants to see the application of science to industry talk about increasing taxation of company profits, as opposed to income in the hands of individuals at this time?

The Labour Party have a split mind. They enthuse about science with all the fervour of new converts, and in the next breath they threaten to increase taxation on the very funds out of which the application of science to industry must be financed. I have looked up the record of the Labour Party on this subject and I should like to give your Lordships just a couple of quotations. In a booklet called Signposts for the 'Sixties, which I understand is the Labour Party statement of their home policy, we read on page 34: More of the tax burden should be shifted from earned incomes to the higher unearned incomes and company profits. And, speaking at Swansea last January, Mr. Harold Wilson endorsed this statement, when he said: We should like to see a redistribution of the burden, between company taxation and taxes on the individual, to the benefit of the individual. And perhaps it is worth noting that, earlier in the same speech, Mr. Wilson had said: The Budget will have to provide in the Budget surplus for some of the capital needed for new investment. So we can take it that Mr. Wilson looks forward to higher taxation in total and to a larger share of this higher total coming from company profits.

I was not going to trouble your Lordships with the further aspect of company taxation that is in the Labour Party policy, but the noble Lord, Lord Shackleton, referred to it; therefore, I should like to say a word about it. So far as I remember Mr. Harold Wilson's own phrasing, he said that a Labour Government would tax less the "energetic and enterprising" companies and tax more the "lazy and slothful" companies. I think that at least I have the adjectives right. Who would decide who is the sleepy man to be kicked when he is down and who is the prosperous fellow who could be allowed to keep more of his profits? I suppose it would be the gentlemen in Whitehall, about whom we used to hear thirteen years ago. We have almost forgotten them, but evidently they are to come back. Perhaps it would be Mr. George Brown, or the noble Lord, Lord Shackleton, or the noble Lord, Lord Bowden. They would go round British industry, and this is what they would be doing: they would be distributing enormous financial penalties and enormous financial favours as between one firm and another in the same industry.

This is not the same as singling out an area of the country where there has been higher than average unemployment and saying to all businessmen in that area, "We do not care whether you make this or that, whether you are large or small, or whether you have electronic equipment or not, but in order to give employment any firm in this area may qualify, if it fulfils certain conditions, for a Government grant". This is distinguishing between two taxpayers of the same kind and saying to one company that they will have to pay a higher rated tax than the other. That is too distasteful to contemplate.

Returning for one moment to the taxation of company profits in general, I should like to ask the noble Lord, Lord Morrison of Lambeth, who is to wind up from the Opposition Front Bench: which does his Party believe in—science and technology, or heavier company taxation? They must choose. If they say that they believe in modernising British industry, then they must relieve of taxation profits used for that purpose. If they say that they are going to tax company profits more heavily, which is indeed the official line, they must give up the humbug of championing science and technology. I hope that the noble Lord will give us a clear answer, because I can assure him that this is a problem which is disturbing the minds of ordinary business people, who find it a matter of great anxiety that these contradictory notions can be entertained by men who aspire to form the Government of the country. Britain lives on her industries and these are now threatened by heavier taxation. We ought not to rise for the Summer Recess without eliciting from the Opposition some further explanation of this damaging proposal.


My Lords, before the noble Viscount sits down, could he tell me in what way, either under this Government or a future Government, research is taxed? Because that seems to me to be an allowable charge. I have been following his argument with great interest and wondered whether he was not advocating a differential profits tax.


My Lords, I believe that the noble Lord is familiar with industry. Let him just consider the difference in the sums which a firm spends on research, or should spend on research, and what it takes if the whole of one of their plants has to be taken out, scrapped and another one put back. If we do not do this, more especially in the chemical and growth industries, we have no chance of keeping up. The magnitude of money now required to keep a business really in the forefront of technical progress is tremendous. I have never thought much of the principle of differential taxation, as between distributed and undistributed profit, because I have felt that industry was not self-financing to the degree which I should wish; therefore I should not want to make it harder to raise new money in the market.

4.37 p.m.


My Lords, when the noble Viscount, Lord Eccles, started the speech which he has just concluded he said a few words to the effect that, while he agreed with much that had been said by the noble Lord, Lord Grantchester, he was not going to follow him along those lines, but was prepared to take a more political line, as had been taken by the noble Viscount, Lord Blakenham, and my noble friend Lord Shackleton. It was just as well he put in these few remarks, because he certainly spoke very much as a politician and one to whom Her Majesty's Government have great cause to be grateful. He found it equally as easy to praise the things which had been done since the "Night of the Long Knives", which sent him from the Government—the foundations were laid in 1963, as I understood the noble Viscount, Lord Blakenham, to speak of them—as to speak of the promises of the Government, of which he had been a member and which followed a diametrically opposite line to the lines of growth and development in the areas of higher unemployment.

So, accepting that it is possible for the noble Viscount, Lord Eccles, to travel both of these roads at the same time, it is not surprising that he should have taken what he himself called a political line. He said that he intended at the end of his remarks to say something about the speech by the noble Lord, Lord Grantchester, but in fact he did not come back to that at all. I am not surprised at that because the burden of the speech by the noble Lord, Lord Grantchester, was the fact that during the last ten years the value of money had been eroded year by year, and the first of the three policies which the noble Viscount said the Government had considered was whether they should abandon the maintenance of stable prices. If the noble Viscount agrees with the noble Lord, Lord Grantchester, that there has not been a policy of stable prices during the last ten years, obviously there would be no question of abandoning something that had not been maintained.

I must apologise to the noble Viscount, Lord Blakenham, because I heard only the last few sentences of his speech. Contrary to my custom of travelling by rail, to-day I decided to entrust my journey to B.E.A., and I did not arrive in London until about a quarter-past two instead of half-past seven in the morning. I was informed by my noble friend Lord Greenhill that there was not in the noble Viscount's speech any specific reference to Scottish affairs, although the general nature of his remarks could be taken to cover the economy of the whole of the United Kingdom. That is perhaps justification for my taking a particularly Scottish line, because Scotland has been recognised by the Government as being one of the areas requiring particular attention.


My Lords, if I can help the noble Lord, I did not refer specifically to Scotland, but I referred to the help that was given in the 1963 Budget to the areas of high unemployment, of which of course Scotland is a very important one.


Yes, I gathered that, and I had in fact already made a certain reference to it when I referred to the noble Viscount's remarks concerning the laying of the foundations in 1963. Part of the foundations which were laid in 1963, of course, was the Budget of that year, which for the first time accepted the principle of a differential fiscal policy in relation to different areas of the country, and the abandonment by the Government for the first time of the idea that what had to be done in London must of necessity be carried out in Newcastle, Glasgow and the Highlands of Scotland. I made no bones a year ago of saying that I was an enthusiastic supporter of the policies in the 1963 Budget. It would have been surprising if I had said anything else, because most people in Scotland and in the areas now called development areas had been clamouring for such a policy for many years, arguing that it was impossible to control the economy of the country if the areas of under-employment always received the same treatment as the areas of full employment or of over-employment.

My criticism of the Finance Bill which is before us to-day is the fact that the Government, even faced with the success which has attended the measures they so reluctantly took in 1963, have decided merely to stand still on those policies. If in 1955 or in 1959 the Government had gone to the country with a policy in which they said, "By 1963 we will lay the foundations of the new economy", one wonders what the result of the Election might have been. It is at least conceivable that it would have been different from the actual result; because, after all, during all these years the Government were maintaining that they were in fact creating the conditions which could make for full employment over the country.

I am not familiar with the figures for other development areas, but I have taken out some figures in relation to Scotland. In the figures I shall quote I shall discard in each case the odd hundreds and quote merely the round figure, so that it will be down a few hundred in each case. In Scotland in June of last year the number of unemployed, men, boys, women and girls, including those temporarily unemployed, totalled 94,000. In June of this year the figure was 70,000, and this has been hailed as a measure of the success which has attended the Government's efforts in Scotland following the Budget in 1963. Well, it may be that they are the reason for the drop from 94,000 to 70,000. But I would invite your Lordships to consider another figure, the figure of unemployment in Scotland in June, 1951. Let us compare what may well prove the last June of a Conservative Government with what was the last June of the last Labour Government. We find that the figure of unemployment in Scotland in 1951 was 42,000. To give the percentages, the figure last year was 4.3 per cent.; the figure this year, 3.2 per cent.; the figure in 1951, 2 per cent.

There is another aspect to which I should like to draw your Lordships' attention—the number of jobs. It is not fair to consider just the number of people out of work, because there is another side to the picture; the number of people who are in work. One of the claims which the Government make is that up and down the country more people are working to-day than have ever worked before, and that is a contention that I accept. But it does not apply equally throughout the country. In taking the Ministry of Labour percentages, one finds that comparing June, 1964, with June, 1951, there are 3.1 per cent. more jobs after that period of thirteen years; in other words, the measure of the Government's success in Scotland is that jobs have gone up to the extent of only one quarter of one per cent. per annum. And if one took into account the figures which are so difficult to obtain, of the number of people who have migrated from Scotland during those thirteen years, then the comparison would look very sorry indeed for the Government.

When such prominent people as the noble Viscount, Lord Eccles, so many years a member of Conservative Governments, can at the same time praise what was done by Mr. Selwyn Lloyd and praise the reversal of his policy carried out by Mr. Maudling, it is not surprising that we get something of this kind happening in places like Scotland. My only reason for specifically mentioning Scotland is that I am familiar with it and I can much more easily get the figures there; but we can repeat that sort of statement in regard to the North-East or Merseyside, Wales, parts of the West of England. The figures will differ in detail, but the trend will be the same. Some people like to have these things dealt with in percentages—we hear so much about 3½ per cent. growth rate or 4 per cent. growth rate as accomplished or desirable. To take the percentage increase in unemployment as between 1951 and 1964, the Government have increased the percentage of unemployment in Scotland by 67 per cent.

It has never seemed to me that any great purpose is served by going back over old ground unless one intends to use it as the basis for what might be accomplished in the years that lie ahead. If I have any influence in the matter, I would hope to be able to express some of my own ideas of what might be done in the Scottish Office, assuming that it is a Labour controlled Scottish Office after the next Election. I would perhaps interpolate here that one of the things which amused me about Lord Eccles's speech was that he seemed to regard it as an especial hardship that a Conservative Chancellor of the Exchequer should have to introduce a Budget in the year in which a Labour Government might be returned. I do not know which he would have preferred, that a Conservative Chancellor should not be required to introduce a budget in Election year or that it should be made illegal for the Labour Party to win the Election, but as neither is within the realm of practical politics we must assume that the Chancellor, when he framed his Budget, had regard to the Prime Minister's remarks, that we must always remember that there is to be an Election this year.

I have not the slightest doubt that people as loyal to Her Majesty's Government as the noble Viscount is would have found it equally easy to praise the Budget if it had increased taxation by £300 million instead of £100 million—and remember that was one of the figures talked about as a possibility before the Budget—or if another possibility which was spoken about had in fact emerged: reduction in taxation of £200 million. The essential thing is that one should be loyal and accept what emerges as being right.

