THE ECONOMIC SITUATION

HL Deb 18 March 1964 vol 256 cc870-946

4.3 p.m.

Debate resumed.

THE CHANCELLOR OF THE DUCHY OF LANCASTER (VISCOUNT BLAKENHAM)

My Lords, may we now resume the debate which the noble Earl, Lord Alexander of Hillsborough, introduced? He started off by saying that he was glad to see that there was a drop in unemployment, but he felt concern—and I think all of us do—that there are pockets of unemployment still. He also said that he saw signs of real progress, namely, in the record production figures for steel and motor cars. He went on to give his own opinion, which was that we were placed in a dangerous position, and that he personally foresaw a balance-of-payments crisis before the Autumn. These are serious warnings, and I should like in my speech to indicate why I hold a very different point of view. The noble Earl indicated his dissatisfaction with the present cost of land. He felt that far too much stress was laid on wages, and he indicated that we should—he was not quite clear on this—rearrange our controls. He then also stressed prices, and said that the Labour Government of 1951 was turned out of office on the cry of, "Set the people free!".

I think the noble Earl must be reminded of some of the reasons why in fact the Labour Government were removed from office in 1951. They were removed from office largely because they did not conduct our financial affairs in either an efficient or a competent way. If noble Lords opposite will forgive me, they must be reminded of certain hard, even though they are unpleasant, facts from their point of view. In the second half of 1951 the gold and dollar reserves of this country fell by no less than £550 million—the biggest drain ever experienced. At that rate of loss our reserves would have run out completely before the end of 1952.

Soon after they arrived in office—as noble Lords who were then in power will remember—we had a food crisis, and bread was rationed for the first time. We had two fuel crises, one in 1947 and one in 1951. Retail prices rose in those six years by 40 per cent. I am afraid it is no exaggeration to say that during that period the Labour Government showed themselves totally incapable of handling our financial problems. We all know that their policy of convertibility in 1947 was premature, and had to be reversed in a matter of weeks. Imports had to be cut several times, and tax increases became commonplace. Of course, without any doubt the greatest tragedy of the lot, brought on, I think, by their mismanagement, was the devaluation of the pound in 1949.

I start by saying that because it is very important that the country should realise who are the advisers who are now criticising the Government, and what policies they were responsible for.

THE EARL OF LONGFORD

My Lords, may I ask one question? Noble Lords opposite vie with one another in these latter years in praising Sir Stafford Cripps as a Chancellor of the Exchequer. During a great deal of the period the noble Viscount mentioned, Sir Stafford Cripps was in charge of our finances. How does the noble Viscount reconcile what I have said about their praise of Sir Stafford Cripps with their suggestion, which is obviously childish, that our finances were in incompetent hands?

VISCOUNT BLAKENHAM

It was not childish to state that we had to devalue the pound. It is not childish to say that our reserves were run down. I think that is a pure debating point, and I would rather get on with the job. I would rather leave those depressing six years now, and turn instead to the contrast of what has happened in the last twelve years. The noble Earl, Lord Alexander of Hillsborough, was singularly silent about the achievements of the last twelve years. This would not have fitted his case. But, as everybody knows, in the last twelve years our whole economy has been rejuvenated and the quality of everyday life has been transformed. I think it is true to say that in no period of our history has the rate of income and social progress been as rapid as it has been in the last twelve years. Nobody who remembers those early post-war years, with the queues, the ration books and the swingeing taxes, and then takes an objective look at what is happening to-day, could come to any other conclusion.

I am not saying that the whole of the transformation was solely attributable to the policies of the Conservative Governments which have ruled since 1951, but I do suggest to your Lordships that those policies have in fact been the biggest single influence. We have not—and I say this quite frankly—yet had complete success in reconciling the objectives of expansion, full employment and stable prices. Nor, for that matter, has any other advanced industrial country in the West. What I think we can claim to have done is to marry the objectives far more successfully than our opponents did when they were in power, or could ever hope to do with the policies which they are now putting forward.

I should say a word on expansion—expansion in production and productive facilities and in the standard of living. Between 1951 and 1963 the gross domestic product—the nation's output of goods and services of all kinds—rose by one-third in real terms. This increase has been based largely on a formidable programme of expansion and modernisation of the country's productive facilities. The rate of investment in new factories and equipment has been on a strong upward trend, and is now double what it was in 1951. As noble Lords know, spending by industry on scientific research has been soaring in recent years. The Government have made their own contribution to invest-rent and research in a variety of ways—for example, the new roads programme, our assistance to civil research, the setting of realistic financial targets to the nationalised industries, and the authorisation of vast new investment schemes in electricity, coal and transport.

The expansion of national output has made possible a striking improvement in material standards over the past twelve years. The standard of living of the average person has gone up by nearly 40 per cent. in real terms since 1951—again, a rate of improvement without parallel in our history; more than the growth over the whole first 50 years of this century; and I think, looking back to those dark days in 1951, it is an achievement which people would not have thought probable or possible at that time.

THE EARL OF LONGFORD

My Lords, have the Government made any mistakes at all?—because this complacent record—

VISCOUNT BLAKENHAM

I am told that the noble Earl is going to make a speech later on, in which I am sure we shall all be interested.

THE EARL OF LONGFORD

Is the noble Lord going to give way?

VISCOUNT BLAKENHAM

Certainly I will give way.

THE EARL OF LONGFORD

This is the most complacent account any Minister has given of a Government's record over the last thirteen years and it is very difficult to sit patiently under it.

VISCOUNT STUART OF FINDHORN

Cannot the noble Earl opposite answer in his own time?

VISCOUNT BLAKENHAM

I think the noble Earl has been here long enough to know that patience is quite a good virtue. I was talking about the improvement in material life of our fellow countrymen, which seemed to irk the noble Earl opposite. We see it, of course, in the steeply climbing figures for car registrations, television licences, washing machines and so on.

In addition, despite the problem which higher prices have created and which has been mentioned by the noble Earl, Lord Alexander of Hillsborough, we also see the improvement reflected in the increase in home ownership. All this may irritate the noble Earl, but there are the facts. Forty-two per cent. of our householders now own their own houses, compared with 28 per cent. in 1951. People are saving at a record rate (this also may be irksome to the noble Earl) by way of life assurance policies, pension schemes, and so on. With help from legislation and from special tax reliefs, personal savings, which were running at a mere £100 million a year at the time of the Labour Government—and these again are facts—had risen to £1,000 million in 1959 and to £1,700 million in 1962.

Another factual example is that, quite clearly as a result of these improvements in material standards, we have been able to go ahead with greatly enlarged expansion of health, education and other social services compared with what was done in the 1940s and 1950s. I think some people are rather apt to forget that this has been possible (although the noble Earl may say that this is complacent) without increasing taxes. Some people, in fact, are apt to forget that there have been tax reductions over the last four years. The top rate of purchase tax, which was no less than 100 per cent. in 1951, was down to 50 per cent. by 1959, and now stands at 25 per cent. Income tax rates have been lowered, and the reliefs for the retired and those living on small fixed incomes have been improved.

The next point I would come to is the objective of the Government's economic policy, the maintenance of full employment. Here again (I am sorry to be complacent, but this is true), our record is a good one. There are nearly 2 million more people in jobs to-day than there were in 1951, while unemployment has averaged no more than 2 per cent. over the whole period in which we have been in power. It is true, as the noble Earl, Lord Alexander of Hillsborough, said, that in some parts of the country the unemployment rate has been, and remains, higher than the 2 per cent. rate that I have been talking about. But, of course, the Government have been actively seeking to reduce regional disparities in the opportunities for getting jobs. The period 1960–63 has, I think, seen more measures to spread full employment to the less well-off areas than were introduced in all the previous 40 years. This very impressive list—and again I am afraid that the noble Earl, Lord Longford, may not like it—includes the Local Employment Act, 1960, which was extended in 1963; "free depreciation"; new regional development plans for Central Scotland and North-east England; strict control over industrial location; advance building of factories; concentration of construction and Government orders, wherever possible; new links with overseas aid; the siting of new steel strip mills in Scotland and Monmouth; a new paper mill at Fort William; help to the shipbuilding industry; and the dispersal of Government staff from London. This has all been done in the last three years.

Thirdly, my Lords, there is the objective of stable prices. No developed industrial country with free institutions similar to ours has yet attained the objective of stable prices. We have not done so, I admit; but I think, as I can show, that we have done better than most. From 1958 to the latest available figure in 1963, the rise in prices in Japan has been 29 per cent.; in France, 28 per cent.; in Denmark, 21 per cent.; in Finland, 20 per cent; in Italy, 19 per cent.; in Sweden, 16 per cent.; in Austria, 15 per cent.; and in West Germany, 13 per cent. In the United Kingdom the rise has been the same as in West Germany, 13 per cent. I would remind noble Lords that this is not a league table which the Opposition very often bring forward, but one that they try rather studiously to forget.

We have succeeded in slowing down considerably the rate of increase in the cost of living. We have been prepared, when the upward pressure of prices grew too strong and threatened the balance of payments, to curb demand by squeezing credit and pruning public expenditure. This has made us unpopular at times, and there has been great outcry against the "stop—go" policies. It is perfectly true that such policies do curb the willingness of industry to invest, and therefore do impede the rate of growth our economy can attain. We realise the need of securing methods to remedy this, and in fact in recent years we have improved our techniques for regulation of the economy in the short term. Our main hope of future progress lies in the National Economic Development Council, set up by Mr. Selwyn Lloyd in 1962, to which the noble Earl referred. Here I think the recent announcement that certain key industries—coal, cement, chemicals, oil, and iron and steel—have decided to make no general increase in prices has been very welcome. But I should like, if I may, to say a word or two later about the vital rôle that I think "Neddy" has to play in securing a restrained rate of expansion in the future.

Before I leave the record of the past twelve years, which was ignored by the noble Earl, it is right also to point out that we have been able considerably to increase the help that we give overseas. Our overseas aid to developing nations has increased from £60 million in 1951 to £150 million in 1963–64. This has, of course, been accompanied by a large flow of private investments in the developing countries of about the same amount. Therefore, we have gained massively over these past twelve years. Our problem is to see that we do not lose any of these gains and that we can continue the progress that has bee made.

Looking at the present situation, I should like to begin by referring to the Budget of last April, because that Budget largely determined the course which the economy has followed since. My right honourable friend the Chancellor of the Exchequer, in his Budget statement, gave the Government's endorsement to the target of a 4 per cent. rate of growth of the economy which had been proposed by the National Economic Development Council. This ambitious—and it is ambitious—but perfectly attainable target had been formulated by the Council in a new and purposeful attempt at co-operative planning, intended to bring out the best which the various partners in our economic life could contribute. The Budget was designed to do the Government's share in making a 4 per cent. rate of economic growth a reality. At that time there were unused resources. The Budget strategy, therefore, was to distribute enough additional purchasing power to bring the economy to a higher level of activity, and to do so in a way that would be fair to all sections of the population and would thereby create a favourable atmosphere for an incomes policy. The Budget also contained measures to bring additional investment and employment to parts of the country where unemployment was above average. I have already mentioned those measures.

The Budget plan, my Lords, succeeded in bringing about a very rapid expansion of national production. By the fourth quarter of last year total production was running at 5½per cent. higher than the year before. We now reckon that it is running at 6 per cent. higher than last year. Lying behind this increase in national output was a substantial rise in export demand and in total fixed investment. Both these important sectors developed faster than demand as a whole, while consumer spending rose at a somewhat slower rate, though still an exceptionally high one. The rapid advance in production brought with it a fall in the numbers unemployed and a general tightening of conditions in the labour market—more overtime, more vacancies and some shortages of skilled workers in some parts of the country. Another feature of the faster tempo of economic activity was a much more cheerful climate of business opinion, an inclination to build up stock of goods and to make plans for higher levels of investment in the future.

As had been foreseen, this rapid expansion of the economy brought with it a rapid increase in imports, both for consumption and for holding in stock. Although exports performed pretty well, reaching a level 10 per cent. higher by the end of the year than at the end of 1962, our imports were rising at an even faster rate. To some extent this increase in the value of imports was due to prices going up against us. But mainly it was due to the increasing need of expanding industry to sustain rising output. The result was a decline in the rate of surplus on current account in the balance of payments between the beginning and the end of the year. Wage rates and prices went up during the year by 4 per cent. and 2 per cent. respectively. This is more than we should like, but it was a good deal less than in many earlier years and also less, as I have shown, than in some of the Continental countries. None the less, we have now reached a point in the expansion when there could be a real danger of wages, profits and prices rising at a rate which could threaten our future progress.

I should like to sum up the year's development: It began from a depressed level in the severe weather of early 1963, and it ended with the economy booming after an extremely impressive expansion. This figure which I have given of the rate of expansion, running currently at around 6 per cent. a year, is, of course, higher than the target of 4 per cent. to which we pledged ourselves. This extra high speed was possible while unemployed resources were being brought into use, but the margin of spare resources in the system is now disappearing, and we must consequently prepare for a transition to a slower but still high rate of growth. Remember that the target at which we aim is 4 per cent. per annum. That is the context in which bank rate was raised on February 27. There were, of course, external considerations as well. The rise in our bank rate brought our short-term rates of interest more into line with those abroad. There was no intention of attracting short-term funds from abroad. As I say, the main purpose of the move was to moderate the pace of the economy, which might otherwise have become too hot.

To all this the overseas trade returns, as the noble Earl, Lord Alexander of Hillsborough, said—and he is quite right—are extremely relevant. The January figures showed a sharp fall in exports. But it is very unsafe (and the Prime Minister was quite right when he said this) to draw conclusions from one month's figures. In this particular case the fall was widely spread, but much of it was in exports of plant and machinery, although the very good order books indicate an upward trend of these exports. We have just heard that in February our exports have turned up again and reached a record level of £369 million. In the three months, December to February, they were 2 per cent. more than they had been, on average, during the three months September to November. There can be no doubt about the fact that exports are on an upward trend. Recently, engineering firms, which play such an important part in our export trade, have been very successful in obtaining foreign orders. In February, the Federation of British Industries reported that businessmen were very optimistic about their export prospects. Imports continued in their strong rising trend, although the February figure was lower than the January figure. This, as I have said, reflects the growing requirements of our expanding economy and particularly the temporary drive to build up stocks.

In conclusion, my Lords, having given this review of the economic situation, I would say this: we are very well placed to continue the striking expansion of the last year provided that we do not throw away our chances by letting our costs get out of line. This, I believe, is the only thing that can trip us up—unless, of course, we talk ourselves into depression, which I am sure the noble Earl, Lord Alexander of Hillsborough, would not wish to do, but there are people who do, I think, give too alarmist a view of what the position is.

Since the war we have enjoyed the blessing of full employment, but this has brought with it the curse of inflation, with the hardship, which the noble Earl stressed, that this inflicts on those dependent on fixed incomes or pensions. The only consolation—if consolation it be—is that the curse has not been visited on us alone. Indeed, as I have shown, we have been more successful recently in curbing it than most other people. All the nations of the Free World have been struggling with the problem of rising prices, and no one has yet found the full answer.

It is now generally accepted, I think by all political Parties, that to keep prices steady it is essential to prevent money incomes as a whole from rising faster than national production. But in a free society this is not a matter over which the Government could exercise direct control. The solution in a free society has to be found in persuasion, and persuasion takes time. Whatever our opponents may say, the nay pause of 1961–62 was successful both in its immediate aim of helping to slow down the rise in wages, profits and dividends, and so bringing near stability in prices, and also in bringing home to the country the need for a long-term incomes policy.

