HL Deb 04 August 1965 vol 269 cc282-300

3.0 p.m.

Order of the Day for the Second Reading read.


My Lords, in moving the Second Reading of this Bill, I imagine that your Lordships will not wish me to dwell at great length on the details of the two major new taxes for which the Bill provides. These have been exhaustively discussed—both in another place and in the Press—in the last three or four months and are now thoroughly familiar to us all. Nevertheless, it may be helpful if I briefly remind the House of the reasons which have led Her Majesty's Government to propose the introduction of these two new taxes and of some significant respects in which the Government's original proposals have ben modified as a result of earlier discussion.

I begin with the capital gains tax. There are, I think, few people who would dispute the statement by my right honourable friend the Chancellor of the Exchequer that the failure of our tax system to tax capital gains has hitherto been regarded as a major omission. It can hardly be denied that capital gains confer on their recipient much the same kind of benefit as income—which may well be earned with great effort. Yet in the past income, including earnings, has been fully taxed, while capital gains have gone scot-free. In itself that has been widely regarded as inequitable; and, as a practical matter it has been one of the barriers to the progress of an effective incomes policy. In addition, the absence of a capital gains tax has facilitated certain avoidance devices, which consist in essence of turning taxable income into tax-free capital gains, and has thus weakened the existing system of direct taxation. The proposals in the Bill will remedy these defects.

I have already referred to the modifications which the Government have made, for both taxes, to the proposals originally published. These modifications are, I suggest, evidence of the Government's flexibility and willingness to deal with constructive criticisms on their merits. I need mention only three of the amendments made to the provisions of the capital gains tax. First, the rate of tax on capital gains received by people with small or moderate incomes has been reduced. The Government's original proposal was that if it was to the benefit of an individual taxpayer, two-thirds of his gains would be taxed as the top slice of his income, the remaining third being exempt, instead of all the gains being taxed at the flat rate of 30 per cent. This fraction of two-thirds has now been reduced to one-half on gains up to a maximum of £5,000 a year. As a result, the individual whose maximum rate of income tax is 8s. 3d.—the standard rate—will pay tax on his gains at just over 20 per cent., instead of 27½ per cent.

Second, in the case of past issues, made at a price below par, of British Government or Government guaranteed dated stocks, any gain arising from price movements between the price of issue and the redemption price will be exempt from capital gains tax. This concession meets the representations made to my right honourable friend that in issuing these stocks at a discount the Government had given an implicit pledge that the capital appreciation to redemption would be tax-free. Third, the Bill now recognises the special position of the small businessman who has built up a business during his working life and needs to sell it, in order to provide for his retirement. If an individual who is 65 years of age or more sells a business which he has owned for the ten preceding years, he will be exempt from tax on the first £10,000 of gains which he then realises. An individual who sells between the age of 60 and 65 will get a proportionate part of this exemption. Moreover, particularly to meet the special position of small farmers, the same exemption will be available if the business is given—for example, to a son—on the retirement of the owner. With these and other modifications I believe that the capital gains tax will be generally welcomed. Indeed I notice that The Economist for July 24 referred to it as "a long overdue reform" and as essentially sound and well conceived. It went on to say that the conception and enactment of such wide sweeping changes is a fundamental innovation in British economic and fiscal legislation: and is tangible proof of a refreshing willingness to stake large amounts of political capital on ideas. I now turn to the corporation tax. The Government's reasons for reforming the system of taxing corporate profits are as follows. First, the reform is an essential piece of modernisation. A corporation tax, separate from the general income tax on personal incomes, makes the country's tax system at once more comprehensible and more responsive to present-day needs for fiscal adjustments designed to influence economic conditions. Secondly, the old system was by no means free from anomalies which lent themselves to exploitation by companies astute enough to take advantage of any loopholes. Your Lordships will not wish me to enlarge upon this in detail, but my right honourable friend the Chancellor of the Exchequer has no doubt that the reforms incorporated in this Bill will bring in their train the not inconsiderable gain of ending a state of affairs which stood in urgent need of a remedy.

Thirdly, the new scheme will enable the tax system to exercise an influence, in a manner of which it has not hitherto been capable, upon the distribution policy of companies. I think we all accept that one of the needs of the day is that companies should increasingly plough hack their profits for the expansion of production, rather than distribute them as dividends. The existing tax system does not sufficiently encourage this. But the new tax structure will make a given sum of net profits worth more if retained for expansion than if dissipated in dividend payments. In this way my right honourable friend hopes to provide an incentive to dynamic companies to develop at a rapid pace through the use of ploughed-back profits. Lastly—and this is the subject which occupied your Lordships' House in the useful debate initiated nearly three months ago by the noble Lord, Lord Aldington—there is the question of overseas investment. My right honourable friend attaches a good deal of importance to the features of the corporation tax scheme from which a tendency should arise to moderate the rate of overseas investment.