I want to go on to what I hope will come out of the Scottish Office after October. In the first instance, I accept it as reasonable that we should go back to 1963 and accept what the noble Viscount, Lord Blakenham, said, that the foundations were laid then; because it was only in 1963 that the Government did in relation to the development areas those things which were being advocated by so many bodies up and down the country, irrespective of their political or non-political background. I agree with him that 1963 saw the laying of the foundations of a new economy in relation to the development areas.

I should like, therefore, to proceed from 1963. I do not think it is enough to stand still. Some organs of the Press and some members of the Government became too complacent when, for instance, in last month's figures they found that once again the number of jobs unfilled exceeded the number of unemployed. That is perfectly true of June, in relation to the United Kingdom. But I happen to be chairman of a local employment committee, as the noble Viscount, Lord Blakenham, will remember from his previous Ministry, and I had figures given to me the other day in my committee which showed that in Dundee the number of unfilled vacancies is only one-fifth of the number of unemployed. There are five unemployed people for every job unfilled. Remember, too, that Dundee is not one of the Scottish black spots. The unemployment figures in Dundee are substantially better than the Scottish average, which means that those figures can be much worse in other parts of Scotland, and much worse in parts of the North-East of England and in other parts of the United Kingdom.

The Government have pinned their faith in Scotland on the policy of the redevelopment of central Scotland. The Highlands have been put off by the statement that another policy is to be forthcoming. Only last month we were told that it would be some eighteen months before the Paper in relation to the Highlands and the North-East of Scotland will be available. But even in relation to the central belt there are two distinct problems which emerge. The Government accept the principle within the development areas of growth points, so strongly advocated by the Toothill Committee. Growth points include the New Towns. They include places like Grangemouth.

But one of the disconcerting things about even an area such as Central Scotland is that many of the older communities have little to see in prospect from the unfolding of this policy. Small places in the Highlands of Scotland are even worse off in contemplation of their future. If I may cite Fife, the New Town of Glenrothes is expanding rapidly. The policy of 1963 is helping them to get new industry into that New Town. But the surrounding small communities—places like Kelty, Cowdenbeath and Lochgelly have little to look forward to. There are isolated cases. Elliott Automation Limited have established a factory at Cowdenbeath, but it is only the occasional older community which has much prospect of getting new industry at all as things stand at the present time.

This is what I should like to suggest—not to Her Majesty's Government, because, just as sincerely as Conservative Peers think that the Government will win the Election, I believe that my Party is going to win the Election; so what I suggest is not something that the noble Viscount, Lord Blakenham, can put into operation, but something which I hope a Labour Secretary of State will take into consideration. I should like the policy of incentives in development areas carried still further. I should like special incentives to be given within those areas for the establishment of small industries in established communities. The community has an enormous investment in these places. Small communities of 5,000 or 6,000 people have many hundreds of thousands of pounds, if not millions of pounds, sunk in the public investment in houses, in schools and roads and so on.

We must remember that if, in a place with a population of 5,000, a small industry with a potential employment of only 100 people can be set up, it has exactly the same effect within that small community as an industry like B.M.C. or Rootes being set up in a large city—in other words, it is as good to that small community as an industry employing 20,000 people would be to the city of Glasgow. But many of the provosts in these areas are almost in despair, because, no matter what happens, they are unable to compete with the larger centres of population, with areas like Grangemouth and with the New Towns. Something special must be done to help them if, at the end of the day, we are not to write off a large part of the public investment in these communities.

The noble Viscount, Lord Blakenham, said at the end of his remarks—I am paraphrasing them, but I think this is the gist of them—that he believes there is further room for economic expansion. I most wholeheartedly agree with that. There are so many parts of the economy of this country which are working under capacity. There are so many people who have either to accept jobs which do not make full use of their skills, or have to contemplate migrating to the South-East corner of the United Kingdom, thus adding to the problems of the people who are already there.

I should like to go a little further in relation to what I should like to see done. The Government have stated that they expect the nationalised industries to operate as commercial undertakings, and have laid down financial objectives. These industries are expected, if not immediately, in the course of time, to obtain a specified return on the capital invested in the undertaking. But one of the things which the Government have failed most lamentably to do is to accord to the nationalised industries the same rights as they accord to private enterprise.

Take, for instance, the new electricity undertaking which is being provided at Long Gannet by the South of Scotland Electricity Board, in co-operation with the National Coal Board, who, specifically for the purpose of serving this new power undertaking, are sinking a new colliery. Do either the Coal Board or the Electricity Board receive a 25 per cent. grant for the construction of the new buildings which are to be helpful in reducing unemployment in this growth area? Do they receive a grant of 10 per cent. of the cost of the plant which they are going to put in? I can see no justification for a Conservative Government to impose commercial responsibilities on nationalised undertakings, and then deny them the benefits conferred on commercial undertakings which are operating as private enterprise undertakings.

I would extend to the nationalised undertakings the same system of grants in development areas, and areas of higher-than-average unemployment, as are given to private enterprise. They would be even more advantageous, because, since the nationalised undertakings are basic, the benefits which would flow from the direct grants given to them could be spread throughout the whole of indus- try. It could be reflected either in lower charges or in the prevention of increased charges, according to whether one cares to look at it in an optimistic way or in a pessimistic way. I have never understood why these things have not been done, unless it was that the Government were politically opposed to the nationalised undertakings and would not do anything to help them to function more advantageously.

I would enable the nationalised undertakings—and this is very much a matter of Budget policy—to borrow in exactly the same way as private enterprise does. I would not compel them to go to the Treasury in the most unfavourable circumstances. The most recent example of this was to fix an arbitrary dividing line of 25 years, and to say to one national Board, "If you borrow at 25 years you will pay 5⅝ per cent. on the money you get from the Treasury"; and to say to another, "If you borrow at 30 years, you must pay 6 per cent. on the money you get from the Treasury"; and then to expect them out of these conflicting figures to produce the same results in electricity charges. There is no need for Scotland, any more than other development areas, to come crying poverty to Her Majesty's Government. The resources are there to be developed if Her Majesty's Government will adopt a policy which permits that development to take place. It is encouragement that is needed, not charity. We do not need charity in Scotland, any more than the North-East or anywhere else in the country needs it. What we need is justice, the opportunity of making the fullest use of our own resources. If that is given, as I hope it will be under the next Secretary of State for Scotland, then I would say that we can be in complete agreement with the noble Viscount, Lord Blakenham, in referring to 1963 as the year in which the foundations were belatedly laid.

5.3 p.m.


My Lords, I should like to spring to the Government's defence straight away against what the noble Lord, Lord Hughes, has been saying about the nationalised industries and the availability of funds for them, with the possibility of their being given similar grants to those given to industry which is being established in development areas. I think that here the noble Lord is probably labouring under a misapprehension. I must declare an interest, because I am a part-time member of one of the nationalised industry Boards, but in fact the nationalised industries, which are now being encouraged by the Government to run their affairs on a commercial basis, have access to borrowing from the Exchequer at 5½per cent. That is the rate which is fixed for nearly all of them.


My Lords, perhaps the noble Lord would suggest to the Government that they should make this rate available in Scotland, because it is not available there. The figure which I have quoted of 6 per cent. is the current rate being charged to the North of Scotland Hydro-Electric Board for loans of 30 years. The rate of 5⅝ per cent. is the rate which is being charged to the other nationalised Boards in Scotland.


My Lords, I stand corrected. Nevertheless, if the industries had to go out and borrow in the open market to-day the fact is that the first-class debenture rate in the City of London is 6₽ per cent. The point here is that there is no shortage of funds available to the nationalised industries in the basic undertakings—electricity, gas, docks and harbours—and they have the benefit of the capital allowances which are available also to private industry. So long as they are expanding fast, the chances of their paying any tax, as far ahead as we can see, is negligible.

It is undesirable, in my view, that we should extend into the area of the nationalised industries a grants system, in addition to all the other arrangements now available to them. The grants system has been devised to provide an opportunity to get the small businesses to go into the areas where they are needed. One might get some benefit from slightly reduced charges in these areas, but one would introduce a differential arrangement across the country which was unnecessary and which would be of very little advantage to the undertakings themselves.

I should like to take up another point raised by Lord Hughes. I am very sympathetic to the suggestion that we should try to get small businesses established in these areas where there is unemployment and where the communities are small. A small company, as I think he said, employing a few thousand people can be just as valuable to that community as a company employing 20,000 people in the City of Glasgow.


I said that the employment of 100 in a place of 5,000 was as good as 20,000 in Glasgow.


Very well: 100 then. But this proposition warrants close examination. In the first place, it is dangerous to try to persuade industry to locate itself in places which it would not naturally choose; because in the end not only have we to compete inside this country, but, looking at the next ten years, the great problem facing us, if we are going to maintain the much-advertised 4 per cent. growth rate, is to compete with our Continental neighbours. It is absolutely essential that industry should be established in places where it can work economically over a long period. We need to be extremely careful before we employ our limited resources of both capital and labour by locating industry in places where it will be unable to play its full part from here on.

I have great sympathy over the problem to which the noble Lord has drawn our attention, but the balance of national advantage has to be closely looked at. A case in point is Northern Ireland. Tremendous efforts have been made to attract industry to Belfast, and it is the fact that many people cannot operate economically from Belfast, in the competitive conditions in which they find themselves, which has made the flow of companies going over there and setting up factories disappointing. I thought that I would make those two remarks, arising out of the noble Lord's speech.

I am glad to support the Second Reading of this Bill. As the noble Viscount, Lord Eccles, said in his speech, at this important moment, before Parliament rises for the Summer Recess, and with the General Election so near, one or two major factors in our economic life should be brought out, and the views of the two main Parties in the State should be defined as clearly as they can be.

The noble Lord, Lord Shackleton, in opening the Labour Party's case this afternoon was less than fair to my right honourable friend the Chancellor of the Exchequer. He rather poured scorn on the fact that the out-turn of the 1963 Budget and the, so far, successful results of the Budget this April could not possibly be put down to the good judgment of the Chancellor, but was more a matter of luck, because the figures were marginal and other things were brought into account. But, of course, he did not go on to say that one of the main provisions of this year's Budget was the encouragement to small savings. The amounts of Savings Bonds and Savings Certificates which people were allowed to hold was increased, and the new National Development Bond was introduced in place of the Defence Bond. At a time when we discouraged spending by the collection of an estimated £100 million of direct taxation, it was an extremely important move that at that same moment positive steps were taken to encourage savings. One must give credit where it is due, and I consider that the present Chancellor of the Exchequer has been more than successful during the two years of his office and in the two Budgets which he has introduced. To be fair to the noble Lord, Lord Shackleton, he said something to that effect towards the end of his speech.


My Lords, may I interrupt the noble Lord? I think that, if anything, I said rather too many favourable things about the Chancellor—at some risk to myself. What I was attacking was the extraordinarily comfortable feeling of complacent wisdom which emanated from the noble Lord's Front Bench, as if all this had been beautifully planned. I said that the Chancellor probably took the right decisions, but that there was a great element of luck.