This need has been accepted by the N.E.D.C. on which both sides of industry are represented along with the Government. Voluntary economic planning through N.E.D.C., with incomes policy playing a vital part in the programme for accelerating the nation's growth rate, represents, in our view, the best way of achieving both a steadily rising standard of living and a reasonably stable set of prices. We have embarked on this massive programme of public expenditure and public investment. This is what the country needs and wants. The rapid development of education, improvement of the housing and social services, the great road programme, electricity and so on—of course, all this has to be paid for. A rising rate of public expenditure can be combined with tax reductions only when there is spare capacity in the economy, as there was last year. The realisation of these ambitious plans depends on our paying our way in the world. And here I agree again with the last words of the noble Earl. If exports fall short of what is needed the whole growth programme is imperilled.

Of course, a temporary deficit in the balance of payments can be accepted if it is the consequence of a sudden burst of stock building while expansion is going particularly fast. The deficit will be temporary if the upsurge in imports is followed by a similar rise in the export trend. In such a situation the Chancellor of the Exchequer has said that he would think it right to use our considerable borrowing facilities in the International Monetary Fund and there are, of course, also other sources of support for sterling.

One of the great improvements of recent years has been the development of very close co-operation between the central banks of Western countries. But the essential condition for handling a balance-of-payments deficit is that the long-term trend of exports is satisfactory. It is a considerable achievement that our exports last year topped £4,000 million. But we must do better still. The future trend depends on holding our costs steady. We have improved our position a little in the last two or three years because there have been inflationary movements in some of the Continental countries. Our urgent need is to ensure an improvement in our competitive position in order to keep our exports rising as fast as our demand for imports.

So I return to my theme: we have done very well, we are in a good position: do not let as throw it away by overreaching for wage increases and profit increases. This business of steadying the price level depends on a partnership of all concerned in industry and trade. It is just as important that employers should keep prices steady as that trade unions should not press for larger wage increases than the growth of national productivity justifies. If we can only restrain ourselves in this field we can be sure of continued prosperity. This quite simply is the challenge that faces us. I am confident that, if we show pod sense, the nation can take this challenge in its stride.

4.32 p.m.

LORD WILLIAMSON

My Lords, I should like to congratulate the noble Earl for placing this Motion on the Order Paper and providing your Lordships' House with a further opportunity to discuss these highly important economic questions. I am pleased to follow the noble Viscount opposite, because often together over the past few years we have discussed these things, I think on occasions with advantage. It was extremely difficult to follow all the record of the figures of the last twelve years given by the noble Viscount, but he said, in effect, that "everything in the garden is lovely," and that everything is going on all right. If that is so, why is the Chancellor of the Exchequer constantly lecturing everybody about it?

The fact of the matter is that things are not as has been said by the noble Viscount opposite. I stand on two grounds here. One is exports. The first time the record of exports in manufactured goods was given in the Treasury Bulletin for the National Advisory Council for Industry, was in 1950. At that time our exports were 20 per cent. of total world exports. This percentage fell constantly every year. There were those on the National Productivity Council who were constantly bringing this matter up with members of the Government, with the Chancellor of the Exchequer in the Chair. What did the Government do? They took the table out of the Bulletin so that we could not find out what was happening; and it was some two years before we were able to get the figures, for use not only on the National Advisory Council for Industry but on the National Advisory Council to the Ministry of Labour. Our exports dropped from 20 per cent. to 13 per cent. Now I think that they are something like 15 per cent.—5 per cent. behind Western Germany at the present time. It is no use saying that we have succeeded on exports. This is where we have fallen down. This is the particular part of the economy to which attention should have been directed. We ought to have found out where we were.

The noble Viscount opposite knows it to be true that our standard of living before, and immediately after, the war was much higher than that in many of the countries of Europe, such as Belgium, France and Italy. But the three nations I have just mentioned have now reached our level. It is not our view now that they have a lower standard of living than Britain's. In fact, it is being shown by economists who have investigated the position that they have passed us in their standard of living. Does the noble Viscount deny this? Is this progress? Again, it was wrong to castigate the Labour Government of 1945 to 1951, when we changed over from a war economy to a peace economy, when the whole industrial machine had to be changed over. This was all on its way in 1951, and therefore one would have expected that in the next twelve years we should have had some industrial prosperity.

I do not believe that people get unduly worried about some slight increase in prices. Of course, there is a section of the population which is seriously hit by any increase in prices, but I do not think that those in work and those gainfully employed are greatly worried, if the increases are not too heavy and are not too often. But I believe that people are worried mainly by an inherent feeling of insecurity—as my noble friend Lord Alexander of Hillsborough called it in his speech, a lack of confidence, a feeling that things are not going as they ought to be going, and that at any time things may collapse and bring everything down about their ears.

For, one way and another, when the brake is off people are led to believe, as we have been told in the speech we have just heard from the noble Viscount opposite, that everything is all right. They have been encouraged to go ahead. In those circumstances, they cannot be blamed for taking on increasing long-term commitments for cars, furniture, televisions and the rest, mostly on hire-purchase, a process which builds up domestic debts which become more and more difficult to meet. Then, when the time comes to apply the brake—as in present conditions the brake surely must be applied; if we are living above our income the brake must go on—unemployment, short-time or less overtime bring financial distress to many homes. Recently the Hire-Purchase Bill was formulated, for one reason: to try to protect people from irresponsible excesses, mostly brought about by a too confident reliance on a dubious prosperity.

Whether or not your Lordships agree with this diagnosis, on one thing I think there can be no disagreement—namely, that over the last ten or twelve years there has been no stability. On the contrary, we have had—I apologise for using this bad phrase—recurring booms and slumps. In 1962, consumers' expenditure overall was one-third higher than ten years earlier, in 1952. Compared with this one-third increase in consumers' expenditure, expenditure on motor-cars and motor-cycles increased six times, and that on radio, television and domestic electrical appliances more than doubled. It is elementary, therefore, that in these conditions there are bound to be pressures from all sections of the population for higher incomes; and then, when the brake has to go on, by credit squeezes, higher interest rates and a damping down generally, domestic commitments cannot be met and industry is forced on to a 60 or 70 per cent. capacity.

All this has been going on during a period when, I am sorry to have to say, we have been gradually losing our advantages from overseas possessions, and when we are with relentless certainty approaching the time when we shall have to stand on our own feet I do not think the reported statement of the Prime Minister on November 11 last was particularly helpful. He is reported to have said: With an annual increase of national production of 3 per cent. a year we could knock along not too badly, but with an extra 1 per cent. we prosper and can do all we want to do for our people. Surely that is an over-simplification. It is quite unrealistic.

There is very much more to it than that. It is too often implied that the the only solution to our difficulties is a curb on incomes. Well, in fact, it is not. It is only one of the correctives. In the past many wage increases have been conceded readily by employers because certain industries have not been able to recruit sufficient labour to fill outstanding vacancies owing to the lower standard rates and no opportunities for augmentation of earnings by bonuses and overtime. This is perfectly correct. The public services are outstanding examples of this.

I am very pleased to say that the Trades Union Congress have accepted the fact that it is possible for incomes to get out of line with output so as to cause serious increases in costs and prices; and they have also accepted that at any one time some groups of people have a greater claim than others to improvements in their incomes. It has also been made abundantly clear that no group of trade unionists is entitled to pursue its own interests with complete disregard for the interests of the rest of the community, or of the other trade unionists, and that it may be necessary to limit increases in personal incomes in order to make resources available for other purposes, such as investment and exports. All this has been accepted by the unions.

Of course, I a 3preciate that in your Lordships' minds will no doubt be the thought that this excellent philosophy has not made very much progress. But I think your Lordships will be wrong, because no one knows better than the noble Viscount opposite that for some time now 99.5 per cent. of the industrial settlements on wages and conditions—and this goes on all the time, every day and everywhere—have been reached amicably by negotiation and joint agreement between employers and, employed; and it is significant that the area of disagreement has been very limited indeed.

Personally, I am astounded to discover that, with 25 million people gainfully employed in a free society, the number of days lost through strikes in 1963 (which information I obtain from the Ministry of Labour Gazette) was well under 2 million as against something like 4, 5 or 6 million in previous years. This means that the unions have not been using their power to gain undue increases in wages; and that I am sure the noble Viscount opposite will agree with. Therefore, I submit that the starting point—and I emphasise that it is the starting point—for finding a solution to our economic problems is not the question of incomes policy, but policies for making better use of the nation's resources, including manpower.

I took the trouble to look up the Ministry of Labour Statistics, No. 1, April 1962, and found that the increase in manpower in Great Britain (this was mentioned by the noble Viscount opposite; I think he gave a different period, but the figures are much the same) from 1954 to 1961 totalled 1,319,000. Of that total increase in employed persons the distributive trades took 609,000, or 46 per cent., nearly half, while throughout this period the manufacturing industry has been screaming out for additional labour and sending agents abroad to induce immigrants to come here to fill the gap—not to mention the fact that we have 450,000 on our own doorstep. It seems easier to bring people here from India or Pakistan than to bring them down from Scotland or Lancashire and the North-East coast to where there is work. Many of our industries are carrying on only by working excessive overtime.

This raises the point as to whether or not we are using our manpower resources to the best advantage. I think this could also be said about our investment, our building materials and our building industry labour. Any policy for prices and money incomes could succeed only if people were satisfied that it was a necessary part of a wider programme for the growth of real incomes, and that restraint by one section of the community would not result in merely a gain by other sections.

I have with me a publication issued by the Director General of the International Labour Office. I think most of us know Mr. David Morse, and this was his report which was presented to the Conference in the middle of 1962. Three times in his report he calls attention to wage restraint, and this is what he says: … it is hardly equitable or politically realistic to require sacrifices from the workers in the development effort, for example, by moderating wage increases, unless proportionately greater sacrifices are required from those who can most afford to make them. I shall not bore your Lordships with the other quotations, but they are on these lines. Mr. David Morse is saying that if the time comes when incomes are getting out of hand, any action must apply to all incomes, to incomes from property as well as others. I am perfectly certain the people of this country would agree with that.

I believe that in any case expansion itself is not the complete answer. It should be expansion in the right direction and in the right field. This requires an orderly allocation of available resources, which cannot be achieved by laissez-faire policies. To avoid waste and distortions, economic growth requires policies for balanced expansion, and this calls for some planning with the right social priorities. Many of the decisions made by business, especially large-scale organisations, are too vast and too important to be left to unco-ordinated action by individuals and firms. I do not think the closing down of a factory or the transferring of a large section of it to another part of the country ought to be carried out where it is going to put probably 500 people in social distress. I think it is open to argument whether of not the Government should not intervene and look at the facts before such a thing takes place.

It is impossible for the Government to plan the whole economy in detail, even if they wanted to, and nobody is suggesting that. But in the last resort it is the Government's job to govern the country, and the Government must be prepared to intervene at crucial points where this is necessary for the realisation of overall economic stability.

4.50 p.m.

LORD BALFOUR OF INCHRYE

My Lords, I think we owe a debt of gratitude to the noble Earl the Leader of the Opposition for the opportunity to debate the Economic Situation and to listen to a serious and moderately phrased speech—though his best friend could not call it a gem of original thinking, or say that it contained any very new facts. The noble Earl the Leader of the Opposition put forward a series of general conclusions—unfavourable, of course, to the Government—based upon carefully selected, particular examples, which of course is not unexpected in a political speech. However, the noble Earl did not do what many of his Party are now doing in the country, and what I personally regret very much—that is, decry our position and conditions, and overstate the case. The best example I know of that is a recent report in the Press of a statement made by Mr. Callaghan that, "The Government should apologise for the state of the economy". My Lords, is anything really more absurd than that overstatement?

The real position, I thought, was summarised—although I was slightly bemused by the figures—by my noble friend Lord Blakenham. I would say that a fair summary of his speech would be that, in a world of political unrest, with the cold war in the background and international economic disequilibrium, the Government have steered this country in the paths of peace; we have full employment; there has been a large growth of social services; and since 1951 the overall standard of life has risen some 40 per cent.—the fastest rate in our history. Of course, nothing is perfect. Mistakes have been made by this Government, just as they have been made by every Government, including the Governments of noble Lords opposite. The older we get the more easy it is, I find, to acknowledge mistakes. Nevertheless, there has been steady progress, and my regret is that the acute stage which we are now reaching, of change from the old industrial pattern to new and exciting advances, should clash with the political tension of Election times. Naturally, that results in over-statement and in the concentration on differences rather than on approaches from points of common agreement.

My Lords, much common agreement exists between the Parties on objectives: the main difference is on how we are to achieve those objectives. I think noble Lords would agree that it is common ground that, in this competitive world, if we in this country do not export, we starve. It is common ground, too, that we have no hidden resources of wealth, and that it is only upon our skills that we can sustain our daily standards of life. I think there is common agreement that industry has to meet the challenge, and that Government policies must be shaped to meet it, in a highly competitive world. My Lords, I believe that we are now seeing one of those periodic leaps forward in application, as a result of research and development, quite suddenly. We are seeing a scientific and engineering breakthrough into the atomic, the electronic, the computer age; when years of work by the scientists bursts out, comparatively suddenly, into new forms of application.

In support of my argument I should like to quote, very briefly, as an example, the leaps forward in the history of aviation, in which I have been concerned most of my life. There have been about four big breakthroughs in aviation, and we are surely going to see a fifth. First, there were the Wright brothers. Then there was the development, in about 1910, of what is called the Gnome rotary engine, which really made flying practicable. In 1920, the metal aircraft came into existence. In 1935, there came the pattern of commercial aircraft that we know to-day, with stressed-skin wings, retractable undercarriages and variable-pitch propellers. In 1945 there came the jet—and in 1970 we may see the supersonic. My Lords, during the whole of that period, from the Wright brothers up to to-day, scientists and engineers were working steadily; but it was at sudden moments, at those four moments in aviation, that there were big breakthroughs—and I think we are seeing that breakthrough in our national industry to-day, in what I call the electronic, computer age. If noble Lords accept this new breakthrough, then I think that to abuse a Government who have directed affairs successfully in the past, in the passing phase, because they have not already equipped the country for the new, emerging phase, dough it may be politically attractive, is neither justified nor, I think, in the national interest.

Already, both sides know the industrial armour that we need in this competitive age, if we are to succeed. I will not do more than cite a few of what I may call the headlines: technical education, training and re-training, mobility of labour and industry, incomes restraint, Government financial policies to encourage and reward individual and commercial enterprise. These are some of the main needs which are accepted by all; and it is in how, in a free society, we are to achieve those ends that our political differences exist.

LORD SILKIN

My Lords, may I just ask the noble Lord, when he talks of income restraint, is he referring to wages only, or is he referring to incomes all round?

LORD BALFOUR OF INCHRYE

Incomes all round, my Lords. I do not want to detain your Lordships too long, and I was using single words, where I possibly could, in order to economise in time.

Above all, I think, we acknowledge that we need efficient management and efficient labour—and away with restrictive practices on both sides of industry! But, my Lords, to be efficient is not enough. We must be shown to be efficient; and if you accept that, you need the means to know where you are inefficient. I was particularly attracted by the suggestion in the Economist, the week before last, that the Companies Act should be so altered as to make it obligatory upon companies to fill in a very detailed questionnaire which would cover both the efficiency of management and the efficiency of labour and would expose restrictive practices of management or of trade, and also restrictive practices of labour. In a free society, where direction is rejected and controls resented, it seems to me that it is a very good start to find out where inefficiency lies.