My Lords, taking them together, these are cogent reasons: and it is not surprising that my right honourable friend felt obliged to resist any Amendments suggested in another place which would have involved a derogation from the principles of the intended reform. Nevertheless, he was sympathetic to legitimate criticism; perhaps I may be permitted to mention briefly some instances in which the Bill was amended to bring some easement to the taxpayer. When the Bill was published there was some apprehension that its provisions would bear harshly on what it terms "close companies"—that is, broadly speaking, companies which are under the control of a small number of persons. By various Amendments my right honourable friend has done much to allay this apprehension, while at the same time keeping his original objectives in view. Close companies will not be permitted to serve as vehicles for the unjustified accumulation of idle funds, but if they are developing and building up a trading venture full account will be taken of their needs to plough back profits for development.

This is one example of an easement of the corporation tax provisions for some of the companies affected. To illustrate the process further I should particularly like to say a word or two about the overseas aspect of the new taxation system. This was the subject of many representations and much considered discussion. I have already mentioned the debate in your Lordships' House on May 6, and of course my right honourable friend carefully considered that debate. During the passage of the Bill he decided to extend considerably the scope of the transitional relief for companies trading overseas. Not only was the period of the relief extended from five to seven years, but also the amount of the annual relief was substantially increased. I do not wish to be tied to exact figures, because this is a particularly difficult field in which to make precise estimates; but the extension in the scope of the relief introduced by the Chancellor may well cost something of the order of £35 million for the first year alone. On any view this is a substantial additional relief for these companies which should ease the adjustment to the new tax system.

Perhaps I should at this point remind the House of what the O.E.C.D. Survey said about our balance-of-payments crisis. In the paragraph headed: "Origins of the Crisis" it says: Underlying the two most recent periods of acute payments difficulties (1960–61 and 1964) has been a rather consistent general weakness of the external balance. Over the seven-year period from 1958 to 1964 the cumulative current account was just in balance; that is, the current account made no contribution to the financing of long-term capital exports which averaged £175 million a year during the same period. I would add, in this connection, that the Government are not against overseas investment as such, which must and will continue, but in our balance-of-payments difficulties it is vital that we do not attempt to do more than we can afford. It is to the balance-of-payments problem that I now turn.

When we came into office last October we inherited a formidable task in regard to our external balance of payments. The previous Administration had allowed an intolerable deficit to develop over and above the long-term weakness of the external balance, and we are living with the consequences. The strategy, I need hardly remind your Lordships, is to achieve a state of balance on our external accounts in the course of 1966. This year's deficit is likely to be well below half last year's figure of £745 million, and the further measures announced last week are designed to ensure that we reach our aim of eliminating the deficit during next year and of maintaining the strength of sterling

It is clear that the balance-of-payments situation has improved a good deal this year, compared with 1964. In the first half of the year the deficit on visible trade totalled £159 million, little more than half the rate on average last year. If we look behind the month-to-month variations in the figures, due to special factors, imports seem to have been coming in at a fairly constant rate, about 1 per cent. below last year. Exports have been averaging about 4 per cent. more than in 1964, but in recent months they have not maintained the strong rise evident when we last discussed the Economic Situation. Turning to the long-term capital account, in the first quarter the net outflow remained high, at £90 million, or much the same as on average during 1964. The figure was to some extent affected by a marked reduction, probably largely temporary in character, in overseas direct investment in the United Kingdom. There are, understand, signs of an improvement in the second quarter, with an easing of the temporary factors, and, in addition, gains from the exchange control measures taken in April to draw additional receipts into the reserves. But progress, particularly on exports, has not been good enough, and though the trade deficit has been reduced, what has been lacking is progressive improvement in recent months. We need to get the improvement on the move again.

My Lords, perhaps I should say a few words at this point about the figures announced yesterday of gold and convertible currency reserves. The third quarter is seasonally the least favourable period, and some further call on the reserves could be expected in July. Sterling came under renewed pressure in the latter part of the month and this contributed to the loss of reserves. As a consequence of the Statement by the Chancellor of the Exchequer on July 27, the pressure on the exchange markets was relieved, and the spot rate for sterling hardened to 2.79¼ dollars, the best level for over a month.