My Lords, the noble Lord is entitled to his opinion, but I think we know that it was very well planned; it was not all luck.

It is very easy for noble Lords to look back over the whole twelve years that my Party has been responsible for the affairs of this country; to pick all the ups-and-downs and the difficulties we have been through, and say that we have not been sufficiently clever in planning and have not had sufficient foresight. But I think the noble Lord himself said that we now have the most magnificent statistics. We have the university departments turning out much more accurate economic information, and the Treasury itself is better equipped and better advised. All this has been built up over the years.

In the early days after the war, and when the Conservative Party first came back to power in 1951, the information that is available to-day just did not exist. The policies and the practices that we are now putting into effect were untried. Not many years ago, most people, of all political complexions, subscribed to the general theory of "Stop—Go". Speeches were made from the Benches opposite suggesting at times that it was time for the Government to go a little more slowly; at other times that we should go faster. But all these things were relatively new and untried. It is much easier at this stage of the game for noble Lords to look back over this period and point out all the shortcomings—and short-comings there certainly have been. Indeed, many of us on these Benches have from time to time thought it worth while to point out some of the shortcomings in policy as it evolved. Nevertheless, as we stand here to-day this country is in an unprecedented condition of prosperity. If you look anywhere around the country, you see the general rise in living standards and the development of industry. This cannot be painted as the result of a long period of incompetent administration and failure. This I think needs saying, and needs saying very forcibly, at this time.

Great play has been made in the last two years of comparisons with the European countries. About two years ago everyone was pointing out the very rapid rates of growth in the E.E.C. countries compared to our own, and this aspect was touched on again by noble Lords opposite this afternoon. Certainly there are a great many difficulties in making these comparisons accurate, but I think noble Lords should not be in too great a hurry to draw conclusions from this.

Just look at Italy to-day. I do not want to criticise Italy; I think they have made a remarkable industrial advance. But it is a fact that they are facing the most tremendous problems, of a very similar kind to those which faced this country during our earlier periods of expansion in the post-war years, and they have not yet themselves evolved the techniques for handling them. They have a runaway inflation, they have terrific pressure on their currency. A few years ago Italy was the main recipient of the outflow of American gold, exports were rising, production was rising. Now they are running into the same sort of difficulties which we have experienced. I think it is the greatest possible mistake to be too hasty in the short term in drawing comparisons of this sort, or at least drawing unfavourable conclusions in regard to the United Kingdom from these comparisons.

My Lords, I should like to say one word about the growth target and the growth programme for this country. We have now grown accustomed to the 4 per cent. per annum growth rate which has been set by "Neddy", but I am not sure that people have fully absorbed what is involved in maintaining a steady 4 per cent. per annum growth rate. For one thing, as is pointed out in the first "Neddy" Report, exports will have to go up by 5 per cent. per annum. Indeed, it has been estimated that in order to provide a satisfactory balance-of-payments account we shall probably have to double our present rate of exports in ten years. This will have to be done in spite the fact that we are outside the European Economic Community and that, as things stand at the moment, we expect that by 1967 the tariff barriers inside the Community will have been completely dismantled. We shall then face industries based in that area with a home market of about the same potential strength as the home market of the United States, and with the possibility of using that as a springboard for the main exports of the world in which we shall have to compete with them.

Leaving aside altogether what is going to be done about our getting into the Community—and here I must say I have grave reservations about what the Party opposite are likely to do if they are returned to power this year, because they do not seem to be too enthusiastic about linking up with Europe—there is deep concern among a growing number of people in this country about the attitude which is displayed whenever there is a major effort to merge companies in this country, or to have further moves for rationalisation in industry inside this country. Faced with a situation, as we are, of having to increase our exports greatly if we are going to maintain our growth, and the fact that we are outside the European Community, it is in my view essential that the unit size of industry in this country is increased rapidly and drastically.

If your Lordships can bear with me for one moment, I should like to quote one industry as an example—the chemical industry. If you look at the list of the 50 largest chemical companies in the world, you will find that I.C.I. is third, which is very satisfactory from the point of view of this country. The next British company on the list is 18th and the next after that is 41st. In the seventeen above us there are no fewer than seven companies in France, Italy and Germany, and our third on the list is half the size of the smallest of those seven in Europe. The chemical industry, on the whole, is a science-based industry. I think it would be fair to say that in this country it is well managed, and one would expect it to be, on the whole, forward-looking and in the forefront of world developments. But I think it is not yet realised, even in the modern, expanding industries, the extent to which the competition is going to hit them in the next few years.

I think this is a matter on which industry itself, has up to a point, been dragging its feet a little, and certainly it is a matter on which Government ought to take a positive line and show initiative. It is extremely worrying that whenever a major realignment in this country is suggested—and I think this needs saying—fears are raised, particularly by Labour politicians, about monopoly, the public interest and so on, and there is a danger of these moves being frustrated. This is a most undesirable and dangerous attitude to take. On the same score—and I think it is very valuable for the House and the country to know firmly where the Labour Party stand on this point, also—there is a very great need for increased investment from abroad in this country. Recently, when the Chrysler company made an arrangement with Rootes, there was a great outcry from the Labour Benches in another place and a good deal of smoke was raised about the desirability of arrangements of this sort.

I think people possibly overlook the extent to which some of our major industries at this very moment depend on overseas investment. We have great companies like the Ford company and General Motors' investment in Vauxhall's of Luton, all of which are major units in the economy. We have to realise that the big international companies, and particularly the big companies in the United States, are moving into Europe. If they do not come here, they will certainly go to the Continent. If the plant capacity is not put down here, it will be put down in Europe, and every vehicle, motor car or whatever it may be will be in direct competition, not only with our own companies but with jobs here in this country. We should be clear about this. It is no longer a practical proposition to take a parochial view and to say that we want to keep British industry largely controlled by British companies, and that we do not want interference from abroad, because with these large, direct investments come new products, expertise and new ideas of which, in my view, it is going to be essential for us to have at least our fair share if we are to be successful in the next ten years.

My Lords, I have probably said rather more on that subject than I intended, but there is one last point I should like to make before I sit down. As I think the noble Viscount, Lord Eccles, mentioned during his speech, there is in the Labour Party programme, as far as we can see, a definite proposal to increase taxation, and almost certainly to increase company taxation. I think it is important to say at this stage that the rate of taxation in this country is already at a very high level. It does not compare unfavourably with that in other parts of the world, the other industrialised countries, but it is high; and if there is now a proposal to impose even heavier taxes, particularly on the earning and productive side of the economy, I think it will inevitably put us behind in the competitive, international race.

If it is necessary to raise revenue for even the most desirable new projects there may be in any political programme, I believe it is time we closely examined the existing expenditure to see whether all the expenditure with which we are now faced, which was entered into ten, twelve or fifteen years ago, is still entirely socially desirable and can be substantiated economically. This country and the world has changed dynamically in the intervening years, and I believe we should closely examine whether it is really still necessary to subsidise people for some parts of their daily requirements—whether it be for housing or for other purposes—when their standard of living has been raised to a point where they could probably well meet this expenditure out of their own earnings. I think this is one of the things which should be very closely looked at.

On the same subject, I believe there is terrific scope for economy in the Exchequer expenditure, not so much in absolute terms of cutting down on desirable expenditure but in seeing whether we are getting value for money. I think the application of the same tests of efficiency to the expenditure of public money as those which have been devised for the expenditure of capital in industry could go a long way towards reducing the amount of taxation that we need to raise to maintain, particularly, the Defence services, the Health Service and some of the other major areas of public expenditure.

5.24 p.m.


My Lords, as I listened to the opening remarks of the noble Viscount, Lord Blakenham, in this debate—and, indeed, as I studied the Government's economic policy all along—I was irresistibly reminded of an American friend of mine, with whom I lunched the other day, whose daughter is at Radcliffe—which, as noble Lords will know, might be described, perhaps not very politely, as the ladies' annex of Harvard. He had just had a letter from her, and she was in rather a state because, she said, "The great difficulty here is that all the boys at Harvard are suffering from a crisis of identities. They do not want to be like their fathers used to be; and they do not want to be like their elder brothers. They just do not know what they ought to be". As one looks at Conservative economic policy, one is forced to the conclusion that, having been required by circumstances to abandon the old simplicities of complete, uncontrolled private enterprise, they really do not know where they are First, there was Mr. Selwyn Lloyd, who followed one course with immense loyalty and fidelity, only to find himself chopped down for doing what he had been asked to do. Now, from the wings, there comes the Old Testament voice of Enoch, calling the Conservatives to even more austere and proper Conservative courses; while on the other wing Mr. Butler, the best Conservative Prime Minister we have never had, still rotates round and round, brooding on the bold and brave days just after the war when, for a brief period, it looked as if he would be able to drag the Conservative Party into the twentieth century, and make it think in real terms of economic planning. The Prime Minister, of course, prances about midst all this, rather, I think, like that little baby antelope which jumps about on our commercial television screens, leaping from bandwaggon to bandwaggon, trying to persuade us that a product called, I think, "Babycham" is just as good as the real thing. In the middle of it sits the poor Chancellor, a rather lackadaisical mastiff who clearly cannot be quite sure whether he is intended to bite or wag his tail—whether, indeed, if he barks, somebody will not cut his vocal chords.

So we have a Budget which is really, as my noble friend Lord Shackleton said earlier, quite irrelevant to the general economic position which faces this country; which raises £800 million in the rather traditional Conservative way of hitting particularly at one section of consumers, but does practically nothing to solve, or to try to move towards solving, the basic problems of our economy. These, as we all know, and as this debate has again and again brought out, are, basically, twofold. The first is to avoid a balance-of-payments crisis such as was at one time feared likely to come in the autumn but which I personally do not believe is likely—not as the result of any particular courses that the Government have followed, but because I believe that we can probably now rely upon a good deal of co-operation from the Central Banks, and on assistance from the International Monetary Fund, which will reduce the likelihood of such a crisis.

Then there is the much more serious problem of getting the production going on a really stable and rising level—a matter which has already been discussed in various ways, at some length, in this debate. Although it is sometimes apparently regarded vaguely as unfair to refer back to the fact that we have had thirteen years of Conservative government, and that this is where we are now, I would point out that what thirteen years of Conservative government have produced is a deficit of some £67 million in the first three months of this year. Taken in conjunction with our general capital outflow, this means, as I think my noble friend Lord Shackleton has already pointed out, an annual loss rate of over £600 million. It is a remarkable commentary on Conservative government, I think, that, when again this year we are faced with wondering what we are to do to avoid the possibility of balance-of-exchange problems and so on, it is the third time we have had exactly the same kind of problem in front of us.