There is one further suggestion that I would make to your Lordships: that to-day there is an inevitable interlocking of Government and industry. Whatever Party are in power, industry and Government are closely interwoven; gone are the days when an industrialist could afford the luxury of saying, "Oh, you blessed politicians! I leave all that to you". Anyone who wishes to be successful in industry today must take account of, and allow for, Government policies of his own country and Government policies in other parts of the world. For this reason, I believe that there should be a much greater degree of interchange of personnel between industry and Government, at all levels. Executive attachments to the Civil Service and Civil Service attachments to industry should be encouraged to a far greater degree than at present. The Henley Staff College of Industry performs a wonderful job of work, but it is not enough to have a syndicate of industrialists and civil servants working on common problems. I think it is very necessary that the civil servants should get into the Midlands, into the North and into London, and that those in charge of industry, both on the trade union side and on the management side, should have a chance of getting into Government Departments and seeing how they, in their turn, work. These are some of the tasks that I believe the Government and industry must get down to—whatever the result of the Election may be.

I think the over-statements which are being made are doing little good to anyone. I noted that Mr. Arthur Bottomley the other day said in a speech at Surbiton: Harold Wilson is the man of the century. If we look at the history of this century we see Lloyd George directing this country through its darkest days; and we see Winston Churchill. I am sure that Mr. Harold Wilson does not want that sort of fulsome praise. It smells too much to me of Nkrumah-ism; and it is something that I do not like. And Mr. Wilson will not like it, either; he is too clever. Whether he is "too clever by half" the future will show. I have listened to Mr. Wilson speak on every subject. He usually says that the Government are entirely wrong; and he displays most attractive superior wares. I do not see him as the man of the century but as a real super salesman "Pay your first instalment and the rest you need not worry about". He is not the man of the century but the John Bloom of political life to-day.

I believe that no good is done by these speeches on any side that vastly over-state the faults of one side and the merits of the other. The Election is going to be tough and rough. It is beginning to be so now; and even the veterans of your Lordships' House may do a bit of growling here and there in the country. But let us see that the barks and growls do not deprecate out industrial chances by over-statement or under-recognition of our national, and even political, matters in the face of a watching and competitive world, on which every one of us depends for the successful industry of this country in order to carry on our daily lives.

5.3 p.m.

LORD SAINSBURY

My Lords, discussions on the economic situation are liable to range far and wide. We have just heard an historical comparison of some of our national heroes. I should like to restrict my remarks to the subject of prices. I realise that it is a subject on which it is easy to generalise, and any criticisms of manufacturers that I may make in my speech obviously do not apply to all firms. On all sides we hear of the need for restraint with regard to wages. Perhaps a little less often we hear of the need for restraint on all other incomes, including profits. In my view, a wages and income policy stands little chance of success without restraint on prices.

The general attitude of the manufacturer towards prices obviously varies according to the circumstances. When he has a full order book and there is a rising demand, his attitude towards increasing prices is different from when the opposite position prevails, when trade is slack and he is looking for orders. In the former situation there is not the same incentive nor the same impulse to try to absorb increased costs by greater efficiency and increased turnover. This is the situation we are in at the present time. There has been evidence that some manufacturers seize all too eagerly on a wage increase or a raw materials increase to pass on that increase with some extra added.

Many of your Lordships will remember that last month the Purchasing Officers' Association submitted a memorandum to the National Incomes Commission on the effect on prices of the recent engineering pay award. The memorandum was based on the evidence of 351 chief buyers of industrial firms whose yearly spending amounted to over £2,000 million. It reveals a widespread attempt by manufacturers to raise their prices in excess of their labour costs. On average, the recent engineering wage increase would justify a price increase of between 21 per cent. and 3 per cent. Against this figure some companies attempt to obtain increases ranging from 7 per cent. to 15 per cent.; and the highest figure was as much as 30 per cent.

My noble Leader has referred to Lord Robens. Speaking as Chairman of the National Coal Board on January 9 of this year, he said: The Board's purchasing department is being deluged with letters from suppliers of engineering machinery and equipment asking it to agree to price increases of between 2½ per cent. and 8 per cent.". He went on to say that the extra cost to the Board could be as high as £10 million, and he castigated the companies concerned; and I quote: I believe increased wages simply passed on by employers is a lazy way of dealing with wage problems. We all have obligations to increase efficiency. Lord Robens further suggested that some companies were using wage increases as an excuse to pile on many things to their selling prices, including higher profit margins.

In the food trade—and here, of course, I must declare my interest—there has in the last few months been a flood of increases on the part of manufacturers. The Financial Times of February 18 quoted over 1,000 price rises by about 200 manufacturers in the ten weeks ended February 1. The extent of some of these price rises is revealed by an investigation I carried out myself of 110 branded food lines which have risen in price this year. This showed an average increase of 5.8 per cent.

Then there are the prices of basic foods that are affected by the Government's agricultural policy, which may he perhaps more appropriately discussed when we debate the problems of agriculture next week, but, for the record: recently meat has been at least 15 per cent. above the admittedly low levels of a year ago; bacon is some 18 per cent. dearer than a year ago, though the eggs that go, we hope, with the bacon are cheaper; bread has increased in price by 6 per cent. in two years; and the butter that goes on the bread is about 2¾d. a lb. dearer than a year ago. And this afternoon we have heard that in April the price of milk will be increased.

Turning to a less important sector, but one still of interest to the housewife, I would point out that many pharmaceutical goods that are price maintained by the manufacturer have recently been increased in price. The wealthy Beecham group, whose advertising expenditure in 1962, which is the last year for which figures are available, amounted to over £5 million, have recently increased the prices of no fewer than 17 products. At about the same time, the International Chemical Company, who make Anadin tablets, and Miles Laboratories, the makers of AlkaSeltzer, a product that might be known to some of your Lordships, also increased their prices.

More seriously, in some cases, I cannot help feeling that rising prices are anticipated. For example, where there is a highly concentrated industry, with a large proportion of the output in only four or five hands, an ultimate price increase may be justified, let us say, by an increase in freight charges or raw material prices; bait if prices are raised before the actual increase of costs is incurred, very large excess profits can be made.

Another factor which contributes to the spread of price increases is what is known as "following the brand leader". One manufacturer, who has a large share of the market, announces to his customers—and sometimes sees that the information reaches his fellow manufacturers—that he is increasing his prices on a certain date. Immediately his competitors follow suit, regardless of their own costs. There is nothing new in this, because Adam Smith said, in The Wealth of Nations: People of the same trade seldom meet together, even for merriment or diversion, but the conversation ends in a conspiracy against the public or in some contrivance to raise prices. It is of small consolation to the housewife, who finds her housekeeping money buying less than formerly, to be told by Government spokesmen that during the last twelve months or so prices have risen more in France, Italy and Germany. Why do we not turn to the United States? The Guardian, in a recent article describing the situation in America, stated: The United States has been more successful in maintaining stable costs than any country in Western Europe.

VISCOUNT BLAKENHAM

My Lords, I think that in fairness the noble Lord should point out that they have done this at the cost of a 5 per cent. rate of unemployment.

LORD SAINSBURY

My Lords, that would lead to a discussion on the effects of automation. In 1963—and this is my authority for my previous statement—manufactured goods prices in the United States were less than 1 per cent. higher than the 1957–59 average, according to the United States Department of Commerce. I listened to the remarks of the noble Viscount, Lord Blakenham, about Europe, but I did not hear him mention the success of the United States in achieving comparatively stable costs. I think that there is no doubt that the performance of the American economy is partly connected with the more competitive climate over there and with their harsher anti-trust legislation.

In discussing prices it is not only recent rises which give concern, but the level of some existing prices. In this connection, surely some of the Monopolies Commission's reports are very disturbing, or should be, to the Government of the day. May I quote two examples? The Commission's report on firms manufacturing electrical components for cars revealed exorbitantly high prices, backed by resale price maintenance. Champion, the market leader, produced sparking plugs at a cost of 1s. 6d. per unit, but the motorist pays 5s. And over a seven-year period to 1960, this company made an average profit of 57 per cent. on the capital employed. Incidentally, it is characteristic of the working pace of the Monopolies Commission that this report is the result of an investigation spread over six years.

Another recent Monopolies Commission report on the wallpaper manufacturing industry revealed equally disturbing facts. This industry is dominated by one firm, Wallpaper Manufacturers, Limited, which controls close on 80 per cent. of the market. With the help of resale price maintenance, the customer pays for wallpaper in a shop about 2½ times the manufacturer's net selling price—in other words, the total distributive margin, wholesale and retail, accounts for about 60 per cent. of the price paid by the public, exclusive of purchase tax. And the industry itself is sheltered by a customs duty of 20 per cent. High prices are spread over many other of our industries, and the disturbing thing is that no stigma is attached to this fact. I recall that the chairman of one of our famous electrical cable companies proudly told his shareholders in his report some years ago that We in British Insulated Callender's Cables have given a lead to the industry by raising prices to some extent. Appeals to business men by members of the Government or by officers, for example, of the F.B.I., are not likely, in my view, to be of very great effect. Many business men undoubtedly look upon profits as a measure of their own efficiency and think it is their duty to maximise them. A truer measure of efficiency, in my opinion, is a reduction in unit costs, even if wage rates are going up. I appreciate that this can come about only if there is the right attitude to change by both management and labour. But the Government cannot opt out of their responsibilities on the question of prices. In fact, in the first sentence of the recent White Paper on Monopolies, Mergers and Restrictive Practices one of the objectives of the Government's economic policy is stated to be stable prices. The White Paper goes on to say that the Government have an essential rôle to play, both in stimulating innovation and efficiency and enabling some of the benefits of the reduced cost of production and distribution to be passed on to consumers. These are admirable sentiments.

However, there is no sign of stability of prices at the moment. If the Government mean what they say, then action rather than speeches, in my view, is called for. Indeed, monopoly legislation must be strengthened, and it is not in itself enough to enlarge the Commission. Powers must be taken, as suggested in the White Paper, to see that the Commission's recommendations can be enforced. The will, however, must be there as well as the power. One cannot help remembering the Government's failure to act on past recommendations of the Commission. Out of 23 Monopoly Commission's Reports during the office of the present Government 20 called for action to end certain undesirable practices. In only two cases have the Government made orders to put the recommendations into effect.

Even that respectable newspaper, hardly Left Wing, the Financial Times seems to have certain doubts of the Government's real intentions. In referring to the White Paper on Monopolies, Mergers and Restrictive Practices it talks of its "cosy phraseology" when in reference to the new powers the White Paper states that they will rarely, if ever, be used, or would seldom be necessary in practice.

LORD CONESFORD

My Lords, may I put one question to the noble Lord? He has said that in only two cases was an order made. Has he the statistics of the cases where it was not necessary to make an order, because the Board of Trade secured an agreement to deal with the evil revealed by the Commission?

LORD SAINSBURY

I regret that I have not the figures with me, but I grant that there were several cases where that procedure was adopted. In my view, in addition to a firmer attitude towards monopolies, there is a strong case for a watchdog prices commission. What is needed is some means of compelling companies to reveal more about their costs and prices than they do now. By such means a powerful brake could be put on socially irresponsible price rises. Social justice demands that restraint on wages be accompanied by equal restraint on prices and profits.

5.25 p.m.

LORD LUCAS OF CHILWORTH

My Lords, I am indeed thankful that I arrived back in this country in time to take part in this debate, because I think one must indulge in some pretty straight talking upon this particular subject, as has been done by the noble Lord, Lord Sainsbury, and my old friend the noble Lord, Lord Williamson. The British economy has beer the subject of quite a number of analytical considerations, both by experts in this country and by some of our well-meaning friends in America. I would not for one moment agree with everything that our American friends have said, but we should be foolish if we did not agree that there is more than a comfortable element of truth in what has been said.

I think this afternoon my old friend and colleague Lord Williamson (he and I worked together on this problem for more years than I care to remember) put his finger right on the spot. The one great drawback from which we in this country are suffering to-day is a misuse of available resources. That has been our great industrial and commercial problem, from my personal experience, ever since the First World War. The trouble is that British industry and British economy carry too many overheads. There are too few makers and too many sellers. The right honourable gentleman Mr. Edward Heath, made a speech in another place last Tuesday week, when he introduced the Resale Prices Bill. It was one of the finest expositions of that problem I have ever heard—and I have lived with this all my industrial life. He put the case cogently, without any exaggeration, and there is not one thing in what he said from which I would dissent. He said [OFFICIAL REPORT, Commons, Vol. 691 (No. 70) col. 2.57]: The number of people employed in distributive processes is growing faster than the number in the manufacturing industry. That is true.

The noble Lord, Lord Williamson, quoted some figures, and I will quote some more—and these are official figures. From June, 1959, to June, 1963, the increase in manufacturing industry was 2.8 per cent., and in the distributive trades the increase was double that, 6 per cent. The overall figures are really staggering. I obtained these figures from the latest Ministry of Labour Gazette. The total employed in manufacturing industry is 8,912,760, out of a total gainfully employed population of 23,393,000. As against the 8,912,760 employed in manufacturing industry, in the distributive trade there are 3,057,000. It is just a long-standing scandal. This has been one of our most pressing problems. As long ago as 1922, just after the First World War, the Linlithgow Committee reported: Distributive costs are a far heavier burden than society will permanently consent to bear. They went on to say: It should be possible to concentrate in the hands of one intermediary the successive functions now performed by several. The Perry Committee in 1940 said precisely the same thing. And, if I may say so, with not much modesty perhaps, the Lucas Report of 1947 drew attention to the inefficient distributive arrangements which are wasteful of national resources.

I would also call to my aid the noble Earl, Lord Woolton, who in 1942 made a similar comment. The noble Viscount, Lord Blakenham, will see that I have taken the precaution of bringing my reference with me, and I quote from Hansard of June 3, 1942, column 101, where the noble Earl said this: In passing, I might as well say what is obvious, and that is that for many years I have studied the retail and the distributive trades of this country. I have no doubt at all that they represent one of the expensive and luxurious factors in our national life. That was said at a time when this urgent problem was just beginning to show its considerable strength.

LORD LATHAM

My Lords, would the noble Lord mind my interrupting him? Does he include within the distributive services, service trades—people employed in the service trades?

LORD LUCAS OF CHILWORTH

No. Distributive trades are retail shops and wholesale suppliers. No service trades, no hairdressers, no transport, or anything like that: only the retail shops and the wholesale suppliers.

LORD SAINSBURY

My Lords, I do not want to interrupt my noble friend, but statistics can be misleading. Does he know whether part-timers are counted as one or half?

LORD LUCAS OF CHILWORTH

The noble Lord can get these figures from the Ministry of Labour Gazette. It gives the number gainfully employed. I agree that figures can be misleading. The noble Lord has had more experience of that than I have. To revert to what Lord Woolton said, his statement, which I have quoted, brought from The Times of the day the comment that The number of intermediaries in most trades has long been in excess of any reasonable requirement and has grown very considerably in the last 20 years. The writer ended by saying that it has been a long-standing scandal. My Lords, the major cause of all this has been resale price maintenance, and I support every word that the noble Lord, Lord Sainsbury, has said. I have lived all my life in an industry where you could not buy a thing which was not price-protected. I have seen its evils. It has induced more inefficiency into retail distribution than any other factor, for the reasons which the noble Lord, Lord Sainsbury, has so well pointed out. No Government up to the present time has had the wit or the courage to tackle the problem—not one. Eight years ago I stood at that Dispatch Box speaking on the Restrictive Trade Practices Bill (as it was then), and I laboured and laboured by every artifice I could think of, to remove from the Bill the clause that permitted resale price maintenance by the individual producer. I can see two noble Lords here who I remember played some active part in that discussion. The Restrictive Trades Practices Act was bound to fail: it was a failure from the word "Go." We now have a Government who have done something. And what has been the result?—the biggest howl that you have ever heard from all the pressure group hacks, in industry and outside.

I have never heard so much nonsense talked about any subject as I have heard talked about the Bill that was introduced in another place by the Government. It is said that it will not reduce prices. Nonsense! It is said that it will put the small man out of business—by those who have tender regard for the small man, at least about Election time. Utter nonsense! You have to ask yourselves this question: do you keep a small man in business because he is small, or because he is efficient? If he is efficient, he will not go out. If he is inefficient, he deserves to go out. Face up to that fact—be honest. There has been more intellectual dishonesty displayed in the political controversy over this Bill than I ever thought it possible to listen to. Size is not always the criterion of efficiency. Take two great examples. When the McKinsey experts got to work on Shell-Mex, they discovered something in the region of thousands of redundant people—and they started at the board room. I.C.I. have found, I think, 10,000 like overheads that they could well do without. If a toothcomb were put through every business in this country it would be found that the overheads could be reduced and a huge number of good workers released.

The noble Lord, Lord Williamson, said that he did not believe that people were interested in increasing prices. I think the noble Lord, Lord Sainsbury, got nearer the truth. It is the nightmare of the housewife—the living nightmare—who wonders how far her slender resources can be eked out over steadily increasing prices. There is a letter in The Times to-day which I would commend to your Lordships' notice. It is headed "Housewives' point of view". It is a very good letter, and after saying that the housewife cannot go on strike for higher wages the writer goes on: Now for the first time in years there is a chance through Government action of a little hand-out to the housewife—not involving the expenditure of one penny of public money, but by the abolition of R.P.M. which will make her allowance go just a little bit further … Housewives have no organisation, no leaders, no spokesmen. There is no remotest chance of limited working hours for them and the likelihood of a five-day working week or eventual retirement is ludicrous. Their entire unspectacular efforts are based on service to the family unit which is still the back, bone our our national society. I would ask the Government to stand firm on this Bill. If they weaken, they will belie the whole of what they are trying to do. I would pay not the slightest attention to those who have been shouting from the housetops, "What we want in this country is firm leadership from the Government and, when they have got it, cannot lift their sights over their few thousand Parliamentary majorities.

There is one other thing I should like to say, and this really is the burden of my remarks. I agree entirely with what the noble Lord, Lord Balfour of Inchrye, said. When we ordinary people, investors and such people, come to measure the efficiency of large-scale industry we have very few tools with which to operate. I think it is a great pity that we have not discussed the Jenkins Report in your Lordships' House before now, because there is far too much secrecy in company affairs and far too much is hidden from the public. The majority of boards to-day conspire to tell their shareholders and the public as little as they can, and the little they do tell them is so gilded and biased that it is very often inaccurate. I would not absolve banks or any other body from full disclosure of how efficient they are in their working and in using their capital resources. I hope that when the new Companies Bill is prepared the Government will take these factors into consideration, because if I may say so, which I do with respect, I do not think the Jenkins Committee Report is on a level with the times and the needs of to-day.

The other contention on which I would support the noble Lord, Lord Balfour of Inchrye, is that we must do something to stiffen our overseas commercial services. I quite agree with him. I have for years advocated that there should be an interchange between the Civil Service and industry. I say, without any disrespect, that if I wanted to choose men to go to foreign countries to fight for orders for British goods the last training I would ever give them would be in the Civil Service. Selling overseas is a hard, uncompromising job. That is not to blame the Civil Service. I cast no aspersions on any of those in it; they are just not trained for the job. Many of your Lordships know what a tough job it is to sell in countries overseas.

I have one more point on which, perhaps, I may have some elucidation at some time. I wonder whether the Government could bring into operation the same screening or tooth-combing, call it what you will, they would desire for the efficiency of industry into the spending Departments of the Government. The overheads we have to bear from central spending are becoming intolerable. When we come to think that up to the present time, over the last twelve years the amount of money that has been taken out of the British tax-payers' pocket for the defence of this country is £20,000 million—it is a staggering amount. I wonder how much we could have achieved with far less expenditure. We have at present municipal expenditure, local government expenditure, Central Government expenditure; and on and on it goes; it all has to be found. It is all an overhead on British industry. I do not want to exaggerate this, but it all has to be found at the present time out of the productive effort of 8 million workers in industry.

This is a problem which I think the Government must tackle. I do not think that in retail distribution you can plan that Jones will be allowed to open a shop, and Bill Smith will not. You have to bring it down to the cleansing tide and the fair wind of competition. And I ask the Government not to be fobbed off with red herrings that have been drawn across their path such as loss leaders. Loss leaders never played more than a very insignificant part in retail distribution. Their effect has been grossly exaggerated and, whenever tried, they were soon given up. That is my final word. I hope the Government will show tenacity and will not give way; and that this Resale Prices Bill, if it ever comes to this House, can be improved if it has been subjected to some pressure group emasculations in another place.

5.46 p.m.

LORD HOBSON

My Lords, I agree with a lot that the noble Lord, Lord Lucas of Chilworth, has said, particularly with regard to overhead costs in British industry and to the vast thousands of people in the retail distributing industries. But I want to answer the noble Viscount, Lord Blakenham, straight away—and I regret that he is not in his place—when he chided the Labour Government on their past record in the field of economics and trade. He enjoyed himself immensely but his quotations were very selective indeed.

We can forgive that—it is an Election year—hut I should have thought it would be a fair thing to quote the last balance-of-payment figures of the first Labour Government of 1945–50. when they had a current balance surplus of £335 million. I consider that was a very considerable achievement, particularly in view of all the reconstruction that had to be done in those five years, the thousands of men and women who had to be rehabilitated in employment, plus the whole of the rebuilding of bombed industrial plants. I think it was a magnificent achievement. To go on to 1951, he was of course able to quote an adverse figure. The country was then in the field of the Korean war.

Why did he not go on to quote the figures for 1951–62? There he will find that in only one year did we have a surplus of exports over imports. That was in 1958 when we had a surplus of £342 million, which was a considerable achievement. But if we take the whole period we find that on only 8 occasions out of 12 did we have a surplus in our balance-of-payments account.

This brings me to the main point that I am going to make. This balance-of-payments problem is something that has been with this country not only since the end of the war, but even before the war. We should have had a balance-of-payments problem if there had been no World War II. What are the figures? From 1930 to 1937—I am excluding 1938 when we were obviously stock-piling because of the danger of war—we find that there was an adverse balance-of-payments situation. In 1937 it ran at no less than £87 million. Why were we not in a crisis then? We were not in a crisis because we had the assets of gold and dollar reserves with which to liquidate any deficit.

Of course that situation did not exist at the end of the war. I do not want to weary your Lordships' House by quoting the right honourable Member for Woodford, Sir Winston Churchill, who said we were bankrupt at the end of the war. We had got rid of our gold and dollar assets. What is more, we had very few "invisibles". We had to re-build our shipping fleet. So the quotations which the noble Viscount, Lord Blakenham, used seemed to me very unfair. The point I am making is that, such is the delicate balance of the British economy, whatever Government are in power there is always going to be the danger of a balance-of-payments crisis.

I think that, in order to get this into its proper perspective, we have to get back to something which is quite elementary knowledge and remind ourselves of the plain fact that this country, so far as raw materials are concerned, is a poor nation. We have only coal and china clay in excess of our requirements; they are the only two raw materials in excess of our requirements. The other great asset is the skill of our labour, and that has saved us. It not only built up our power as an industrial nation in the times of the Industrial Revolution; it saved us in the war and after the war, and I am sure it will continue. The fact is, we shall always be in this position of having to import raw materials, turn them into manufactured goods and export in order to earn our keep.

What does a Government do—what ever Government it may be, Labour or Tory—faced with this situation? When we get into the crisis, the first thing that is done is to increase the bank rate. I think this is a very good weapon. It is quick; it is effective and it can be wielded every Thursday, now of course with the consent of the Government and not just the Bank of England, thanks to my noble friend Lord Morrison of Lambeth. This bank rate is all very well as a counter balance to inflation at times, but it is not very selective, and it is always late; we begin to apply the increased bank rate when we see that the situation with regard to balance of payments has deteriorated.

I was going to make some suggestions, and I do not know how they will be received. First of all, I fail to see what is wrong in principle with variable interest rates. This seems to me to be very important. Take housing: the Government are wedded to the belief in owner-occupiers, and in everybody owning his own house, and we on this side share that view. I should like everybody to own his own house, like his own handkerchief. But one of the greatest deterrents to people owning their own houses is high interest rates. And these interest rates are geared to the bank rate—I do not want to go into the reasons because it would take too long. It seems to me that there ought to be some system whereby people could borrow money at a low rate of interest for purchasing their house. I fail to see why local government should not have loans at low rates of interest. That used to be the position, but now they have to go to the open market and pay 5 per cent. After all, it is the ratepayer, the ordinary citizen of the country who has to pay these interest charges. And, quite frankly, who benefits from these high interest rates? Do those who benefit really perform a vital and essential function to the economy of this country? These are questions which need an answer. I suggest there should be special interest rates.

I would extend low interest rates not only to those people seeking to buy their own house, not only to local government, but also, quite frankly—and I am not making a political point, whatever noble Lords may think—to the nationalised industries. Why do I say that? I do not say that purely as a Socialist; I say it because of the vital function that nationalised industries perform. It is essential that we should have cheap electricity; it is essential that we should have as cheap coal as possible, and gas and transport. What is wrong with the nationalised industries being able to borrow at lower than the market rate? I see nothing wrong in it.

But the attitude of Her Majesty's present advisers is to compel them to go to the open market and recapitalise at an assumed profit of roughly 12 per cent. And this is a most interesting figure. I know something of the electricity industry. The power companies who operate outside the municipal network of electricity undertakings were limited by Statute to 12½ per cent. profit, and it is very interesting to see that this figure has again cropped up with regard to regulations laid down for the amount of interest that must be earmarked for redevelopment. I hope that the Government will look into this matter. It ought not to be approached in a doctrinaire manner: to me it sounds common sense. Noble Lords opposite cannot just get up and say that they represent industry and the bankers in the City. They claim to have a wide appeal to all stratas of society and every class. Therefore, I believe that, regardless of the fact that this policy is advocated by the Labour Party, it is something which noble Lords opposite could very well adopt; and I hope the Government will consider this. Before I leave this subject, I would just say this. Obviously, if you are interested in reducing costs, you are going to reduce interest charges, and at the moment these are very high indeed in these public services. So the reduction of interest charges, which will mean lower costs, seems to me to be an operation that ought to commend itself to the Government.

I come to another loophole in our economy. What is wrong with the complete control of capital investment? This is something that was very effectively carried out by the Labour Government. There were very few complaints about its operation, and I think it is something to which we shall have to return. The truth is that the basic industries of this country which earn our keep, which provide the exports, are denuded of capital; and they are denuded of capital because they cannot afford to pay the interest rates. If they do not borrow money, if they issue a loan, it is not readily taken up by future shareholders because they think that the dividends will be too low. It is interesting to note that the Government themselves have realised this with regard to shipowners. We had the Shipbuilding Credit Act just recently passed, under which the Government provided £75 million for the shipowners of this country to invest in ships and put the shipbuilding industry on its feet and tide it over a difficult period. Why? Because the shipowners had not the capital to buy the ships and could not raise the capital. The Government appreciated that ships were an essential commodity, in terms of earning exports, as well as a matter of national prestige; and also that shipbuilding was necessary to provide employment on the North-East coast and at Belfast and Merseyside. This is a problem that any Government in power will have to get down to: how can they obtain capital for the basic industries of this country?

Let us look at the situation. If somebody has capital to invest, where is he going to put it? There is hardly one noble Lord who would get up now and suggest investing in an equity in a basic trade of this country. If you went to your stockbroker, you would be told to put it in distributing trades, property development, land speculation, patent medicines. And the most ludicrous and shameful thing that has ever happened: a leading London bookmaker went into the market for capital, and the issue was over-subscribed in a quarter of an hour. This really is ludicrous and fantastic. A stop has to be put to this. If a bookie wants capital, let him plough back the profits; do not give him facilities to raise capital in the open market. I am no Puritan: I have vices, but gambling is not one of them; I saw too much of it when I was a young man. If ever there was a sin of omission or commission of Her Majesty's advisers, it is the scandalous way they have legalised gambling. But I will not pursue that aspect. What I am advocating is not only varied interest rates but also control of investments, and I believe that, whatever Government are in power, they will have to come to that position sooner or later.

Another question I want just to deal with (this is my last point), is that I do not think that the bank rate is an adequate weapon for dealing with these recurring crises. I believe that, sooner or later, there will have to be some control of imports. We cannot go on building up these terrible adverse balances between imports and exports which continually arise. Something must be done about it. Her Majesty's Government cannot at the present time be against the control of imports. They have done one of the most amazing things. Quite recently, they controlled the import of food—the first time it has ever occurred, I believe, in 100 years, except during war time. So noble Lords opposite cannot reject this idea on doctrinaire grounds, because they have already done it with regard to food. What are the imports that can be controlled? I have just been looking at some figures. I find that in 1963 there was a 24 per cent. increase in imports of manufactured consumer goods. Cars and cycles were up 70 per cent., radio and T.V. sets 90 per cent., and plastic goods 60 per cent. I suggest that we ought to be looking at that. I hope that the Government will approach this recurring balance-of-payments problem from the three points that I have raised. If they do that I think we may make headway.

One last word—and on this I will sit down. I do not wish to detain your Lordships because I know there are many other noble Lords who wish to speak. Broadly speaking, the policies of Her Majesty's Government have been "inflation rather than unemployment". If that is stated boldly, I would say "inflation rather than unemployment" because I know something about unemployment. Broadly speaking, there has been unemployment in one or two areas; but, as the figure was quoted, there is 2 per cent. unemployment in this country. Surely it is not beyond the wit of whatever Government is in power to try to maintain full employment and at the same time to prevent inflation. I believe that this is possible by an incomes policy. At one time an incomes policy was regarded as political dynamite, but I think that every serious-minded person is now thinking about this as something that is bound to come about. We cannot have things going on just as they are. Nobody realises this more than the trade union leaders and the average trade unionist. I do not want to be thought in any way threatening, or anything like that. But one reason which I think makes it difficult for the rank and file of the trade unions as such to accept an incomes policy is that they ask for a quid pro quo. I think it is fair, just, reasonable and equitable that there should be a quid pro quo with regard to the control of prices, rents and profits. This may be a question of negotiation as between the two sides; it may be a question of dealing with "Nicky". But if we are to avoid inflation and maintain full employment, I believe that a policy such as that is bound, sooner or later, to be embraced by all Parties in the State.

6.4 p.m.