On the export side, of course in absolute terms manufactured exports are still rising; they could scarcely do less in an expanding world economy. But our share of manufactured exports has fallen from 21.5 per cent. of the world figure, at the end of the last Labour Government, to less than 14.5 per cent. now. Some fall was to be expected, and was indeed inevitable, because at the end of the war this country had the great advantage of having a sane and sensible Labour Government with a well-considered economic policy which enabled it to get on its feet much more rapidly than other countries did. And it was able to do so with a great deal of co-operation from the trade unions and, let it be said, from much of industry. What our present position would have been now but for that stable recovery, that basic framework laid by the Labour Government for getting over the immediate post-war problems, I really must say I hesitate to think. But here we are; and although one would obviously expect some decline in our total share of world manufactured exports, even in the last three years it has gone down from 18 per cent. to 14.5 per cent. Really, this is not good enough. We are one of the historically great manufacturing and exporting countries of the world. We should do better than that.

"Neddy", after reviewing prospects for seventeen major industries between now and 1966, had to report that their export estimates appear to be insufficient to achieve a satisfactory balance of payments. At the same time, imports, and especially imported finished manufactures, have been rising steadily and were up by 16 per cent. last year. In all the highly developed countries there is both the export and the import of manufactured goods, machinery and so on; there is a movement of trade between the two. All one can say is that we do not seem recently to have been as successful in ensuring that that balance is a reasonable one as have many of our rivals. When it comes to looking at the figure of increasing industrial production, we are way down compared with all the other main European countries. Not only is our increase only 38 per cent., compared with the 107 per cent. of West Germany, in the last ten years, but, as I think has already been noted in another place, for the first time since the Reformation the real wages of the West German worker are higher than those of the British worker, which really is a remarkable achievement for them.

It is surely essential that one should have a great deal more selectivity in deciding the economic instruments one will use to meet a situation in which we have to get rising production and rising exports without letting them run out of control. My noble friend Lord Hughes spoke with great force and, to me, with very great persuasion on the position in Scotland. Many of the measures taken by the Government are manifestly the use of too blunt an instrument to deal with a situation where the position differs greatly in different areas; where some areas are already very prosperous and in other areas there are still substantial pockets of unemployment. In some industries there is a high degree of efficiency and in others there is nothing like the same efficiency. I must say I was very struck, not only by the irrelevance of the Chancellor's Budget, but by the degree to which he still apparently relies upon so manifestly blunt an instrument as the Bank rate.

I was recently looking back—because I am interested in the period and was writing about and dealing with financial matters at that time—at the evidence given before the Macmillan Committee on Finance and Industry before the Second World War and before we left the gold standard. There was an exchange between Lord Macmillan, the Chairman of that Committee, and Mr. Montagu Norman at that period, which reads almost as if they used the same words as would be used now in an exchange between my honourable friend in another place, Mr. Callaghan, and the Chancellor of the Exchequer. Lord Macmillan told Mr. Montagu Norman that one of the problems to which the Committee had been addressing themselves was whether the use of the instrument of the Bank rate, though it might be effective in achieving the purpose indicated—that is, to prevent a flow of gold out of the country—might not be accompanied by unhappy internal consequences. May you not be effecting". he asked, an operation of value from the financial point of view which has nevertheless unfortunate repercussions internally by re-stricting credit and enterprise? Mr. Callaghan asked the same question of the Chancellor of the Exchequer when the Bank rate was raised—after 33 years almost to the day—to 5 per cent. in February of this year. And he got almost the same sort of answer. The Chancellor of the Exchequer indeed seemed to be wearing, without having it taken in or tucked round properly, the mantle of Mr. Montagu Norman, which I personally thought had long been put away in the dustiest back room of the Bank of England. Really, my Lords, one cannot begin to measure up to the situation with which we are dealing to-day, when there are immense differences between areas in the country and when there are great differences between industries, by using blunt instruments of this kind. We must devise—and I believe a Labour Government would devise—much more selective instruments for dealing with economic problems.

The noble Lord, Lord Melchett, who spoke before me, had something to say about what he felt about the objections that had been raised by members of the Labour Party to the Rootes deal, because this represented a further influx of American capital into this country. Manifestly in a great industrial country such as our own, which in the past has led the world in investing in other countries, we cannot start taking the attitude that foreign investment must not come here; but I think we have a very considerable need to look into where that investment is going and what is likely to be its ultimate effect on our society, and indeed on our industry.

Noble Lords may not be aware of the enormous extent of the flow of American investment to this country recently. In 1960 the United States Department of Commerce estimated that it had already climbed to around £1,110 million, and was growing at the rate of £170 million a year. Indeed, it has been estimated that it will go on at this rate for at least another ten years. The significant and, to my mind, disquieting fact is that the major proportion of this investment is going into consumer industries, which can be subjected to exactly the same kind of pressurised selling and advertising which exists in America and which has formed or is shaping American society in a way which certainly disturbs many of the most intelligent of the American people themselves.

My noble friend Lord Shackleton pointed out that the hire-purchase level in this country has for the first time exceeded £1,000 million, but this is nothing at all compared with what has happened in the United States, where the whole drive is to buy now, pay later, and increase consumption in every conceivable way. That surely needs to be looked at. The impact of this investment upon our social habits and economy must be considered against the background, for example, of the statement in the "Neddy" Report that, on the basis of growth, consumer expenditure can continue to increase more rapidly than in the past, but it will need to take a smaller share of the growing national product in the next few years to leave sufficient savings to provide for a rapid increase in investment.

I want to consider this point, instead of throwing up my hands like the noble Lord, Lord Melchett, and other noble Lords of Conservative persuasion, when anybody says that we should think about what this American investment is doing and that the Government ought to be considering how far it is likely to go, what are its advantages and disadvantages and what is going to be its final result on our social and economic life. The noble Lord in his analysis of the economic situation, seemed to be primarily concerned with arguing the case—and, of course, there is a case in many industries—for larger units and mergers. In many instances I do not think anybody would deny that case on economic and technological grounds, but surely—and this is the Labour case and always has been the Labour case—when there are these enormous units of industrial production, occupying so large and so central a place in the whole economy, it is essential that there should be a substantial degree of public watchfulness and, if necessary, of public control of their activities.

I suggest also that in those industries where we are failing, or appear from the import figures to be failing to meet modern demands, where we are having to import finished products and mechanised products which we could, on all grounds, apparently make here, there is a quite substantial case for setting up publicly-owned or public partnership companies which can run as pace-makers, so to speak, to try to set the competitive tone right. But, of course, the Conservative Government are so wrapped round in a cocoon of blue tape and so rigid in their approach to problems of this kind that they are quite unwilling to consider this. Indeed, as your Lordships will be aware, the Prime Minister referred recently to the "junkyard" of nationalisation. When one considers the great basic industries that are under national control, it is some "junkyard"! And when one considers all the skilled management, technical workers and skilled workers of all kinds employed in those industries, it seems somewhat regrettable that the Prime Minister, whose language and manners seem to have deteriorated quite a bit since he changed his station in life and left your Lordships' House, should use this kind of language—regrettable socially, and rather frightening economically, since it reveals a kind of irresponsible rigidity to the kind of pattern that a mixed economy ought to take, and really frightening when one considers the problems we have to face.

My American friend's daughter, with whose problem I began, regarding her friend's crisis of identity, finished her letter by writing: And so, Daddy, I think the only thing for me to do is to go to the country for a long time and try to find myself. I recommend that advice to your Lordships and to the Government.

5.47 p.m.


My Lords, I think that the success or failure of the Budget can now be judged by what has happened since it was introduced last April. Even the Opposition have found it more or less impossible to be critical of what they have called the short-term point of view, though there have been dark hints about the long-term point of view. I go back for one moment to last April, when the Chancellor of the Exchequer found that he had to damp down a slightly overheated economy. He had to guess how much additional taxation he would have to levy to put the situation right. As we all know, he plumped for £100 million. The Opposition have been saying to-day that that was pretty easy; it was a lucky guess and the Chancellor really does not deserve much credit for it. But at the time there was quite a lot of criticism. Some people took the view that the figure was too low, but events have proved that the Chancellor was more or less right, and for this he deserves our congratulations.


My Lords, is the noble Lord talking about this year's Budget? How is he able to assert that it worked out about right, as we have not had the results yet?


I assert it from what I see with regard to employment, trade terms and the general situation, not from any other point of view.

Another criticism was of the method of raising the money; should it be direct, or indirect, taxation, and, if the latter, why tobacco and alcohol, which are already taxed at fabulous rates? I believe that the tax on alcohol at the moment is something like 700 per cent. I think the Chancellor was right to go for indirect taxation, because two-thirds of our expenditure is on consumer spending, so that was the quickest way of applying a general brake to the economy. I must confess that I wish he could have broadened his area of indirect taxation. We all have our own pet ideas for taxation, but I should have liked to see him putting a larger tax on gambling and betting. And why not a tax on restaurant accounts and hotel bills? We have all got used to paying them when we go abroad on holidays, and practically everybody goes abroad now. I believe the argument against this is the difficulty of collection. But we always boast that our Inland Revenue Department is the most efficient in the world, and if the French, Italians, Swiss and so on can collect this tax, I do not see why we cannot.

I have had no experience, like bankers, brokers and insurance people, in handling other people's money, but, in my opinion, this is a much easier way of earning profits than by producing goods for sale, where you have, besides the problem of finance, all the problems of materials, labour, transport, changes in customers' choice and the rest. It is the producers of goods who contribute to the bulk of our export trade. At the moment, it appears as if the prospects are reasonably bright for them, so one would gather from the most recent F.B.I. survey on trends, and that surely must reflect a little on the effectiveness of the Budget.

The noble Lord, Lord Shackleton, talked about an incomes policy and said that in order to co-operate with the unions there must be a socially just policy. There is one point I should like to make arising out of that, because wages are obviously an important element in the cost of production. There is a growing tendency for workers in a particular industry to ask for a share in the results of increased productivity, which usually derives from no extra effort on their part but from heavy capital expenditure and the introduction of automation. I think that the community, as a whole, should benefit from this increased productivity by the lowering of prices. This would give something to everybody, and not only to those working in the particular industry. I should very much like to hear the views of thinking Labour politicians on this subject. The trade union view, I am afraid, is not difficult to guess. As I said at the beginning of my speech, the Budget has proved a success, so far, in achieving what it set out to do, and I think it should be welcomed.

5.53 p.m.


My Lords, it is hot in this Chamber, and particularly on this sunny side, and therefore I will not weary your Lordships for long. Indeed, we have reached the time of year, and the time in the political cycle, when windy words are used to cool the fevered brow rather than subtle argumentation to nourish it. I am sorry that I came somewhat late into the debate and missed the speech of the noble Lord, Lord Shackleton, whose speeches are nearly always reviving. But I have listened to the other speeches which have come from the official Opposition, and I have not found anything very exciting in them to comment on.

The noble Lord, Lord Francis-Williams, seemed to be more "willing to wound" than "afraid to strike." He attacked American investments in the United Kingdom in a vague, ideological sort of way without stating what exactly was the mischief that was being perpetrated. I suppose that, like many others of your Lordships, at this stage in the political game he is nervous about stating what would be the consequences for the country of not allowing American industry to come here, just as one may not say what would be the consequences of not allowing the Royal Navy to advise the Spanish Government how to buy British ships: that is to say, increasing unemployment and lack of jobs.