LORD CHAMPION

My Lords, I cannot imagine that when Lewis Carroll wrote Alice in Wonderland he ever thought that this would become a politicians' mine, to be dug into by politicians from time to time for quotes. There is one quote that I have used on many occasions—namely: 'Will you walk a little faster? said a whiting to a snail. 'There's a porpoise close behind us, and he's treading on my tail'. I have used this as a spur both behind my own Government in another place, and from time ID time against Tory Governments. I cannot use it in connection with this debate, because the nation has to move much faster than the fastest of snails' paces, for behind us is not a slow-moving porpoise, but the whole of the rapidly expanding industrial countries of the world. Indeed, as has been pointed out many times this afternoon, many of the nations that were treading on our tail twelve years ago have now shot well ahead of us. Like poor Alice, to keep relatively in the same place we shall have to run faster and faster, and if we are to get somewhere near the head of the production growth table we have to follow the Queen's advice to Alice, which was If you want to get somewhere else, you must run at least twice as fast as that. The fact is—the noble Lord, Lord Hobson, has pointed this out to us—with our limited—aw material resources and our over-crowded island, survival is possible only by getting and keeping ahead. This is not a comfortable prospect. It means using the computer, not the Prime Minister's matchsticks or the abacus. It means electronically-controlled production lines and all that goes with them. Above all, I think it means Government geared to an explosive situation and not to ill-directed "stop-go" policies; riot to damping down over the whole economy by raising bank rate, which affects equally the expansion of those industries vital to our progress and the luxury frills of our society.

I think I can quote here from the quarterly bulletin of the Bank of England. In the commentary they say this: In the early weeks of 1964 evidence that the economy was expanding and resources being absorbed continued to come forward, and doubts began to arise whether the pace might not be a little faster than could be sustained in the longer run. These doubts were reinforced in the public mind in the second week of February, when it became known that the January figures showed an unusually large trade gap. Sterling, after holding steady for the best part of a year, then came under some pressure, though this was neither very severe nor long-lasting. It was against this broad background Mat the Bank Rate was raised on February 27 from 4 per cent., at which it had stood since January 1963, to 5 per cent. It was hoped that the move, though aimed mainly at moderating the pace of expansion, might also lead to a more normal pattern of short-term rates. One notes in reading that the keynote phrase "moderating the pace of expansion." It was a phrase used this afternoon by the noble Viscount, Lord Blakenham. We have in the past moderated the pace of expansion to such a degree, and by just this sort of method over the past twelve years, and the result has been a falling behind in the growth rate table. I believe that this growth rate table is an important one. It seems to me that, in the present situation, we do not need to moderate the pace of expansion over the whole field of our economy. Much of it needs stimulation and expansion, whilst other parts of it may well need moderating to narrow the trade gap. What I feel about the recent rise in bank rate is that if people are playing for big stakes in land speculation rates and that type of general, undesirable activity, a 1 per cent. increase in bank rate will not affect their borrowing, but it might, if Mr. Maudling, the Bank of England and the noble Viscount, Lord Blakenham, are right, moderate the pace of expansion just at the point where expansion is most needed.

The problem caused by stimulating investment over the whole field of our activities lies in the fact that it lands us, under present conditions, in a balance-of-payments crisis. Last month's figures of the trade gap shocked us. On Monday last the Prime Minister took enormous satisfaction from the fact that the figures to be announced this month would show a great improvement over those for February. In fact, he was quite cock-a-hoop about it. But the fact is we still have, and have had for years, the underlying weakness of our trade position: the fact that our gold reserves have never stood up high enough to meet these difficulties when they arise.

Some figures have been quoted of what happened under the Labour Government, and what has happened since. I think it is justifiable that some further figures should be quoted, and perhaps from a slightly different angle from those which were quoted by Lord Blakenham. In 1950 our gold reserves stood at £1,178 million. To-day, after twelve years of Tory Government, they stand at £949 million—that is taking the 1963 monthly average. The trade gap which was minus £25 million (as a monthly average) in 1950, was minus £50 million in 1963; and the exporting volume, taking 1961 as 100, was 81 in 1950 and 108 in 1963; whilst in the same period our share of world exports fell from 25.5 per cent. to 15 per cent.

The noble Viscount, Lord Blakenham, said that he was taking a very objective look at the first five years after the war, and comparing them with the twelve years since that date. So objective was he that he completely forgot to mention the aftermath of the most devastating war the world has ever seen. He forgot to mention, as has already been pointed out, Sir Winston Churchill's statement that we should emerge from the war a bankrupt nation. These were the facts. These were the things that were got over by the Labour Government in the period from 1945 to 1950, which left a foundation on which the Tory Government have been able to build and claim much of the things the noble Viscount has claimed this afternoon. It seemed to me that the noble Viscount was very complacent about the last twelve years but I believe that the speeches in this House this afternoon—the speeches of the noble Lords, Lord Sainsbury, Lord Lucas of Chilworth, Lord Williamson and Lord Hobson—must have completely punctured his complacency, had he stayed here to listen to them. Unfortunately he was not here, but I understand—

VISCOUNT BLAKENHAM

My Lords, I think I missed only one of the speeches.

LORD CHAMPION

Then your complacency must be completely punctured. I do not want to claim too much for those last figures I gave, about the fall in our share of the world exports; for clearly, with Germany and Japan emerging from the effect of war's devastation and defeat, some of the change was to be expected. But it is not really a happy position for a country so dependent as this country is on a large share of world trade, and we must do something about it.

If I am charged with being too selective in my figures, and I am told that I ought to have taken the year 1951 as against 1963, I must retort by saying, as has been pointed out by my noble friend Lord Hobson, that 1951 was the year of Korea and that that war led to massive stockpiling and dear raw materials for a short period. The subsequent using up of those stocks caused a slackening off in purchases, which brought about a fall in raw material prices and favourable terms of trade for most of the period of the Tory Government—something for which they could not take credit, though they continually do. This long period of favourable terms of trade is ending. Indeed, this is pointed out by the Bank of England Bulletin which I quoted just now and which says this: For some years before 1963 the terms of trade moved in favour of the United Kingdom, but last year this movement was arrested. It is unlikely that it will be resumed in 1964. That being the case, it is bound to add to our fundamental balance-of-trade weakness. I suggest that we can cure the weakness that exists in our balance of trade position only by cutting our imports of machinery and the like, and by such steps as those to which my noble friend Lord Hobson referred. I suggest that one thing we simply must do is to cut down the large amount of machinery, machine tools, optical instruments, office machinery and computers which come from overseas. Twenty-five per cent. of the domestic demand for those articles was met from outside this country. I believe that this is a shocking position, and it is something we must get over. Indeed, we must so stimulate our industry that we provide these things for ourselves.

We have also to stimulate the vital parts of our economy. The difficulty here is what parts, and how do we stimulate them? N.E.D.C. has given us some indication of the industries which are essential to our growth, but it is not the complete picture. Clearly, some of the industries mentioned by N.E.D.C. ought to be exempted by planned decisions from the moderating influence of an increased bank rate. But, despite the excellent work of N.E.D.C., do we really know what parts of our economy need stimulation, and what part is growing too fast to meet our future requirements? I suspect that our trouble is not only an unwillingness to plan, and that planning is too late, as it tends to be with the Tory Government, but that we do not know the facts. Let me quote what the Royal Economic Society said about non-governmental economic research: The most obvious consequence of the present inadequate scale of research is, in fact, the number of current problems of economic policy where ignorance of the facts and of the relationship between the facts lies at the root of error and misfortune. That comment, I feel sure, is applicable also to the errors of Government economic policy, to say nothing of the vast stupidity in the past of the phrase, and all that it has meant, "Tory freedom works"—which is now, incidentally, being quietly dropped.

The Government, it is true—perhaps too late, in some eases—are now beginning to exercise some degree of control over our economy. Incidentally, and in this connection, in the passage that I read from the Bank of England Review these words occur: It was hoped that the move, though aimed at moderating the pace of expansion, might also lead to a more normal pattern of short-term rates". That statement makes me wonder how it is that the Bank of England, with all its experience behind it, does not know the consequences of raising the bank rate on the pattern of the short-term rates. Is it an equally blunt instrument for use on the short-term rates, in which there is ignorance of the facts and the relationship between the facts"? The use of the clumsy and undiscriminating instrument of the bank rate is matched by our failure to devise a system of taxation which would encourage efficient and essential growth and discourage the inessential and inefficient growth within our industries. I am not, of course, forgetting the taxation incentives of investment allowances and depreciation allowances, but even these allowances are undiscriminating as between really essential and inessential growth of industry. The Richardson Committee on Turnover Taxation, which some of us hoped would stimulate the growth of the export trades, has rejected a value-added tax on the grounds that We found no convincing reason for thinking that the tax substitution would give businessmen any important additional incentives to efficiency in their businesses or would lead to any significant transfer of resources to more productive and efficient firms". My Lords, if the Richardson Committee are right in their conclusions about that sort of taxation, we must continue the search for a method which will penalise the inefficient and encourage the efficient. Professor Nevin, of the University College of Wales, has written in the November, 1963, issue of the Westminster Bank Review, of a factor tax, which he suggests would be a tax aimed at ensuring essential growth. He thinks that the case he makes out is worthy of consideration in connection with the "rethinking of the British tax system". All I can add out of my limited knowledge in this field, is that any suggestion for tax changes which would lead to encouraging efficiency and discouraging inefficiency is worthy of consideration.

My Lords, I am now going to say something which might be regarded as heresy, but I hope that if a Labour Government comes to power after the next General Election it will not be too obsessed with a dogmatic search after an unobtainable equity in taxation, but will be prepared to use the carrot of rich rewards for real enterprise and will wield the stick of control and direct intervention where slackness and inefficiency justify it. I believe that this is something that a Labour Government ought to do. I sum up what I have to say about taxation and the bank rate by asserting that, as Governments in the inter-war years were struggling to do the first half of the twentieth century job with economic thought tools of the nineteenth century—and they failed disastrously—so are the Tory Government, in the second half of the twentieth century, in an even more rapidly developing and explosive situation, trying to solve our problems with the economic thought tools devised in the first quarter of this century. Keynes was absolutely first-rate, but some of the instruments that he recommended and that are still being used are not good for all time and all situations, and we really have got to catch up in our economic thought on these matters.

One cannot hope in a single speech to cover all the factors that make for our economic instability, but the management of industry is vastly important, and I am bound to say that I found the book which I read over the past weekend very disturbing indeed. The book was, What's Wrong with British Industry? The writer of that book, Mr. Malik, makes it quite clear that, though there are some bright patches in our industry, there are all too many dull and depressing patches. The only extract I wish to quote from the book is this: What is the total physical contribution of the mechanical engineering industry to our national life? Including much of the output of the industries we have already covered (particularly aircraft and cars) the engineering industries account for 35 per cent. of manufacturing industry's contribution to the Gross National Product, and for nearly half the total exports". The facts which the author of that book gives, particularly those about the engineering industry, caused me to read once again the outstanding speech which my noble friend Lord Bowden gave us in the science debate last week, when he told us what the Manchester College of Technology are to receive in supplementary grant from the Government to expand the education and the number of engineers. He said that it would be a net sum, by way of supplementary grant, of £9,000, and that this £9,000 might enable him to educate eighteen more engineers. Even if other universities are expanding at that rate, the figure of eighteen more engineers from Manchester is derisory. The amount which is being given for this essential purpose following the Robbins Report simply is not good enough to meet our economic situation and improve our prospects for the future, and particularly in the engineering industry.

As to our economic future and the Government's place in it, I am bound to say that I have no faith in a Government that took twelve years to tackle the training of skilled manpower. They had been in office twelve years before they produced the Bill that we passed this year. They have done very little, or nothing, about the retraining of redundant workers; those who will be in difficulty those who might have the skills that we could use if only we were to retrain them and do something rapidly about this. I have no faith in a Government that appointed a Robbins Committee in 1961 to report on facts already known of our educational deficiencies. T believe that the appointment of that Committee, good though its Report was, just stalled off taking essen- tial and urgent decisions until Election Year. That, I think, was the effect of appointing the Robbins Committee. To-day, we have had a wonderful Price Review, or a very good Price Review, for the farmers. My Lords, I wonder just how much of this is due entirely to the fact that this is Election Year. If I were talking to farmers, I would advise them strongly to press for an annual Election to Parliament, in order that they would have a reasonable Price Review every year.

I have no faith in a Government that is incapable of securing an incomes policy by persuading the trade unions that they can have faith that the Government will deal with profits on a sensible basis. The recent decision of the Federation of British Industries to reject any scheme for the supervision of prices and any profits control scheme underlines the fact that the Government cannot persuade its own friends and financial sponsors to "play ball" with it. I have no faith in a Government that stimulates the economy, then runs into a balance-of-payments crisis—and then stops the expansion by the crude and blunt instruments of bank rate and the rest.

In other words, my Lords, I have no faith in a Government which pursues the policy of "Go" and Stop "that we have had over the past twelve years; which makes resale price maintenance legal in 1956 and illegal in 1964; which produces a White Paper on monopolies just before an Election, but which failed in the preceding twelve years, as my noble friend Lord Sainsbury pointed out, to do very much about the few reports it received from a much too slow-working Commission. What this country needs is a Government that is prepared mentally for automation and for all the advantages that automation can bring; a Government fitted to cope with the modern industrial machine and a second half of the twentieth century pace of change; a Government that will reorganise Government machinery—not just go along with modern techniques or lag behind them, but give the leadership that the Government ought to give; a Government that has some hope of securing the acceptance of an incomes policy by both sides of industry. I believe, despite anything that the noble Lord, Lord Balfour of Inchrye, said, that a Government lea by Harold Wilson could do just that.

6.33 p.m.

LORD BROCKET

My Lords, the last speaker, the noble Lord, Lord Champion, will not expect me to agree with everything he said in the latter part of his speech, although I should like to say that I agree with him on the subject of bank rate. During the debates on the Finance Bills during a number of past years I always found myself agreeing with the late Lord Pethick-Lawrence on the subject of bank rate, because, being connected with industry, I felt that bank rate is something which affects the cost of production very much indeed; and that if exports, which are so very important, are to be helped, it is no good expecting industry to borrow money at high rates so as to improve factories and secure orders in order to export more, and then have bank rate jumping up and down all the time.

I agree with the noble Lord, Lord Champion. I think this raising and lowering of bank rate is an obsolete method of dealing with this matter. It is good from the point of view of attracting money to this country when foreign money starts to go away, but from the point of view of industry and from that of the local councils which build houses it is obviously extremely bad. There is another thing about bank rate: the custom is that it always goes up 1 per cent. but down by ½ per cent. That is really ultra-conservative, if I may say so, and I do not see any reason why though that has always been the custom it should always continue to be the custom.

I should like to mention one other matter in regard to bank rate. I remember some years ago taking part in the debate on a Finance Bill and I quoted a figure that showed that the recent rises in bank rate were putting up the rent of council houses by 30s. a week. I cannot remember which year that was, but it was working out like that. That adds to the cost of living of all council house tenants.

At this present time we are certainly faced with inflation. The theme of the last Budget in the House of Commons was "Expansion without inflation"; but I am afraid that the Treasury view —and this is generally the view of the Chancellor of the Exchequer who often takes the advice of the Treasury—is a very old-fashioned view. It is such an old-fashioned view that, when I was in my private school over fifty years ago, I learned that inflation was caused by "too much money chasing too few goods". Therefore, we take this step: to tax everyone more to prevent the public from having so much money. That may have been all right in the middle of the last century when there were areas of considerable unemployment and there were no unemployment benefits, but in this century, in the 1960's, as soon as Selwyn Lloyd, for instance, puts on a 10 per cent. regulator, the trade unions—quite rightly in my view—ask for higher wages in order to help them to pay for the 10 per cent. increase on tea, beer, spirits and in fact all the other articles on which this extra 10 per cent. purchase tax is put. Wages are therefore increased, and that puts up the cost of living even more.