The noble Lord, Lord Hughes, however, did speak about the location of industry in a minuscule way; that is to say, he seemed to want 100 industrialists to be employed in every village in Scotland. I can understand the passion of the ardent trade unionist for industry as such. He likes the shop floor, the hubbub and the bustle, the rolling castors or barrels, and the lorries roaring away at the back of the works. He would like to produce that not only in massive conurbations in the Midlands, the North of England and the West of Scotland, but also, seemingly, in every town and village of the country. If the noble Lord had told us that there were 100 potential skilled industrialists in a tiny Scottish hamlet unemployed and eager to be absorbed into a new plant of this kind, it would have made some sort of economic and political sense. But again, the noble Lord was not prepared to specify, because, I suppose, of the ripeness of our political times. Vague generalities were all that came from him.


My Lords, perhaps I may interrupt the noble Earl. I did specify, and the places I mentioned will not feel flattered that "Hinch" that was, Sandwich that is, and Montagu that may well be, describes them as small hamlets. They are, for Scotland, comparatively large burghs. I mentioned places with populations of 5,000 to 10,000 people. It may be that in his Lordship's part of the world these are small hamlets; but in Scotland they are well-organised communities.


Let them be small Scottish burghs of 5,000 or 10,000 people. Are these burghs without any industry at all? Are these burghs with a considerable unemployment that does not fluctuate throughout the year, that is perpetual, and cannot be taken up? Are these burghs which do not give employment to one half of their population in other walks of life besides industry? However, I do not think we want to go back and cause the noble Lord to make another speech in justification of his views. No doubt he will tell us about them when we have, not a finance debate, but a debate on British industry.

In the first speech which I ventured to make to your Lordships, on April 10, 1963, I said that I thought our economy was moving into a delicate position. Nothing that has happened in the last fifteen months has made me reverse my views. The signs continue to multiply. In the past year, while industrial production has made a considerable advance of 7.7 per cent.—which ought to please even the noble Lord, Lord Francis-Williams—wages as a whole have risen by 4.1 per cent., and retail prices have increased by 2 per cent. That little position which I have just described is probably a better position than any which this country has attained to since the end of the war. But it is still indicative of steady inflation and steadily rising prices. The concessions that were made in Mr. Maudling's Budget of last year injected £700 million or more into the economy; and while in this year's Budget the estimated revenue exceeds expenditure by £67 million, there is, nevertheless, a projected net payment below the line of £858 million, which injects that much extra purchasing power and has much the same effect as reductions in taxation.

In spite of recent rises in exports, and a small addition to our gold reserves—which we hope will be steadily built up, although we are approaching the dangerous time of the year when the reverse takes place—the balance-of-payments figures since Mr. Selwyn Lloyd's crisis measures were abandoned are, I regret to say, by no means satisfactory. The balance of current and long-term capital transactions has gone against us, from a positive figure of £34 million in 1961 to a negative figure of £26 million in 1963. The balance of monetary movements shows an even worse position: from a positive figure of £20 million in 1961, to a negative figure of £155 million in 1963.

The effects of our tightrope position are now beginning to show up in the classical way, as they have done at regular intervals since the end of the war. Last month's unemployment figure fell below the number of unfilled vacancies for the first time since September, 1961. The pipe-line of trades union wage demands is filling up, and official or unofficial strike action has been ordered by, or is in contemplation in, a number of industries. It is hard to say whether we can continue through the notoriously difficult autumn months without corrective measures being applied, but probably we can. The Chancellor has said that while in 1961 our borrowing arrangements were spasmodic and ad hoc, this year we have ample resources to draw upon—though I am bound to say that I do not think the country knows precisely what reserves these are, where they are located, and on what terms we can have access to them. Nevertheless, I imagine that we can draw on them without that famous bell wether, the Zurich banker, ringing the alarm bells throughout the international world.

So one's expectation is that the position is secure for this year, and for a little time beyond. But it is a most precarious position, this steadily sailing into the teeth of the wind, this economic "brinkmanship" that we are going in for. Naturally, if we can hold to our course by supremely able pilotage, there is a lot to be said for charting the course. Continuous and full exploitation of our resources and manpower, without the disapproval of our customers and suppliers overseas, or of Governments overseas, is the best economic destiny we can hope for, though it does not, by any means, pass all the political, moral and social tests.

None the less, navigation in these waters is a very skilful and difficult business, and it makes me ask the question: what will happen to the old ship if we take on a new set of pilots on our way to port? Socialism in Britain was floated in 1945 on a gigantic American loan. Mr. Hugh Dalton was large in mouth and large in ideas. He "went to town" on the American loan. The loan was a feather-bed for every sort and kind of Socialist experiment. It effectively isolated the sensitive capitalist world from the crude and cruel operations being indulged in at home. Nobody knows that better than the noble Lord, Lord Morrison of Lambeth, who was in charge of the operations throughout. It allowed the Socialists to stamp about the country, wrecking the subtle antennae of reviving business after the war while they gorged themselves and the country on free tins of American Spam.

But, alas! for them, and mercifully for all the rest of us, this process cannot be repeated now. To indulge in the sort of major, radical reforms that Mr. Wilson has specified to the country—not to speak of that vast iceberg below the surface, six-sevenths of which is not going to be revealed to the country until after polling day—two things are needed. You need not only the cash, which the Exchequer could no doubt readily supply—£1,000 million below the line (what of that, if it is clear that it can be overcome by corrective measures?)—but something else as well. You need the positive approval of the external financial world, because if the margins are as narrow as they are now, if confidence is lacking, and support is withdrawn, there will be an almighty crash in the balance of payments. And that will come, not at the end of the Socialist era, as it did in 1951, but right bang at the beginning, now, when they take office, or may take office, in October.

That, of course, is why Mr. Callaghan is so silent. He makes speeches in the country without very great effect. He is showing a great deal of inward nervousness. He goes a lot to his constituency. I suspect that he remembers, when he goes there, that he was a sailor; that he ambles down to the docks in Cardiff and looks out to sea, whistling across the Atlantic for the wind that he knows is never coming. Even at this late stage, three months before the Election, the Socialist Party appear to us, from little snippets of information that come out from time to time, to be in an intolerable state of internal ferment—the responsible centre caucus knowing that it is not going to be able to pay for the flights of fancy of its own gaudy wings. Therefore, it only remains for me, very humbly, to congratulate Her Majesty's Government on the economic "brinkmanship" that they are so skilfully displaying. It is one that is doubly virtuous: first, because it keeps the British people happy and fully employed, and, secondly, because it keeps the cupboard utterly bare of any possible sustenance for its enemies.

6.8 p.m.


My Lords, at this time in the afternoon the ground has been well covered by noble Lords who have spoken in this debate, and I shall therefore confine myself, I hope reasonably briefly, to two points. The first point with which I should like to deal is one of the major stumbling blocks in the path of arriving at an acceptable incomes policy, to which several noble Lords have referred during the course of the afternoon. The difficulties involved are formidable enough in all conscience, without aggravating them by confusing and distorting the basic relevant facts. We are unlikely to resolve these problems unless public opinion is better informed on the important issues, and we get the facts straight. I admit that upon some of these issues there are genuine differences of opinion in the matter of interpretation. Views which I may hold conscientiously and, as I believe, dispassionately may strike noble Lords opposite as something very different, and I need hardly assure them that the converse is equally true.

However, leaving aside for the moment questions of interpretation, I should like to examine one or two facts which are readily ascertainable. The first is one which noble Lords opposite and their friends in another place have produced on a number of different occasions, that is, the propagation of the fallacy that in recent years profits and dividends have risen far more than wages and salaries have. If one merely looks at the total amounts paid under these two headings, I agree that that is true so far as it goes, which is not however very far. No valid comparison can be made unless the total amounts of wages and salaries are related to the numbers of persons to whom they are paid, and the total sums represented by interest and dividends are related to the amount of capital employed; otherwise you might as well argue that if you rent a TV set and subsequently decide to hire a second one, the consequential rise in the rental charge is wholly unjustified. The case which the Party opposite seeks to put forward on this matter proves nothing beyond the profound truth recently uttered by a commentator, whose name unfortunately I cannot recall, when he likened statistics to bikinis, with the observation that what they reveal is interesting, but what they conceal is vital.

My Lords, I may be venturing on dangerous ground after quoting this aphorism if I submit a few figures for your Lordships' consideration. If we take the twelve years starting in 1950, we find that wages and salaries increased in round figures by a little over 120 per cent., gross earnings of companies by just over 150 per cent., and interest and dividend payments by over 250 per cent. But we also find that the employed labour force rose by a little over 7¾ per cent., and the amount of capital employed by the average company by over 280 per cent. The actual amounts are an addition of £6¾ million to capital employed by the average company, and of a little over £300,000 in the gross dividends paid out to the average company's shareholders. This, incidentally, represents a gross return of just over 4½ per cent. on the additional capital which had either been ploughed back into the business, or been subscribed in the form of new money, by the shareholders. I should perhaps interpolate that the figures I have just quoted are the averages for the Board of Trade sample of over 2,000 companies' accounts during this twelve-year period. I am indebted to the Financial Times for working out the arithmetic involved, and to Mr. Harold Wincott for incorporating the answers in recent articles he has contributed to that paper.

Thus we find that over this twelve-year period, on the one hand the percentage increase in the amounts paid out by the average company in dividends and interests was actually smaller than the corresponding figure for the additional capital employed; on the other hand, wages and salaries rose by some 120 per cent. during the period in which the employed labour force expanded by no more than 7¾ per cent. The inescapable, irrefutable and indeed only construction that the official figures are capable of bearing is that the relative percentage improvement in wages and salaries was considerably greater than the rise in interest and dividend payments. I do not intend to pursue this matter this afternoon because I am concerned only to explode a myth and with it, I hope, the case which has been constructed upon it.

My Lords, whether we like it or not, so long as the so-called private sector represents any substantial part of the national economy, profits must constitute the main source upon which growth is dependent. The noble Viscount, Lord Eccles, has already referred to this point. But are we ever likely to succeed in developing our full productive potential if large sections of the community regard profits with suspicion and hostility? The noble Lord, Lord Shackleton, attempted to lay the entire blame on the Government's fiscal and social policy, but I do not think this is either fair or accurate.


My Lords, would the noble Marquess tell me for what I laid blame on the Government?


Blame for the failure so far to achieve a proper degree of co-operation leading towards an incomes policy. I hope that I have not misrepresented what the noble Lord said. I am not standing here and maintaining that the present system is free from blemish or, indeed, free from abuse; nor am I pleading, as I might possibly be accused of doing by some, for a return to the economics of the jungle. But what I am saying is that until a better system has been devised—and noble Lords opposite have not produced one—it must be the interest of the whole population to strive to make the existing system work as well as possible. I am in no doubt that it could and would function better than it does now if it were better understood, and all concerned felt justified in co-operating wholeheartedly to generate the additional national wealth it could produce.

The historical background to this attitude of mind is familiar to us all, but for how long is this country doomed to carry this albatross around its neck, and for how many more generations are the sins of the grandfathers and the great-grandfathers to be visited upon their descendants? Have we not advanced to a point at which the greater part of this hoary mythology can be discarded and replaced by a more constructive and up-to-date outlook? I do not want to detain your Lordships longer, and it remains only for me to express my warm support for the Second Reading of this Finance Bill and, indeed, for the general policy which my right honourable friend the Chancellor of the Exchequer is pursuing.

6.18 p.m.


My Lords, the occasion to-day is one that really arises out of the two Parliament Acts which limited the powers of your Lordships' House over Budgets and Finance Bills, and, as a consequence, it has been found useful, at any rate in recent years, to widen this debate into an economic debate and not only a debate on the Budget or Finance Bill. I do not propose myself to deal with the problems of taxation or the details of the Finance Bill, but rather to deal with the wider question of the economic situation of our country.

I think that the debate has been useful and that some very good speeches have been contributed, including, for the greater part—and I say this with great pleasure—the speech of the noble Earl, Lord Sandwich. In fact, I was saying to my noble friend Lord Shackleton before the last ten minutes of the speech of the noble Earl, Lord Sandwich, came along, "You know, I don't agree with all this, but Lord Sandwich is making, I think, a very capable and good speech." But then the last ten minutes of it came, in which the noble Earl went off the deep end, and his speech became somewhat wild and very extreme, and very, very Right-wing. In fact, my noble friend Lord Lindgren whispered to me, "This chap is becoming the Goldwater of the British Conservative Party." I said, "Well, George, I do not think he is as bad as that, but I admit that if he is not careful he will be on the way and will be mistaken for his American alias."

Indeed, the noble Earl said, not very nicely, I thought, and not very usefully, that the American Government or the American authorities provided the Labour Government with a loan to float Socialism. I can assure the noble Earl that if we had asked the Americans for a loan in order to float Socialism we should not have got the loan, not even from a Democratic Government. It was a commercial transaction, and the Americans very rightly considered it sympathetically, though there was some opposition to it in the House of Commons. In fact, I could only keep the boys happy by letting thirty go into the anti-Government Lobby, which pleased them and did not hurt us because our majority was adequate.

Remember that, at the end of the war—and I am not blaming the American Government for it—they had under the law of Congress to bring lease-lend to an end suddenly when hostilities ended. It was a terrible blow to our country and a very great embarrassment to the Labour Government because it meant that getting all the things we had got by lease-lend—which was a charming American term; I never know what it means; whether it is really lend-leasing or an American description of giving you something; I hope the latter—came to an end, and that was one of our great difficulties. In the circumstances, a little later, when we were financially embarrassed, as any Government would have been financially embarrassed at that time—my noble Leader reminds me that Sir Winston Churchill had said that Britain was bankrupt, and he was right—it was not unnatural, and it was not ungenerous, that the American Government should give us the facilities of a loan to help us through our troubles. I will come back to our troubles and how we surmounted them later on, because, contrary to what the noble Earl and others have said, the Labour Government deserve a vote of thanks for the way in which they handled that terribly difficult transition from war to peace.

At the moment, as other noble Lords, including some opposite, have said, it looks as if industrial expansion is somewhat moderating; and I understand from the financial people and some economists that that may be a good thing. I must say I cannot quite follow why increased production should be inflationary. I dare say the argument is sound; it comes from people who know more than I do about these things. But it does seem a pity that when you increase production, which ought to enable you to live a better and nicer life, it has an inflationary effect. There are a lot of things about economics I do not understand. I have never understood, for example, why it is inevitable that if you have a great world war the cost of living, prices, have got to go up and the value of the £ go done, not only immediately—I follow that—but over years and years. It happened after the First World War and again after the Second World War—another dose of lower value of the £ and higher prices is maintained. I once sent for the gentlemen of the Cabinet Economic Office—the Economic Section of the Cabinet as it was when I was Lord President—and, having put to them the question, "Why is it that these things happen and that we can never get them right?", I put my legs up on a sofa and said, "Now, you chaps, answer me that". They did their best. It may have been due to my ignorance, but having had all of an hour's talk—I think, more than an hour—and questions from me, I still could not understand it, and still cannot to this day. But the ways of the capitalist system, like the ways of the Lord, are very marvellous and very interesting——


And devious.


Yes, that is very true. There it is. I still do not quite understand it. It is an awful nuisance, this depreciation of the value, not only of the pound but of other standard currencies as well, and the increase in prices, which perhaps is one of the most disturbing economic factors with which we have to concern ourselves.

It is true that unemployment is less, and that is welcome, but the distribution of the working population, the distribution of unemployment, is still not what it ought to be. South-East England is booming; if ever there should be an inflationary area it is South-East England. The Midlands are booming. The North-East are having a thin time. So is Scotland, as indeed has been pointed out in the very able speech of my noble friend from Scotland, Lord Hughes. Parts of Wales are in trouble, and Northern Ireland, good Unionist-Conservative Northern Ireland, has got the highest unemployment rate of the lot. I have told them for years if they would only put three Labour Members of Parliament among the Tories they send to the House of Commons they would be taken more notice of by the British Government, whatever the Government's colour. I went and told them in the last Election; we did improve things a little. But there are twelve solid Tories there, and they have still the highest rate of unemployment in the United Kingdom. I would not say it serves them right, because I like the people of Northern Ireland, but I wish they would think about it more.

This distribution of unemployment is still a factor, and all the Government have done is to produce the Report on the South-East, under which they are going to accentuate that situation by encouraging more town development in South-East England and, presumably, more industry to come to South-East England—without a corresponding report, or a joint report, on these problems, not for South-East England alone but for the whole country. Let the story be recorded region by region and say what the Government are going to do. I think it was a terrible blunder to make that report, and it just shows the incapacity of the Minister of Housing and Local Government that he should have put the Department's name to it. He is not bad, but he is not as bright as he might be in this and other matters.

There is control of capital expenditure, which the Government engages in up to a point, but I notice that there is a dis- tinction between the control of new capital expenditure in socialised industries as compared with private industries. There is a firm hand on socialised industries. There is very little hand at all in the control of expenditure by ordinary private enterprise industries. Not that I want to worry private enterprise out of its life or be interfering every hour of the day and night; they have their contribution to make to the economic well-being of the country. All I want to do is to encourage them, to inspire them to be competitive and not to be private unenterprise but private enterprise. There is the distinction: firm hand on publicly-owned industries and very light hand, if any, at times, on the privately-owned sector.

Incidentally, to take smaller issues, the Minister of Transport completely loses his sense of proportion at this time in bringing in an Order, when the roads are crowded with traffic and when commercial vehicles occupy a very high proportion of the road, to increase the size of lorries. I suppose it will be another blow at the railways, and he likes that. Why does he do it? There is no sense of economics in this. The money we are spending on television, all sorts of television, and sound radio is an indication that the Government are not considering the priorities or the relativities of importance. Of course there are fluctuations; there are fluctuations in the balance of payments, balance of trade, which are indeed a nightmare to any Minister in charge of economic affairs as the Chancellor of the Exchequer is. And we all sympathise with him, but the remedy is to get stability in these matters. Undoubtedly it is one of the disturbing and worrying things for any Government, and particularly for the Chancellor of the Exchequer.

My noble friend Lord Shackleton, in his able opening speech for the Labour Party—and it was—referred to the international league tables. He gave some figures. At the risk of boring the House I am going to repeat the figures—and, indeed, give them in full—because these are figures which the Government must face up to, and which, if I may say so, the noble Viscount, Lord Blakenham, did not face up to in the opening speech he made in moving the Second Reading of this Bill.

Over the years 1951 to 1963—which is not an unfair period to take: it is the lifetime of the present Government, though it has now gone into 1964—if we take industrial production, we find that in Japan the percentage increase for 1963 over 1951 was 397 per cent., and in Russia, 242 per cent. These figures for Japan and Russia are given in the United Nations Monthly Bulletin of Statistics. Of course, Russia is a totalitarian State, and we cannot be quite sure about the accuracy of her figures, but I have no evidence to suggest that they are not accurate. They are, presumably, figures given by that country.

In Italy the percentage increase is 171 per cent.; in Germany, 144 per cent.; in France, 103 per cent.; in Holland 96 per cent.; in Sweden, 53 per cent.; in the United States, 43 per cent.; in Belgium, 43 per cent. Britain (I say this with no pleasure; I say it with sorrow, because I am not in the least glorying over this) is right at the bottom with 38 per cent. And this figure has to be compared with Japan's 397 per cent.


My Lords, may I ask the noble Lord a question? Is he aware that the countries which he has taken with the highest totals were all shattered by the war?


So were we.


Not shattered by the war completely—by no means. By and large, the countries with the lower totals are those which were occupied, and therefore never fought, or were neutral throughout the war.


My Lords, with great respect, I do not think the noble Earl is right. Japan had some shattering with the atomic bomb. Russia had a lot, including a great German invasion. Germany had a lot of shattering from the British, as I well know. France did not have a lot of shattering. As a matter of fact, France capitulated rather quickly, with the result that she escaped a good deal of the bombing. She had a bit more from us, but not indiscriminately—it was on military, tactical points. Sweden, of course, was not in the war at all; and Belgium was knocked about in the beginning, but I doubt whether she had such a knocking about as many other countries. Let it not be forgotten that we had a terrible lot of bombing. I know, because I was the Minister concerned with it in Civil Defence. Again, that was one of the problems the Labour Government had to deal with. So I do not think that the noble Earl's point, though I understand it, is good.

Exports in volume in this period from 1951 to 1963 show increases as follows. In Japan the volume of exports went up by 334 per cent. Again, Japan is at the top of the league. I know that it is a country with special economic circumstances, conditions of labour and so on; but it has done it. Then there are Germany, with 274 per cent.; Italy, with 270 per cent.; Holland, with 171 per cent.; Belgium, 133 per cent.; Sweden, 113 per cent.; France, 103 per cent.; Canada, 66 per cent.; the United States, 43 per cent.; and Britain, once again at the bottom of the league, with 33 per cent. This is a sad situation, and it does not warrant the complacent and self-congratulatory speech of the noble Viscount, Lord Blakenham, this afternoon.

Then we come to consumer prices, which, as I have indicated before, is a big factor in economic problems and in getting an incomes policy. The increases in consumer prices over the same period were: Belgium, 16 per cent.; Canada, 17 per cent.; the United States, 18 per cent.; Germany, 22 per cent.; Holland, 32 per cent.; Italy, 37 per cent.; and Britain (not at the most unpleasant point in the league this time, but 7 up in this case), 50 per cent., followed by three others—Sweden, 51 per cent.; Japan, 54 per cent.; and France, 68 per cent. These figures, except those for Japan and Russia, come from the O.E.C.D. General Statistics Bulletin of May, 1964, which I presume is authoritative.