I agree with speakers on both sides that wages are not the only cause of increased cost of production; but they do put up the cost of living, and the inflation spiral is started by the Chancellor of the Exchequer himself. I think that this is very reprehensible, especially when "Expansion without inflation" was the theme of the last Budget. On that particular subject I am afraid this view of "too much money chasing too few goods" is rather like the view expressed by the last speaker on the bank rate: it is an obsolete view. As was mentioned by the noble Lord, Lord Sainsbury, America has shown us that the cost of living there has been increased by under 1 per cent. in the last four or five years—I think those were his words. America recently put down taxation. That is a good thing for America, good for their economy, certainly good for expansion. In this country it is very depressing when we hear from a Conservative Chancellor of the Exchequer that taxation must be put up. High Taxation is a cause of inflation.

In the old days, when I was more in controversial politics than I am now in the House of Lords—in fact when I was elected first of all to the House of Commons in June, 1931—I went to see my near neighbour, Bernard Shaw, before fighting the by-election. He gave me some advice. He said: "You are young and I am very old. If you are a Tory, be a Tory and retain your Tory voters. If it is a question of an auction sale my Party will win every time." He was, believe, a member of the Party opposite. But that advice is obsolete now, as both Parties are pledged to announce greatly increased expenditure in the next few years.

On that point I should like to quote from a White Paper called Public Expenditure in 1963–64 and 1967–68, which was published in December, 1963. The total public expenditure for 1963–64 is £10,910 million. In 1967–68 it is estimated by the Conservative Government that it will be £12,825 million. May I analyse these items? There is an increase of £265 million on Defence; an increase of £310 million on Education; an increase of £360 million on Benefits and Assistance, and an increase of £250 million on Contingency allowances—that is for anything else—and also an increase of £195 million in Investment by nationalised industries and public corporations. The only deficit is in "Assistance to industry, transport and agriculture", which goes down by £45 million. It may be that the White Paper to-day on the farm prices will adjust that, but with such an important industry as agriculture, it is extraordinary that in this vast increase all round from £10,910 million to £12,825 million the only decrease should be associated with agriculture.

When I was in the House of Commons in the autumn of 1931, I took part in 100 per cent. of the Divisions in that Session. That was the time when Mr. Philip Snowden (later Viscount Snowden), was Chancellor of the Exchequer. I remember that the Conservative and Labour Members who supported the National Government were helped very much in the Election of October, 1931, by Mr. Snowden's statement that Post Office Savings Bank deposits were in danger. I see that the noble Earl, Lord Alexander of Hillsborough, remembers that well. I am sure that it drove a great many electors to vote for me. But the fact was that there was a very serious financial crisis in 1931, and I feel that there is a chance of another one, whichever Party is in power after the next Election, if expenditure goes on rising at the present rate.

EARL ALEXANDER OF HILLSBOROUGH

My Lords, one of the difficulties in 1929–31 was that we did not have a majority and we could not apply our own methods. We could not carry the House. But in the next Government we shall be able to do it properly.

LORD BROCKET

My Lords, had the Labour Government of that time had a bigger majority, it might have meant a bigger crisis.

EARL ALEXANDER OF HILLSBOROUGH

The crisis came from Wall Street.

LORD BROCKET

Then the crisis must have gone East: most things go West.

To return to the present position, let me take an example of increasing taxation causing inflation. In Ireland lately, we have had a 21 per cent. turnover tax, which has increased prices. Guinness has gone up a penny a pint, and everything else that is important in Ireland has gone up. Since then, we have had a universal 12 per cent. wage rise. I am well aware that wages in Ireland are less than wages in this country, but a 12 per cent. wage rise and a 2½ per cent. turnover tax, are both inflationary. And as Ireland wishes to export more, it remains to be seen whether these increases in the cost of living and the cost of wages will make exporting more difficult. In order to export to countries in Europe, and even to Commonwealth countries, the cost of production must be kept down as much as possible. I think that this argument by the Chancellor of the Exchequer and the Treasury that more taxation will prevent inflation is an obsolete and old-fashioned point of view.

I should like to say how much I agree with what was said by the noble Earl, Lord Alexander of Hillsborough about all this office building in London. Your Lordships may remember that in the debate we had on Stevenage it was stated that there were 400,000 places for extra office workers in London, and that Stevenage might become a greater commuters' paradise than some of the other towns near London. I consider that so much office building in London is a serious matter. Although I am by no means a Socialist, I believe that more control ought to be exercised over where houses and offices are to be sited. The need for houses very great, and I am sorry that so many people seem to have made so much money in putting up office buildings and have not concentrated on building houses for the people of our country to live in.

There is only one other thing I would mention—that is, the question of savings. My noble friend Lord Blakenham stressed how important savings were. Although this is not a question on which I would expect noble Lords opposite to agree with me, in National Income and Expenditure, 1963, published by the Central Statistical Office, Table 25 shows that savings, before providing for depreciation, stock depreciation and so on, amount to £1,687 million. A little further down it says: "Less taxes on capital, £266 million". These taxes on capital are, generally speaking, Death Duties. I have often made speeches on Death Duties from the point of view of agriculture, forestry and private business. I feel that the harm done by extracting £266 millions of capital is out of proportion to the revenue which it produces in a Budget of the present size. I am not putting this forward as a political point. When the total savings are taken into account, I think that this sum of £266 million ought to be regarded as not a good thing for the economics of the country. My Lords, that is all I have to say. I would repeat the hope that the Chancellor of the Exchequer will not take the view that, by increasing taxation, he is going to prevent inflation.

6.46 p.m.

VISCOUNT YOUNGER OF LECKIE

My Lords, I sat through this debate, hoping to obtain some enlightenment on two main lines of policy. The first is: how far are we wholeheartedly in support of the encouragement of competition, which has caused so much discussion in another place? The second is: how far are we right in looking for an incomes policy, and what form can it take that will work? I do not think that I have received much encouragement on either.

On the subject of competition, we have heard to-day far more about controls than about competition, although the noble Lord, Lord Lucas of Chilworth, did refer to it. I am going to make a rather old-fashioned suggestion. I think that the benefits which we can obtain from increased competition are being underestimated at the present time. Of course, it would be ridiculous to go to the other extreme and claim for competition more effectiveness than it can possibly have in our modern economy. But should we not remember that this is a mixed economy, and will continue to be so for as long as we need worry about? And I am sure that there is a large section of it where the ordinary sanctions of competition are either not applicable at all or are applicable only to a small degree, and there remains a large part of the economy in which competition is the motive force and must remain the motive force.

It is worth noting, I think, that that sector of the economy, in all probability, includes nearly all the new, growing industries, many of them export industries—in fact, I would say, a high proportion of the industries which will be responsible for the growth for which we all look. This all depends on whether competition in the field which it can cover is made effective, and I should be far from saying that we have gone far enough in that direction yet Apart from making effective the measures already forecast against monopolies and restrictive practices, there are a large number of other protective devices, like subsidies and tariffs, which will require to be looked at carefully if we are to get really effective results from competition.

What may we expect these results to be in the wide field which they can cover? Most recent comments have simply referred to putting a brake on prices and profit margins. But I do not think that this is the most important, and certainly not the most important long-term, device. I think we ought to be able to get assistance from competition in that process, which is a continuing one, of trying to adjust our economic effort to the constant changes that are taking place all the time in consumer preferences. Personally, I know of no other way of doing that.

It ought also, if it is in good working order, to provide some machinery for the smooth transfer of capital and labour resources from the unproductive to the more productive industries, to which I think the noble Lord, Lord Williamson, referred. Of course, it will not do all this perfectly; I know that quite well. But I would suggest that, if it can take part of the load off the planning organisation by providing an automatic regulator for a considerable part of the economy, it will be well worth while and will leave the central planning authorities a much narrower field in which to operate.

However, it is not sufficient just to pay lip service to competition. Competition itself provides the motive power; but if that is all you have, it is rather like having an old motor car in which you put a new engine and do nothing to the transmission. That is, I think, partly the condition we are in just now. The transmission in this case involves a great many obstructions to competition which we shall have to remove before we can get the full results from it. It is not possible to mention them all, but I think one, at least, has been referred to this afternoon, and that is the immobility of labour. It is one thing to release labour from redundant industries, but I think it has proved much more difficult to place it again in those industries where it is so badly needed. Therefore, we have this contradiction of a shortage of labour in growth industries and pools of unemployed labour elsewhere.

If we are to get more mobility into labour, not merely from place to place, but, perhaps more important, from job to job, then I think we have to tackle this question of the retraining of men and women who are redundant on a far more imaginative and wider scale. Not only should they be retrained, but I think that allowances on a much more generous scale, probably related to their earnings, should be provided during the retraining process. This must be the Government's responsibility, although naturally employers and unions would have the job of implementing it. I do not think they should interfere in any way with the redundancy schemes which we hone to see in many industries, because these are aimed primarily at the longer service employee, who is a bit older and will find it more difficult to adjust himself to new circumstances. Lastly, on this subject, of course this transferring of men smoothly to new jobs will not work unless the trade unions also are prepared to accept them into the unions on reasonable terms, even if the men may be of middle age.

Another obstruction to the free working of competition, in my view, is what one noble Lord described to-day as the determination to keep up with the Joneses. This, I believe, affects not just wage earners, but everybody who has an income. I am sure that if we are to make a success of transferring resources from unproductive to productive efforts we must realise that differentials are not sacrosanct, and they not only may, but indeed should, change over a period with the changing deployment of our capital and labour resources. It is a difficult idea to put across. It applies not only between one manual job and another, but also between manual jobs, white collar jobs and profit. There is no law of nature which prescribes that, because the relationships between these three were at such a level in 1939, they should still he at that level now.

That is all I wish to say about competition from that side, but there is one other factor which surely we may expect to get from effective competition. By definition it will squeeze profit margins and will make it more difficult to make profits. Is not that the strongest possible inducement to employers to refuse claims for increased dividends, increased salaries and increased wages unless they are accompanied by increased productivity? It is not a complete refusal; it is a refusal on conditions. Is it not also a strong inducement to managements to get a move on with modernisation and automation; and a strong inducement to trade unions to co-operate in improving the productivity of their own industry, in the expectation of sharing in the process?

To turn for a moment to incomes policy, as I understand it both Parties at the moment maintain that they must have an incomes policy to prevent these recurring bouts of inflation; and the only suggestions I have seen for it are variations on the same theme, which is the theme of restraint by all the three factors of production—restraint on incomes whether voluntarily, statutorily or fiscal. The thing that strikes me as curious about that is that, here we all are very keen to infuse into the parts of the economy which have become sluggish and unenterprising, a new spirit of risk-taking enterprise and dynamic progress, and, at the same time, we are going to say to the investor, "What about forgoing the rewards of your risk taking?"; and we are going to say to the wage or salary earner, "What about forgoing your share of increased productivity?" On the face of it, I do not think it sounds a very sensible proposal; indeed, it could be described, I think, as a contradiction in terms.

I have a further objection to this proposal. I presume it has been arrived at as the only possible alternative to the use of bank rate or either credit restrictions or fiscal measures to put a brake on the economy when it is necessary. As one noble Lord has said, the objection, certainly to credit restriction, is that it is indiscriminate, and it is only too likely to damp down most severely the very industries that we want to encourage. But surely this idea of restraint on incomes will do just the same. It seems to me that if you have a guiding light, and try to keep your growth industries' earnings down to that guiding light, the result will be to take half of the steam out of your expansion. I am sorry to say that I do not think the guiding light is being used for the purpose for which it was designed. No doubt it is a useful concept for Treasury planners, or N.E.D.C., but it is an average figure; and if it is now to be used as a yardstick for individual negotiations, I think it is entirely unsuitable. It is bound to have—in fact, it has had, I think—precisely the result we should expect: that it is treated as a maximum or a minimum, according to which side of the negotiations you are on.

I am sure that all of us are most anxious that N.E.D.C. should be a success, and I should not like to think that it was going to get bogged down over this business of an incomes policy. I do not pretend that I have the whole answer to it, but I would say this. To suggest that anybody, N.E.D.C. or anything else, can possibly keep a control over the vast variety of prices, profit margins, wage rates and earnings rates in the whole of industry is, to my mind, a fantastic suggestion, and utterly impracticable. If, however, the highly competitive part of the economy can be at least partly governed by the action of competition, then I think that possibly there is a sizeable job left for N.E.D.C. to do in controlling the rest of the economy. But I myself believe that the more use we can make of competition, the less complicated will be the problem left for N.E.D.C. to tackle.

That is all I have to say, apart from one comment on the question of the distribution of labour and capital. I know that the proposals I have made sound difficult in a way, but is it not the case that if you take the class of executives, particularly junior executives, their distribution, their rewards, and their methods of obtaining promotion are very similar to what we should like to see more widespread in industry? In other words, they have a good market; they are mobile, both from place to place and from job to job, whether they are professionally qualified or not. I think this has been enormously to their benefit, and has made a very good shot at redistributing executive ability into the directions where it is wanted. I should like to think that the same could be done for manual workers.

7.4 p.m.

THE EARL OF LONGFORD

The noble Viscount who has just spoken shares with the noble Viscount, Lord Blakenham, a special claim on the good will of this part of the House. Each of them possesses a brother of high Socialist distinction, and in each case we can apply the Latin tag so familiar to the noble Lord, par nobile fratrum. I am sure that for that, and other reasons, we are glad to have both the noble Lords here. If I am allowed to discriminate, I much preferred the speech of the noble Viscount who has just spoken to the utterance which the noble Viscount, Lord Blakenham, was good enough to offer us earlier, because the noble Viscount, Lord Younger of Leckie, faced the difficulties of our situation with great candour and in a helpful spirit.

On our side of the House to-day, led by our revered Leader, the noble Earl, Lord Alexander of Hillsborough, and, including in our team the noble Lords, Lord Williamson, Lord Sainsbury, Lord Hobson and Lord Champion, we have put forward strong arguments, concen- trating, on the whole, on a single line of thought, with some variations; and certainly we have not received much of an attempt at an answer from the noble Viscount when he spoke first for the Government. What made it all the more disappointing was that he began by summarising, I thought rather adroitly, the speech of the noble Earl, Lord Alexander of Hillsborough, and I thought that an answer was coming. But having shown that, so to speak, he had been thoroughly awake, he then proceeded to read his Central Office brief, to the immense irritation of a number of us. I am ready to give way. I am not like the noble Viscount, to-day, and I am ready to give way if he wishes. To-day, he had his brief and he was not going to be interrupted in reading that brief. I can only assure him that he is, of course, a better politician than I am. He got into the House of Commons, which I failed to do. I can speak only about this Chamber, after all these years. I can assure him that in this Chamber that kind of speech is a tremendous bore. I am sorry to put it so bluntly, but it makes a farce of debate if he comes here with the Central Office brief, and reads it out describing the story of the last twelve years, which we have heard often before, about the last ten or eleven years. I do not see how we can cope with him, and I must say that plainly because he was so sharp with me. He is a Parliamentary man, and he will understand that this is my opportunity, which he told me at about 3 o'clock I should have some hours later.