My Lords, I do not quote these figures in order to rejoice, or merely for the sake of knocking the Conservative Government about. I do not like that attitude; it would be unpatriotic. I tell the House these facts with sorrow and regret, but with an indication that they do not show that all is well. So long as these facts continue, they show that a great many things must be materially wrong. There we are. The extent of industrial production is of vital importance. Export volume is terribly important, because if you do not get your exports right, and if you do not get your imports right (though they are more difficult to interfere with) you can run yourself into balance-of-trade problems before you know where you are. Consumer prices are most significant for the welfare of the people: if you can get them level, it reduces part of the incentive to go for higher wages and income and other things. Moreover, it involves the value of the pound. One has no pride in the fact that the value of the pound to-day is much lower than it was in 1951, or probably, for that matter, to be fair, lower than it may have been in 1945. All of these things are important.

Added to these indications that all is not well with our economy, there is the question of land speculation, which is disgraceful—yet it is almost encouraged by Her Majesty's Government. Land values are going up, and lower middleclass people who on getting married are buying their own houses, are having to pay inflated prices for the land. Most of them voted Conservative. At Orpington, it went wrong. It may go either way—I do not know. Most of them are Conservative, or they used to be. It is rough on these young people, recently married, to have hanging around their necks a needlessly large debt of mortgage which they have to pay off, while at the same time hoping for a family to bring up.

We have full employment; and I am glad that that should be so. At the moment it is so full that I wonder that the people in the less attractive industries find people to work for them. When I fought elections, I used to be asked on the street corner and in the London parks: "Mister, who is going to do the dirty work under Socialism?" I said, "I will"—I do not mean "dirty work" in any political sense: I thought I would get that in before the noble Earl spoke! But the truth is that a lot of it is done by mechanical means. That has come to be true. But not enough. We are getting the dirty work done some-how, in one way or another. It is a marvel that we do, in view of the full state of employment which we rejoice in—in fact, in parts of the country there are more vacancies than there are un- employed. But this is a new situation. Let it not be forgotten that in the period 1918 to 1939, after the First World War—indeed, probably before that—there was an assumption that large-scale unemployment was inevitable. As a result, the working people had a rough time.

From 1929 to 1931 there was a minority Labour Government. I was in it. We were overwhelmed by the unemployment crisis which Mr. Churchill (as he then was) said was the result of a world economic blizzard, though that did not prevent the Conservative Party from blaming us for the whole thing. Poor little things! We had not enough power or machinery to deal with the crisis. The economic machinery then at the disposal of the Government was miserable. And there certainly could not be any Socialism, as my noble friend the Leader of our side reminds me, except the London Passenger Transport Bill—and I did not dare to call that "Socialism". But certainly the Government could not go in for large-scale social measures for we had not a majority: we never knew when we woke up each morning whether we were alive or dead. It was a hard life.

Then Lord Keynes came along and taught many people a lot. The people in the Civil Service, the people in politics, and the country as a whole are permanently indebted to that great man for his economic education. But the machinery of Government was ill-equipped at that time—unemployment went in ups and downs, I admit. It went a bit lower after we went out—we were not thrown out—but we got a bit cheated afterwards. Then in 1939, well after the war had begun, I remember making a speech in another place pointing out that, notwithstanding the war, there were still a million unemployed in the country. It had become engrained that unemployment was inevitable. We did not believe it; we believe it still less now.

The Second World War improved the Government's economic organisation. It may be that the First War did, too, but at the end of the First World War it was scrapped by the Government of the day. At the end of the Second World War we did not do that, and that was one of the blessings of our coming in. The economic organisation at the disposal of the Government was very much better at the end of the Second World War—it had to be, or we should have lost that war. We learned a lot of experience as Labour men, including my noble friend the Leader of the Opposition in this House, as a result of being members of Mr. Churchill's Government. The experience we gained was useful to the Labour Government that served from 1945 to 1951.

One of the outstanding achievements—and it was a new achievement—of that Government was that we brought about full employment; and it lasted, whereas after the First World War unemployment triumphed and there was depression which continued until after the Second World War. If I may say so, with all due humility and respect, it is monstrous that credit should not be given to the Labour Government for this major achievement in itself. Remember the drama of the transition which we had to face—because it was a drama.

As my noble friend Lord Alexander of Hillsborough reminds me, Sir Winston Churchill said that our country emerged from the war bankrupt. Our export trade was substantially gone; we were in wholesale debt, not only in the country but abroad, in the United States and elsewhere; we had had our railways, factories, houses, schools, and so on, smashed up, and they had to be replaced. That is why it is so ridiculous to compare the housing record of the Labour Government with the subsequent Conservative Government's record as to numbers. We had all the patching up to do, making things weatherproof and watertight. We had to face all that, as well as the demobilisation of millions of men from the Services, bless their hearts!; and we had to take care of them to the best of our ability. We had to reallocate them in industry and still get full employment. When is the House going to pass the vote of thanks to the Labour Government that we so deserve? We did all those things successfully, and full employment has lasted ever since; whereas mass unemployment had been with us since before the First World War right through to the Second World War.

When the Conservatives, unhappily for us, won the Election in 1951, we left them an economic situation and organisation on which they could build if they had the mind to do so. To some extent they have, and they have been able to prevent the worst abuses which existed in the country before the war. But we started it; we established it; we maintained it. Somebody, I think it was the noble Viscount, Lord Blakenham, said they had statistics and knew what the facts of life were. Who started the statistics? We did, in the Statistical Office and in the Economic Section of the Cabinet. My noble friend Lord Attlee knows this. We started the monthly digest of statistics and brought together massive statistics; we also started the Economic Survey which preceded the Budget, and a number of other things.

When Viscount Blakenham gets briefed by his Conservative Central Office he should have an instinct with him: remember, the Central Office may not be true. It is a wise precaution, because, after all, they have fought elections and I have found them some of the most extensive purveyors of untruth that I have ever known. I say that not abusively but as one who has had deal with it. I warn the Chairman of the Conservative Party organisation: take them with a grain of salt. Do not be afraid to cross-examine them. It is all very well for them to hand out the "dope" to the noble Viscount, but he has to stand up at the Box in this House, so let him be warned: be more careful.

My Lords, we have got full employment, but there are some other things we have not got. We have not got a steady, stable, progressive economic situation; in part it is, but there are ups and downs and "ons" and "offs". But if we have full employment and if we have prosperity, all of us, of all classes of the community, must try morally to live up to the obligations of full employment and of the other prosperous elements in industrial and commercial life. It is an obligation on all of us. One of the regrettable things about the industrial situation, and to some extent the political situation—I am not talking of one Party or another—is that the moral factor in all these things is not sufficiently stressed. That is another thing we did in the Labour Government. I preached restraint of incomes at the Labour Party Conference when I was Lord President of the Council. I said, "If you go in for wages too quickly you will meet yourselves coming back with increased prices", whilst in no way challenging the right of trade unions to look after themselves. I drafted the speech, and thought I would get chucked out. But they applauded, the roof nearly went off, and it was a great success.

We must do more—including Ministers—in giving simple explanations of the economic facts of life, and also in urging that there are moral factors in this as well as immediate material factors of advantage. I admit that taxation is a factor which sometimes modifies it; nevertheless, if dividends and incomes of the well-to-do are excessively high it affects the minds of the work-people and makes them less willing to co-operate in an incomes policy, even allowing for taxation, which can be stiff on some people. There is the need for the Government to be fair between the various classes, and to be seen to be fair. In some of these things to which I will come a little later they have not been altogether fair all the way. But if these things are done, if there is fairness on the part of the Government and reasonable restraint on the part of the boards of directors and a sense of public responsibility which they ought to have, then there is also responsibility on the trade unions to be willing themselves to exercise restraint where it is needed in order not to upset the economic applecart and bring back on themselves, quite likely, higher prices so that what their people get out of it at the end of the day is arguable.

The working people are entitled to share in the advantages of automation; they are entitled to share in the increased production. That is a factor which must be kept in mind. But I want them to realise that every section of the community must make its contribution, if our country is to be economically secure and respected in the world. The unions take—I would not say excessive advantage, but some advantage of full employment; but, when that is said, my Lords, it must be admitted that the employers in the days of heavy unemployment took advantage of that. That is remembered. These memories go back a long way. Not only would they not increase wages; they reduced them and enforced lock-outs to reduce wages. So that is part of the moral history of the business. But we must not forget that there is a relationship between wages, prices and profits.

So, in short, we need fairness by the Government, and the Government have not always been fair. In the case of their own direct employees they have been a bit stiff. In the case of private enterprise employees they have not been able to enforce their view, and this causes friction. The salaries of the higher civil servants—and I understand the case for it—have gone up very highly. The salaries of the chairmen of the boards of publicly-owned industries went up without argument, and almost without notice, by substantial sums a little while ago. Of course, these things are noticed by working people. So we need fairness by the Government, responsibility by the boards of directors, and responsibility by our brothers of the trade union movement as well. After all, what matters is Britain as a whole, the British people as a whole, the respect of other peoples for our country, and our belief that we are doing a capable job and a good job. It is in that spirit of enlightened love of country and enlightened patriotism that, for myself, I want all sections of the community to approach our economic problems.

6.53 p.m.


My Lords, I think we have listened with great interest to the noble Lord, Lord Morrison of Lambeth, and I particularly agreed with many of the sentiments he expressed at the end. As usual I welcomed his avuncular advice on how I should run the Central Office. He is a very experienced politician, and it is very nice to get his advice free of charge, without even having asked for it. I admit that I approached this debate with some trepidation, because, although none of your Lordships seemed to realise it, today is celebrated in France as Bastille Day. I wondered beforehand whether this anniversary might encourage the Opposition to raise their passions, and whether we might be facing a debate of considerable controversy. But in fact this was not so. I should like to say to the noble Lord, Lord Shackleton, who had a few caustic comments to make about me, that I thought he approached the whole of this problem extremely objectively. I think the debate throughout has been an objective debate, and has been designed to throw as much light as possible on the needs and future of the country so far as the economy is concerned.

This is very different, certainly, from what has happened outside this House. I think it was only a year ago that Mr. Callaghan was wondering what sort of disaster was going to happen. He warned us in January that "some of the signs are not too encouraging", and "the Chancellor is trying to get firmer backing for an incomes policy to use as an alibi to both sides of industry, in case the economy should falter during the next few months." He generally contributed these comments to the Sunday Citizen, predicting that the Election was certain to come before the early summer, because if it was left any later the balloon would burst. None of this spirit was to be seen in any part of this debate this afternoon. I think I am right in saying—and I agree with the noble Lord, Lord Jessel—that there was very little criticism about the short-term effects of the Budget. The chief criticisms were based on the long-term approach, and there were various attitudes expressed about an incomes policy. I think that in an interjection the noble Lord, Lord Shackleton, almost gave grudging approval to what the Chancellor had done in the short term.

I certainly did not wish to be accused of any discourtesy in not having made any comment on the balancing item, which was raised yesterday in your Lordships' House when I was not present. I did not add anything to what was said because there is very little I can add. My noble friend explained yesterday, in reply to a Question, that the balancing item represents the net total of errors and omissions throughout the United Kingdom balance-of-payments accounts. The item fluctuates in size and from positive to negative. Therefore we can only speculate about its nature, and it is not possible to forecast how it will behave in 1964. This is the position, though in his answer my noble friend Lord Drumalbyn said [col. 5]: Recent improvements in the accuracy and coverage of the balance of payments figures have significantly reduced the average size of the balancing item. He also said that further improvements are in hand, but at the moment there is really nothing more to add to what my noble friend had to say.

I was pleased that the noble Lord, Lord Shackleton, at the end praised the Chancellor of the Exchequer for his initiative in proposals on international liquidity. It was fair of him to do this, because, as the House knows, a great deal has been done by my right honourable friend to press on in this field. The report of the Group of Ten is due shortly and is going to be considered at the I.M.F. meeting in Tokyo, which will be in September of this year, and I hope that progress will prove possible then. I can assure the House that the Chancellor will certainly do all he can to press ahead in this.

What we have to rely on—again, the noble Lord mentioned some of the items—supposing that we have to take action, is of course our reserves, our dollar portfolio, short-term assistance from European central Banks, the 500 million dollar swap arrangements with the United States, which the noble Lord mentioned, our stand-by of 1 billion dollars with the International Monetary Fund, and our drawing rights of 2,500 million dollars. As I think your Lordships will recognise, these amount to a very formidable series of fall-backs, supposing we have to make use of them.

I noticed that the noble Lord, Lord Grantchester, seemed to move in a somewhat contrary direction. He asked if Britain would put price stability before economic expansion. That was the theme of his speech. I would say to the noble Lord that the Government's policy is to seek to do both at the same time. We have repeatedly said that if we are to sustain economic expansion in this country our costs and our prices must be competitive. So it is not really a question of choosing between either price stability or economic growth. We shall not, in fact—and I tried to make this point in my speech—get economic growth unless we have reasonable price stability. Once again, it all goes back to exports; and if our exports are not competitive, then all our hopes go by the board.

The noble Lord, Lord Grantchester, also asked whether I could give some estimation of the benefits to consumers in the United Kingdom resulting from the EFTA Agreements. I am, sure your Lordships understand that this is not really something that you can measure, but the real benefit will come from the effect of our policy of a progressive reduction in tariffs on the competitiveness of our own industries and on the price of our own imports from the EFTA countries. Another point that the noble Lord raised with me was the simplification of Exchequer accounts. I think the noble Lord will remember that, about a year ago, I think it was, a White Paper was issued on this subject. The Government are continuing to give thought to trying to improve the public presentation of their accounts, and they will certainly continue to do so. I do not agree—and I think most noble Lords would be on my side on this—that we are being backward in improving information. I think the public is getting far more information—and this is a very good thing—about Government expenditure. Of course, I did mention in my own speech that there was the new practice of issuing a White Paper—the current one was published in December, showing our expenditure for the four years ahead, ending in 1967–68.

I should like to congratulate my noble friend Lord Eccles on a speech which all who heard it will agree with me was a first-class one. I think he did very strongly debunk (if I might use a rather unparliamentary word) the idea, floated rather gently by the noble Lord, Lord Shackleton, of selective taxation of individual firms and industries. I noticed that the noble Lord, Lord Morrison of Lambeth, also skated very gentle over this——


I did not skate at all.


Very wise; the noble Lord did not skate at all over this side of the Labour proposals. They certainly are, so far as I know, written in their policy documents. Of course, my noble friend Lord Eccles is right. Whitehall is in no position to be judge and jury between individual firms or individual industries, and I would certainly not choose Whitehall as the instrument to pick the winner. I think that this was very clearly brought out by my noble friend Lord Eccles, and I could not agree with him more. I also agree with him—and the noble Lord, Lord Melchett, did the same—that whatever noble Lords may say, heavier company taxation would have the effect that the noble Viscount, Lord Eccles, said it would. It would penalise the very modernisation that we are urging companies to undertake. It would penalise companies putting larger sums aside for research into modern techniques which we must have. Private enterprise as well as the Government must see that research is continued at an increasingly high level, and you will not do that if you penalise companies by heavier taxation.

The noble Lord, Lord Hughes, welcomed the differential taxation proposals of 1963. He said that they were belated, and in the case which he made, as usual, very eloquently, he tried to give the impression that until those proposals had been put forward very little or nothing had been done for Scotland or the areas with high unemployment. This, of course, is less than fair. I am not going to dispute his figures, but he knows that the great problem of Scotland, of the North-East and of certain other areas has been the very rapid rundown of the older industries; the very rapid cut-down in manpower in the shipbuilding industry, the coalmining industry and the heavy engineering industry, much of which is, of course, located in the North. It was the contraction of the older industries which overtook the supply of new jobs, which of course was being carried out under the Local Employment Act long before 1963. But, still, I appreciate his praise of the action that has been taken.

In the debate, the noble Lord also raised the question whether nationalised industries are eligible for assistance in the areas of high unemployment, and he complained that they were not treated on a par with private enterprise. I think it was during the debate in this House on the Local Employment Bill last June that we said that the Government were prepared to consider applications for grants on the same conditions as for private firms under the 1963 Act, where there was a genuine choice of location and where there was a genuine choice of going ahead or not—in other words, where the grant would act as a real inducement. This, I think, was made plain by the Government spokesman at the time. Nationalised industries are not eligible for loan assistance under the 1960 Employment Act, since, as was pointed out by the noble Lord, Lord Melchett, I believe, their loan requirements are provided for in separate legislation.

I was very grateful to the noble Lord, Lord Melchett, for emphasising, as he did, that this 4 per cent. growth target is really a very formidable target for us to have undertaken. Because we have set our hand to the plough, people seem to think that we ought to be aiming at 5 or 6 per cent. next year. As the noble Lord pointed out, if in the next few years we can achieve a steady growth of 4 per cent. we shall have done a magnificent job for the country, and to try to think in terms higher than that would be extremely unwise. I think the noble Lord, Lord Melchett, was absolutely right in stressing this point.

I regret to say that I had to be out of the Chamber during the speeches of my noble friends Lord Sandwich and Lord Reading. I gather that my noble friend Lord Sandwich had some hard things to say about the speeches of the noble Lords, Lord Hughes and Lord Francis-Williams. I see they are both smiling. They may have smarted at the time, but they have probably recovered from the attack that the noble Earl made on them.


Particularly as I realised that the interpretation of my own speech by the noble Earl, Lord Sandwich, was based on his ignorance of Scottish geography. He seemed to think that outside the four cities there were only hamlets. The noble Viscount, at least, has realised that that is not the case.


As I explained to noble Lords, unfortunately I cannot act as umpire on the subject, because I did not happen to be in the Chamber. I am grateful to the noble Earl, Lord Sandwich, also, for congratulating the Government on what he calls economic brinkmanship, and in ensuring that our people are kept in employment. Of course, this is a very difficult operation. I think the noble Viscount, Lord Eccles, at the beginning of his speech, pointed out the obvious difficulties in which the Chancellor of the Exchequer found himself in framing his Budget. The main thing—and I think he will read this debate with great interest—is that there seems to be little doubt that noble Lords think that he has done about the right thing.

The noble Marquess, Lord Reading, pointed out that, in the last twelve months, wages had increased more than dividends. Of course, that is true. I also want to say something about prices, because the noble Lord, Lord Morrison of Lambeth, in his winding-up speech, gave a tremendous, high-blown apologia of the Labour Government of 1945 to 1951. It is not surprising he did, because he was a distinguished member of that Government; but I really think that his memory must be slipping a little. I should like to give a different version of what happened under that Labour Government. Of course they had immediate difficulties after the war. But that Government went on for six years and they could not take as an alibi the fact that they had to turn a war-time economy into a peace-time economy. This was something which certainly one would give them three years to do; but that does not account for what happened in the last three years of their administration.

We had a lot of talk about prices. In six and a quarter years of Labour Government the average annual rise in retail prices was 6½ per cent. In the first six years of our Government—and we were incommoded by the position that we took over—we managed to improve very considerably. Retail prices rose 4½ per cent. each year. In the last six years, retail prices have risen only 3½ per cent.


My Lords, would the noble Viscount not agree that, during the period of the Labour Government, the world's raw commodity prices rose very considerably, and during the lifetime of the present Government the reverse has been the case and world commodity prices have fallen? Would the noble Lord not also agree that this is one of the difficulties of developing countries?


My Lords, broadly speaking, it is true that commodity prices rose for part of the period, but this does not account for the vast differences in the figures which I have just quoted.

The noble Lord, Lord Morrison of Lambeth, ignores little facts such as that we did not devalue the pound during that time. When he talks about handing over to the Conservative Government "a ship under full sail", he must remember that when we took over in 1951 we were going through one of the worst balance-of-payments crises we have ever faced. He and his other friends had to leave office, and, fortunately for the country, they have not been returned since. These are very valid points to make in reply to the apologia which the noble Lord made.


. My Lords, it was not an apologia; it was an affirmation, it was a boast. As I said in my speech, we had our crises. The amazing thing is not that we had a limited number of crises, but that in the situation we faced at the end of a very great war we did not have more of them.


My Lords, we were about the only country left after the war on both bread and meat rationing.


My Lords, the noble Viscount is brushing over those post-war problems in so slippery a way that he might have been on a skating rink during these last thirteen or fourteen minutes. Surely the noble Lord has not forgotten that we went into the last war owing £7,000 million. We came out owing £21,000 million, and the Labour Government had to face all the destruction and problems created by the war itself. So far as prices are concerned, it is true they increased more rapidly between 1945 and 1951 than subsequently, because food was unobtainable in any part of the world, and the only real piece of joy about our food and prices was that we, at all events, as a Labour Government, produced an agricultural policy that increased food output by 30 or 40 per cent.


I know the noble Lord is proud of his agricultural policy, and I am not decrying it. But he rose on my statement that we still had rationing of bread and meat when other countries, such as Germany and France, had long since abolished rationing. They had Governments more capable of looking after them.

Having said that, my Lords, I should like to end on this note, which I think is the one which exercises all sensible and careful-thinking people, and that is the need for an incomes policy. The noble Lord, Lord Morrison of Lambeth, said—and, as I said earlier, I think he is right—that an incomes policy must be seen to be fair, that every section must make its contribution; and he pointed out that this applied just as much to the unions as to the managerial boards or others. I am certain that it is this consciousness of the need for an incomes policy—that we shall not, in fact, get the growth we want unless we have the incomes policy—that is the most unifying part of this debate. I am certain that our policy as a Government will be to continue to seek an incomes policy. The fact that there are Elections ahead does not make this easy, but I am certain that once Election fever is over, and once a Conservative Government is returned to power again, we shall go forward with far greater success in achieving this policy.


My Lords, may I say that I am astonished at the answers made although they were delivered in a good tone and spirit. But the pound to-day is worth just over 14s., compared with what is was worth in 1951. You talk about the Labour Government devaluing the pound. You have dropped its value and increased the cost of living for people all through. We had a Budget of £4,190 million after having carried our share in the Korean war, and with a Defence Force which is double the one you have to-day. You are going to spend £2,200 million on the Defence Forces next year with only half the personnel in it that we had at the end of the war. I do not think the noble Viscount has given a very good defence.

On Question, Bill read 2a: Committee negatived.