I hasten to say that I thought that one Member of another place yesterday rather underestimated the noble Viscount. He was criticising the noble Viscount's appointment, and I share in that criticism, for reasons which I will mention. He said that the noble Viscount is quite a nice chap. I think that is understating it. I have known him for many years, and I think he is a terribly nice chap, and I know he does not mind my criticism of his position. I think it is rather inevitable if we have the Chairman of the Party here, paid for by the taxpayer, that we receive these speeches in Election year. I say in the "Election year", because the kind of speech he made to-day seemed the effort of 1959 brought up to date. The noble Viscount, Lord Hailsham (as he then was), used to make that kind of speech to us—and it used to irritate us a bit—back in 1959. With only a slight change of figures we had that this afternoon. I am trying to explain why we did not think much of his effort, and I know that he will not be surprised.

However, we must turn to the essence of the debate. I feel that the noble Viscount is an excellent representative of the present Government. He adopts this public relations tone. I venture only to offer one humble suggestion to the noble Viscount and his colleagues. They should not draw too many conclusions from the victory of Cssius Clay. Cassius Clay went about saying, "I am the greatest; I am the prettiest"; and he begged everyone to say it. Finally, he got the journalists to say, "You are the greatest; you are the prettiest", because otherwise he would not have given them an interview after he had won. He won, but I think the noble Viscount and his colleagues might make a slight mistake if they thought that that kind of brain was going to win the Election. I am sorry to put it so frankly, but we know what we are in for with the Election some months ahead.

Now let us consider some of the issues. The noble Viscount gave a cheering account of the last five years. He did not, of course, deal with the productive record of the Government. We shall be told that we are boring on that subject; that we have made speeches about production, but the noble Viscount naturally tried to keep us off it. They say, "We have heard that before". I am not going into figures now, but we recall that a year ago we were bottom of the league of the main industrial countries. In the last year, with our usual pre-Election boom, the production record has been better, as it was in 1959 and 1955. But we are still at, or near, the bottom of the industrial league, taking the period over the last ten years or so. So I am afraid that the noble Viscount, Lord Blakenham, if he was really giving an all-round dispassionate survey would have done well, perhaps, to call attention to the failures there.

On the subject of prices, I have some figures (I have drawn them rather hastily from the text in front of me, and therefore I do not want to claim that they are necessarily in every way a perfect comparison) which I feel are worth placing in front of the House. The noble Viscount, Lord Blakenham, argued that the Government Lad put up a wonderful show on the of prices and the cost of living. According to rough calculations, between 1951 and the beginning of 1964 retail prices have gone up, by, I think, about 50 per cent. Meanwhile, import prices have gone down between 1951 and the end of 1963 by, perhaps, 11 per cent. Whether or not those figures are exactly comparable, the broad fact is that the Government have been very fortunate and the country has been very fortunate—and I hope we are all patriotic enough not to complain—during this period because of the way in which import prices have moved in relation to export prices. But, in spite of that, there has been this large rise in retail prices. Therefore, I am afraid the record, if we are simply looking at the record without analysing it too deeply, is painful rather than a matter for congratulations.

I am trying to speak in the spirit of the noble Viscount, Lord Younger of Leckie, and others who faced the difficulties of the country, and, to be fair to the noble Earl, Lord Dundee, he always faces difficulties. I do not mean that because the arguments are so much against him; and I am not implying that there is any weakness in his oratory; but he is prepared to examine the difficult points placed in front of him. I think, on the whole, if I am not impertinent, should like to see him change places with the noble Viscount, Lord Blakenham. As chairman of the Conservative Party he would be a very gentle and a rather subtle spokesman, whereas the noble Viscount, I think, representing our country abroad, would bang the table on behalf of Britain. He might get some good results even on rather old-fashioned lines, but I think the change might possibly help us all. In the absence of that, the noble Earl, Lord Dundee, is going to answer, and I am sure he will seek to cope with the problems.

I was chairman of a business in the City for eight years, and during that time, looking back, I would say that few people would have felt that the country was solving its main problems. I do not say that nobody thought any good was being done; and I am not for a moment suggesting that there were many Socialists in the City; I do not think you would find many Socialists there. But I would say that, on the whole, if you had worked and lived in the City for eight years you would have found the most intelligent and serious people concerned at the number and magnitude of the unsolved problems on the economic and financial side confronting the country. Speaking roughly, during the eight years I was there I would say that for less than two years of that period were banks allowed to lend freely. They were under some kind of restriction because there was some special or abnormal situation of difficulty. So that for most of the time there was no question of the banks being given the ordinary scope; which suggests that there were a good many unsolved problems. On the personal side (I need not follow it up) we saw six Chancellors of the Exchequer altogether. Two of them, at least, were bundled out pretty fast, or bundled themselves out but, generally speaking, it was not a period in which Chancellors of the Exchequer were held to shine. Apparently they were not regarded by their colleagues as great successes, because the movement was pretty rapid. I mention this simply because, anyone listening only to the noble Viscount's speech would have thought that everything was moving forward smoothly and confidently, with congratulations to the Government.

We all recall—it has been mentioned by various speakers; the noble Lord, Lord Champion was the last—that it was a period of "Stop and Go". Again we were not given any impression of that by the noble Viscount, Lord Blakenham. But this is a point I do place seriously before the noble Earl, Lord Dundee; and I do it, so far as is possible in this sort of context, in a non-Party way. Surely he would agree that, whichever Government is returned, one must hope that it will do better in the years ahead than any Government has been able to do since the War. Surely we can agree on that. Surely, too, we can agree that the methods which were used during these last twelve years—a period, after all, much closer to the present than the exceptional period after the war—were not good enough. It is open to question whether we should have done any better during that time. I myself feel that the Government are trying to seek better methods. The creation of "Neddy", as I have said before, is, to my mind, the best legacy of Mr. Selwyn Lloyd. It is true that he was brutally sacked soon afterwards, though I am very glad indeed that he has recovered. It is rather odd, if he was such a success in the pay pause and in other ways, that he was sacked. That was his fate; but I feel that the creation of "Neddy" is a lasting monument to him.

We come to the present time. It is certainly not easy to interpret the latest trade figures—and when I say "interpret", I am sure that the noble Earl, Lord Dundee, and I would agree how difficult it is to make any prediction about the future. If any of us knew for certain what was going to happen on the economic front, if we could see next month written in a book, we could, if we were not engaged in public life, make our fortunes. Prediction is clearly an extremely difficult and almost impossible art; yet we have to try to form some impression. I am bound to say (though I do not want to accuse him too much, because I think he chose his words, if I may say so with respect, with some care) that I do not think the noble Viscount, Lord Blakenham, dispelled, or even tried to dispel, any anxieties. I think he agreed that there were some legitimate anxieties though he seemed to be arguing that we were making too much of them. What are we to make of these figures? Obviously, it is not easy to interpret these February figures, because January was a statistical freak. Therefore, one would expect February to be rather better, so to speak, than would have been the case had January not been so bad. As the Guardian says to-day: When a sick man's temperature comes down from 104 to 100 he is apt to feel a great deal better, but he is not yet well. They point out that, of course, the February figures were much better than those for January; and in his simple economic way the Prime Minister raised a cry of triumph, and said "I told you so". But I do not think anyone other than he was quite so pleased—except the Daily Express, which headed its article, "Rejoice, rejoice!".

But, leaving aside the Prime Minister and the Daily Express, I think there is a good deal of uncertainty as to what these figures mean. It is pointed out in the Guardian that though the February returns were much better than those for January, the returns for January were the worst ever recorded—so there was some room for improvement without anybody getting very excited. But that was the situation. The Daily Telegraph suggests that it is fair to take the last three months. This, I think, could be accepted all round for the moment, because the right honourable gentleman Mr. Edward Heath warned us a month ago, when people were reading too much into the January figures, that it is fairer to take three months' figures. Following that guidance, and studying the leading article in the Daily Telegraph, we find that over the past three months the deficit now worked out at an average of £33 million a month—I am now quoting from the Daily Telegraph, which will not be accused of Socialist sympathies. It goes on to point out—I am not being too selective because the article says many different things: A monthly average deficit of £33 million would mean a visible trade deficit for the year of almost £400 million. The writer explains that he does not believe that the deficit would be so bad, but gives various grounds for concern. That is what we are discussing: a monthly average deficit of £33 million. Then The Times, again not a Socialist paper, but a paper of Conservative sympathies, includes this sentence in its leading article about the January and February figures: Both together, show that imports are still tending to rise much faster than exports, and that, if this trend continued, a further deterioration in overseas payments could be expected That is one of the things said by The Times.

I think that it ought to be put fairly before the House that, while exports are doing very well, imports are going up faster. In the last three months exports, after making allowances, were 2 per cent. more than in September to December, and 4 per cent. more than the average for 1963. In other words, the trend was upwards. But imports have also been rising fairly steadily. They were, over the same period, 8 per cent. more than in September to November, and 12 per cent. above the average for 1963. Exports, compared with two other relevant periods, were 2 per cent. and 4 per cent. up, and imports 8 per cent. and 12 per cent. up. I find it impossible to follow figures read out like that. But the point is that imports are increasing faster. It is quite possible—naturally we hope it will not occur—that there will be some balance-of-payments crisis in the autumn. We have to face this possibility. It may arise, whoever is in power. We must hold our discussion against that background. Last autumn I heard an eminent professor saying that next autumn, autumn, 1964, there would be this crisis.

LORD BALFOUR OF INCHRYE

My Lords, just to complete the picture the noble Earl was giving, could he say what the average invisibles have been over the three months, so as to give the net figure?

THE EARL OF LONGFORD

I doubt whether over three months it would be possible to calculate. To bring that item into the discussion—but I do not think one would have this available in that way—the Daily Telegraph, in the same article I quoted, argued that the invisible items over the year might make a contribution of £200 million or more. The estimate for 1963 is £170 million. That is somewhere between £170 million and £200 million.

LORD BALFOUR OF INCHRYE

£15 million a month.

THE EARL OF LONGFORD

It could be that sort of thing. They argue that on the face of it, although they believe the deficit will come down, this would give a visible deficit of something like £400 million, and you chip quite a bit off for invisibles. They also pointed out that, even so, we shall be a long way from achieving the export targets really needed, because the N.E.D.C. have calculated we need a surplus of £300 million or so to do the requisite lending abroad. However you work it out, we are a long way behind what should be the target, and probably is. However, that is the position: that we may have a crisis in the autumn. I hope we shall not, but at any rite we must face this possibility.

I think I have already spoken longer than I meant to. In the few minutes which I shall take I shall not describe a great many measures. Mr. Wilson and Mr. Callaghan have been extremely clear in explaining what they would do in dealing with any critical situation. I should like to spend the last two or three minutes—I hope it will be no longer, for your Lordships' sake—in looking at the long-term issues, which have been dealt with with great effect by some of the leaders of both sides of industry who sit on these Benches. I feel that one of the most interesting utterances by a prominent man in recent times was by Mr. Enoch Powell not very long ago. It has been quoted a good deal. It seems to me to put in a naked way the philosophy of many leading Conservatives, it may be the majority of Conservatives.

Mr. Powell said: Managements have no business to accept any such responsibility …"— that is, the responsibility for prices. After all, he was a leading member of the Cabinet and was pressed to become so again; it was only that he felt he could not serve in the present Government, I gather because it was too Right wing, but I may have misunderstood him—perhaps it was too Left wing. I do not know. At any rate, it did not suit him, but he was pressed to serve. He said: The duty of every management is to conduct the business, including the price policy of the business, in a way which in the opinion of the management is likely to maximise the return on the capital invested in the business. I am sure this passage is familiar by now to the noble Earl, Lord Dundee, and I will gladly pass the Hansard across if he has not got a copy. It was quoted elsewhere by Mr. Callaghan on March 11, 1964.

The real question I want to put to the noble Earl, Lord Dundee, is this: do his Government repudiate that point of view? If they do not, how can they expect the trade unions to call on their members to exercise any special restraint? If this is the philosophy, that that is not only the right but the duty of managements—and I can well imagine some people would think so; they would say "We are acting for the shareholders, we must get as much as we can"—why should trade union leaders do otherwise? It is as difficult to deal with their constituents, who are much nearer the bread line than shareholders, and probably would be much more insistent in many cases when they are suffering greater hardship. Unless the Government are ready to repudiate this totally—the Chancellor of the Exchequer said elsewhere that it was going a bit too far, but he did not repudiate it—then it is goodbye to any hope of agreement about incomes or anything else.

If we are going to make a great success in the years ahead, as we all hope, whatever Government is in power—and I realise that the noble Viscount, Lord Blakenham, and the noble Earl, Lord Dundee, and we, are all at one in that object—it will be because we are able to secure that unity, as the noble Lord, Lord Champion, said. And that unity can be achieved only if there is a Government whose philosophy stands some chance of general acceptance. That implies that not only the Government but the leaders of industry should step forward and try to meet the trade union leaders half way.

7.28 p.m.

THE EARL OF DUNDEE

My Lords our debate has been protracted by fairly lengthy discussions on the two Government statements which followed the opening speech of the noble Earl, and I think I should give most satisfaction to the remnant of your Lordships who have stayed until now if I conclude as quickly as possible. I have listened to all your Lordships' speeches with not only very great interest but also genuine enjoyment and pleasure, although I must add that I have heard quite a lot which I seem to remember having heard before on more than one occasion in our debates on the economic situation.

EARL ALEXANDER OF HILLSBOROUGH

The noble Earl can return the compliment.

THE EARL OF DUNDEE

The noble Earl seems to think I am going to be guilty of the same thing. I would apologise in advance if I myself should add to this record of repetition. May I begin—and I will only do it briefly and not in a controversial way—with the remarks of the noble Earl who opened the debate and who devoted nearly half of his speech to the question of inflated values of building sites. I should like to say a very brief word about that. I think these high building values are a symptom of shortage. They do not, of course, impede building development—not at all; they are a symptom of shortage and we shall not remove or cure the shortage simply by attacking the symptom.

The noble Earl opposite has referred to the other place a good deal. Perhaps I may refer to the debate on the Address in another place, in which my right honourable friend Sir Keith Joseph, who is the Minister responsible for housing, said a good deal about this. He pointed out that in the New Towns the prevailing and necessary practice is to acquire in advance land which is needed for building development, then to spend the necessary money on it, and then to sell it to the people who want to build on it at fair prices which will enable every part of the unearned increment which results from State expenditure to be realised by the taxpayer and not by the private speculators. Sir Keith Joseph also pointed out that other local authorities who wanted land for developing purposes, although they sometimes hesitated to do the same thing, had the power to do it, and often did do it. What he said was that in order to cure the shortage we must try to bring forward more land, to release more land from planning restrictions in order to increase the supply.

EARL ALEXANDER OF HILLSBOROUGH

Including the Green Belt?

THE EARL OF DUNDEE

He did not specify—

LORD SHEPHERD

But could the noble Earl say where we are to get this extra land for this big development in South-East England unless we take agricultural land or go into the Green Belt?

THE EARL OF DUNDEE

I do not see how you can get it without taking some agricultural land. But I do not want to go into this at length in this debate, partly because to-morrow, I think, there is likely to be published a White Paper on the future of the South-East where a great part of this problem exists, and that may perhaps clarify our ideas on the subject considerably. There is only one passage, which I think I can quote because it is a speech by a Minister in the debate to which I have referred. Sir Keith Joseph said [OFFICIAL REPORT, Commons, Vol. 684, No. 5, col. 658]: To sum up, what is our plan for tackling high land prices? It is, first and foremost, to tackle the cause—the shortage—and then to be prepared to undertake large scale acquisition by the public in order to get the building we need, as and where we need it, and to gather the value so created in helping to meet the cost; to be willing, too, to provide what subsidy is necessary so that people can have houses where they need them at rents which they can afford. I do not want to add anything to that, but I might perhaps have dealt with this in a more controversial manner if it were not a little doubtful whether the Party opposite were going to stick to their proposal for a Land Commission or not.

EARL ALEXANDER OF HILLSBOROUGH

My Lords, I must say that it is most attractive to be asked to give an opinion upon it. But first of all I want to bring the noble Earl back to the fact that a house that only seven or eight years ago could be purchased for £2,000 now costs £4,000 or £4,500. The people who are struggling to save up have to go through a building society to pay for it, and thereby have to pay high interest rates because of the failure of the Government. Yet you want a free market. The Prime Minister says that he must insist upon retaining a free market in this. I think it is about time we had a Commission to deal with it.

THE EARL OF DUNDEE

What we feel—I do not wait to go into this at length at this time—is that a Land Commission which had the duty to buy up compulsorily building sites at cheap prices—

LORD SHEPHERD

Fair prices.

THE EARL OF DUNDEE

—may result in less land being offered for building use, and would do more harm than good. We want more land, and not less land, to be brought into use.

LORD LATHAM

Would the noble Earl explain how you can have a free market if there is a shortage?

THE EARL OF DUNDEE

Yes. The more you increase the supply, the less the shortage will be.

LORD LATHAM

How are you going to increase supply?

THE EARL OF DUNDEE

That is what I have just indicated by quoting the speech of my right honourable friend—that he wants to find methods of increasing the supply. I quite agree that that would have to bring in some agricultural land which, indeed, the noble Earl, Lord Alexander of Hillsborough—

EARL ALEXANDER OF HILLSBOROUGH

My Lords, is the noble Earl aware of the fact that in Enfield, a Conservative seat in part, held by Mr. Macleod, the Housing Minister has gone over the head of the local authority and allocated land, in the one case land that they had and in the other case land which they were seeking to get, to private competition? In consequence, the prices have been raised enormously, and the citizens of Enfield have now got to pay for it.

THE EARL OF DUNDEE

I really do not think that this problem is either complicated or simplified or made worse or better, or that the method of solution for it is in the least degree affected, by the fact that Enfield happens to be represented by a Conservative Member of Parliament.

LORD LATHAM

That is no comfort to the homeless.

THE EARL OF DUNDEE

Well, we have built a much larger number of homes in the last ten years than the noble Lord's Party thought it possible we could build. Might I add this, since he has mentioned the difficulty of young people getting houses?—No, I am not going to give way any more on this point; I think I have given way quite often enough. I am going to point out, as my noble friend Lord Hastings, I think, showed your Lordships in the debate on the Address, that the number of householders who are now owning their houses has increased from 4 million to 7 million in the last ten years and that a large proportion of them are young people with incomes under £16 a week.

LORD LATHAM

That is no comfort to those still homeless.

THE EARL OF DUNDEE

No; but there are far fewer homeless and far fewer without houses than there would have been if the policy of the noble Lord's Party had been continued. I am sorry to be so emphatic about that, but I must reply to the noble Lord.

I must now say a word about the noble Earl, Lord Longford, who has just wound up with his usual ebullience. He began by confessing that he had been considerably irritated by the speech of my noble friend Lord Blakenham because it was a Party speech which he thought gave a number of stock arguments. I should like to tell the noble Earl that I was not in the least irritated to hear from him exactly the same kind of disparagement of our record which I have so often heard from him upon many previous occasions. He even mentioned our being at the bottom of the League, which he has so often done before. I have always wondered what he wanted us to do about it.

LORD HOBSON

Win the Cup.

THE EARL OF DUNDEE

Let us see how we can get to the top of the League. Can we do it by imitating the German economic policy, by abolishing all nationalisation and public ownership as the Germans have done? Is that what the noble Earl's argument is intended to lead up to? I am not in favour of abolishing all nationalisation in this country, such as the nationalisation of the mines and railways and so on. I think we ought to stick to it and try to make a success of it. But if we are going to emulate the people who are at the top of the League, it looks as if that might be what we should have to do. Our progress has been slower, but in some ways it has been more steady. Neither was I irritated by the noble Earl's rather extraordinary suggestion that I should change clothes with my noble friend Lord Blakenham. I think this would do little good to the Conservative Party, and would probably terrify all the foreigners who saw the transformation between us.

Then the noble Earl was really quite skilful, and also unanswerable, when he asked whether I do not admit that however well we have done, we ought to do much better in future. Of course, anyone who holds the philosophy which the noble Earl and I hold could not possibly refute that. However well you have done, you always want to do a great deal better. I do not want to go over any figures again. But I do not think it is a record of failure or of stagnation to have increased our industrial production by 37 per cent. and our standard of living by even more. I do not think it is a record of failure to have built 3½ million houses during this period.

And since the noble Lord, Lord Latham, seemed rather interested in this, I would remind him that when we proposed to try to do that, his Party told us we could not do it and could not possibly build more than 200,000 houses a year. Then when we built 300,000 they told us we ought not to have done that because we ought to have spent more on industrial development. That is a much more arguable proposition. We have to weigh the rapidity of slum clearance against the increase in our industrial production. I think our plan was a good one and was better than the plan of the Party opposite, as our plans so very often are. Our plan for next year is 350,000, and 400,000 a year from 1966 onward.

I am not ashamed either of our achievement in education. What we spend on education has gone up from £414 million twelve years ago to £1,250 million now, and it is going up to £1,570 million for the next five-year period. On roads and transport (and I think my noble friend Lord Blakenham mentioned this) the figures are £3 million a year twelve years ago, £60 million a year in 1959, £120 million a year now; and in the next five years we are going to spend £890 million on roads, which is an average of about £200 million a year.

I am grateful to noble Lords opposite for all the various suggestions which they have made, because I know they like to have plans too. They like to be thought of as planners, and, although they may not be quite so forward-looking as we are, I am always anxious to listen to their suggestions. However, it seems to me that Labour Party planning is a kind of hangover from the period of post-war shortage. I am anxious to give them all the credit for the gallant struggle they put up when in office against post-war shortages, but I always feel that their ideas seem to have moved forward very little since then. On housing, their principal contribution seems to be the reintroduction of building controls. While I am not always against controls in certain circumstances, I do not think they would really result in any more houses.

On trade, the noble Earl, Lord Longford, had something to say about the export figures; he was a little suspicious of them. I have not had time to verify the rather extraordinary remarks about the January figures. I am quite sure that they are not the lowest figures on record.

THE EARL OF LONGFORD

I said the trade gap was the worst.

THE EARL OF DUNDEE

The trade gap, I beg your pardon.

LORD SHEPHERD

That it was the worst in history.

THE EARL OF DUNDEE

Yes, but we are doing everything on a bigger scale now.

SEVERAL NOBLE LORDS

Oh!

THE EARL OF DUNDEE

I am entitled to reply that our exports are the highest they have ever been in history. It was just at the end of last year when we topped the £4,000 million annual mark for the first time, and the figures of our exports for the month of February are a record for all time. What is the plan of the Party opposite for trying to narrow the trade gap if it should be necessary to do so—a selective control of imports? Well, I am not against that in certain circumstances; but I am in the present circumstances because in the present condition of the world everybody is hoping to liberalise trade and everybody is benefiting from any liberalisation one gets. And when one has a buyers' rather than a sellers' market in the world, the only effect of stopping certain kinds of imports coming in would be that other countries would retaliate against our exports and on balance we should lose a great deal more than our economy would gain. I cannot help feeling that nearly all the distinctive features of the policy of the Party opposite, so far as we have been allowed to hear it, are negative and restrictive: restrict building controls; restrict imports; put on more taxes; a capital gains tax.

Another great advance that has been made in the last twelve years which is indeed necessary to finance the enormous expansion in our economy is the tremendous increase in the volume of savings. It is not only a question of national savings. Since 1951 the annual amount of personal savings in investments of every kind has gone up from £107 million to £1,687 million; company savings from £1,403 million to £2,100 million; and the total of all savings, including private investment, has gone up from £2,770 to £5,044 million.

EARL ALEXANDER OF HILLSBOROUGH

My Lords, how much of that is investment in Premium Bonds, getting no interest, gambling at the instigation of the Government?

THE EARL OF DUNDEE

I certainly could not tell the noble Earl how much of that is Premium Bonds, but I think that Premium Bonds are an excellent kind of investment which I should be willing to recommend anybody to buy, and I think that it is in the national interest that they should do so. But what is the policy of the Party opposite on investments? A wealth tax and capital gains tax. Is that going to encourage people to save more money? I do not think so. What is going to be the effect of that on the "brain drain", on the exodus of young, skilled men scientists whom we want to keep here, if they are not allowed to save any money without these additional taxes being put on?

There are some things on which I hope we should agree. One I think is the development areas policy. There is a feature of our policy which is restrictive and that is the industrial development certificate. We pursue a tough policy in granting these certificates in order to try to induce industries to expand in development areas. The results—I want to be quite candid about this—are that, on the whole, it restricts the increase of our gross national product. A firm come along and ask, "Can we have permission to expand?" We say, "No. You have to go to Scotland or to the North-East." They say, "Then we cannot expand at all". You hope that they will come back in a year and change their minds. Sometimes they do, but not always. On balance, that is not a major factor but a very appreciable factor in preventing our gross national product from expanding as fast as we should like. But we believe it is worth while in order to achieve a better balance between these development areas and the great conurbations in other parts of the country, because we think this is in our long-term interests. I am glad to say that the progress of our policy in these development areas is going steadily and well both in Scotland and in the North-East.

Also I should like to get agreement, if we could, as to incomes policy, to which so many of your Lordships in all parts of the House have referred. Here I am going to repeat something I have said before, for which I make no apology whatever because I think it ought to be repeated. Several noble Lords opposite have said that the trade unions might be more willing to agree to an incomes policy if something more were done about profits and dividends, not to mention prices. I hope those noble Lords realise what I have often told your Lordships in previous debates: that the Government have said—they said it when the National Incomes Commission was set up and in the White Paper explaining the policy—that they were intending to consider cases of profits and dividends and price policy which were contrary to the national interest. We fully recognise that we cannot have a satisfactory incomes policy which is confined to wages, even though wages may be 90 per cent. of the income, or whatever the figure is. We must bring in other kinds of income, too; we fully realise that.

The noble Lord, Lord Sainsbury, made a speech with a very great deal of which I agreed. The only thing I thought was a little unfair was answered, I think, by an interruption from the noble Lord behind me. He suggested that the Government had done very badly in issuing orders for only a small number of the reports from the Monopolies Commission. I think the answer to that is that so many of them had, so to speak, been settled out of court by agreement that they did not need an order. The noble Lord also referred to the new White Paper on Monopolies and Mergers, which I have here. We say in that White Paper: The Government are satisfied that their existing powers to implement recommendations of the Commission are not adequate for the purposes these powers now have to serve. The powers in Section 10 of the Monopolies and Restrictive Practices (Inquiry and Control) Act, 1948, are mainly directed to dealing with restrictive agreements, which formed the main part of the Commission's work … et cetera. Then: These powers have not been found suitable for dealing with all those practices of a monopoly which may be shown to be against the public interest. It is proposed therefore that the provisions of Section 10 should be recast and expanded. That intention must be taken together with the Bill to which the noble Lord, Lord Lucas of Chilworth, referred with so much feeling, the Resale Prices Bill. It is all part of our plan to bring down prices, and I am glad that several of your Lordships (particularly the last speech from my noble friend Lord Younger of Leckie) laid so much emphasis on the need for real, genuine competition in so many of our industries. I agree that this is a necessity.

My Lords, our planning, including our hopes for an incomes policy, is not based mainly upon coercion or control: it is designed to be—and this is the main purpose of "Neddy", the National Economic Development Council—a voluntary process of planning in which the Government, industry and the trade unions will all take an equal part. We fully realise that an incomes policy, based, as it must be, upon persuasion and consent, cannot be brought to fruition in a short time. We must be patient about it.

LORD SHEPHERD

My Lords, could the noble Earl say something in reply to my noble friend Lord Longford, who asked a question arising out of the speech or writings of Mr. Enoch Powell in regard to the power and duty of directors in regard to prices and dividends?

THE EARL OF DUNDEE

My Lords, I was not going to say anything about that, because the noble Earl, Lord Longford, also referred to the answer which had been given by the Chancellor of the Exchequer. I do not think I can get hold of the Hansards and look them up now, whether it is in order or not. I happened to see the passage, when I read the Commons Hansard, and I noticed that the Chancellor of the Exchequer had said that he did not agree in all respects with the economic dogmas which had been asserted in the passage which the noble Earl quoted by Mr. Enoch Powell. I certainly could not add anything to that without refreshing my memory as to what it is all about.

LORD WALSTON

My Lords, could the noble Earl—

THE EARL OF DUNDEE

No, my Lords, I cannot say anything more about that; it is five minutes to eight. We must have patience, because our economic plan is not a plan based on dictatorial authority: it must be a plan based on consent. The last time we discussed the economic is situation, the noble Earl, Lord Longford, was kind enough to say what indeed should be obvious to everybody: that all human plans sometimes go wrong, and that no one can have clairvoyance about the future. We had a poet in Scotland called Robert Burns who said a great many wise things. One of the poems he wrote was an Ode to a Mouse, and in that poem he said: The best laid schemes of mice and men Gang aft agley".—. which indeed they do. I think that the schemes of our Party are not so inconstant, erratic and disappointing as the planning of the Party opposite usually is. But, my Lords, I would put it to the House that our plans, such as they are, for industrial growth, for housing, for education, for roads, transport, electricity and development areas, and our hope of an incomes policy proceeding from persuasion and consent, are all the right plans for this country in the 1960's, and that the people of this country would be well advised to accept them.

7.56 p.m.

EARL ALEXANDER OF HILLSBOROUGH

My Lords, we are grateful to the noble Earl for the care he has taken in replying to the many points in the debate, and I am much obliged to all those Members of the House who have helped to make the debate so interesting. I must say that the last part of the noble Earl's speech, when he laid emphasis upon what might be called the Tory type of planning, made me look back an even longer way than the noble Earl can look back. Most of us have lived through two wars, and we saw the lack of planning after the first Great War which led to continuous unemployment—anything between 1 million and 2¼ million. We saw it happen right up through the whole of that period, with never an idea of having a plan. "The unemployed must pay the penalty", was the attitude.

We had no real plan at all from this Government, until they were forced to it. Now they have had to come to controls under "Neddy" and "Nicky", and the noble Earl pleads—and I sympathise with his plea—that everybody should try to help. If the effort comes from the Government now, and if they pay equal attention to getting help from those who take profits and run industry, it will help a great deal in that particular type of planning. But, broadly speaking, the general result, so far as planning is concerned, is that the pound of only a few years ago is now worth 13s. 9d. That is the very potent figure to quote in this matter. But I do not want to start another debate. I am still obliged to the noble Earl for the manner in which he has replied to us, and I beg leave to withdraw my Motion.

Motion for Papers, by leave, withdrawn.