In accordance with the Protocol of July 20 to the Offset Agreement, during the month the Federal Republic of Germany made an advance payment, equivalent to £41 million, to a special account with the Bank of England to meet payments due by March 31, 1966, under contracts already placed or foreseen. This is, of course, only one of a large number of transactions, both outgoings and receipts, affecting the reserves in the month. The calls on the reserves fluctuate widely—for example, United Kingdom payments on Invisibles Account are thought to be usually very heavy in July—so that it could well be misleading to highlight, for example, the loss of reserves together with the receipt from Germany as a measure of the trend. I am sure your Lordships were glad to see on the tape this morning that the pound was standing higher in the foreign exchange markets today without further support from the Bank of England.

The measures announced last week, notably the further changes in exchange control and those affecting payment for imports will provide a valuable further gain to the reserves immediately. Exporters have had by now a massive series of improvements in export credit arrangements and other facilities in addition of course to the export rebate. Finally, the measures to restrain the growth of public expenditure and the more stringent terms for hire purchase borrowing will, by easing pressures on the domestic economy, further ease the external trade deficit.

Your Lordships will be aware that we have been tackling the balance-of-payments difficulties against the background of an extremely heavily loaded domestic economy. By the beginning of this year, demand and output had been growing fast for some two years, and pressure on resources had risen to a high level. The new O.E.C.D. Survey has some pertinent remarks on this pressure on resources. The Survey states that: The present phase of expansion, like the previous one, was largely induced by policy measures. From the reduction of the Bank rate in March 1962 to the Budget in April 1963, a series of reflationary measures were taken, directed at stimulating both consumption and investment demand. It concludes on this aspect with these words: In retrospect then, the expansionary policy measures taken at the beginning of the expansionary phase must clearly be judged to have been excessive. Whatever the cause, the fact is that early this year unemployment was very low. At the same time, it was evident that we were coming under increasing cost pressure.

Expansion continued fairly rapidly in the first quarter. The new national income figures, published last week, show that output in the first quarter of this year was about 1 per cent. higher than in the fourth quarter of last year and 4 per cent. higher than it was a year earlier. When we last discussed the economic situation, in May, it was pointed out by my noble Leader that the purpose of the immediate revenue measures in the April Budget had to be seen in the context of the need to restrain the growth of consumption in the interests of the balance of payments, which of course includes the need to get a more competitive cost structure.

The latest indicators show that the rising pressure has been contained, and that the Budget has begun to take effect. If we discount the seasonal element in the change, unemployment has stopped falling and indeed appears to have risen fractionally. Retail sales in volume terms, discounting the rise in prices, fell back in April and May and there are indications that this continued in June. There was also some check to housing starts in the second quarter which slowed down the growth of the number under construction and will help to ease the overload on the building industry. But, in absolute terms, the economy remains extremely tightly stretched. Businessmen are complaining of delivery delays and difficulties in getting supplies of components. The unemployment rate underlying the seasonal demand for labour is about 1½ per cent., distinctly below the long-term average, and there are acute shortages of, for example, skilled engineering workers in the Midlands and South-East where a good deal of export industry is concentrated. Cost and price trends remain too strongly upward. Given the urgent need for improvement in the balance of payments, we decided we must act to speed up the release of resources and ease pressures. That was, of course, the purpose of the measures announced by the Chancellor of the Exchequer on July 27. To some extent these were short-term measures. In the medium and long term, somehow we have to cure the deep-seated, underlying weakness of our balance-of-payments position, and this means securing an improvement in our exports performance.

The difficulty which we have experienced in trying to improve our exports performance underlines the need to make our costs and prices more competitive. Since taking office, the Government have concentrated on the development of a policy for productivity, prices and incomes as an essential long-term measure for strengthening the economy and improving our competitiveness and export performance. The vital significance of this policy is emphasised in the Economic Survey to which I have previously referred. That Survey points out—and I quote: The prices and incomes policy is of the highest importance; success in this field would make a major contribution to achieving sustainable growth for the medium term. However, the Survey goes on to say that the aims of the prices and incomes policy are unlikely to be achieved unless the economy is run with a lower pressure of demand to that prevailing recently.

As I have mentioned, the Government have taken measures to restrain the pressure of demand and to meet the immediate difficulties with which the economy is faced. It is now all the more essential to ensure that we do not forfeit our chances of making progress in the medium-term and of securing a faster rate of growth of output and exports, through inflationary rises in prices, costs and money incomes. There is no doubt that prices and money incomes have been rising much too rapidly in recent months for the health and strength of the economy. Part of the increase in prices is of course directly due to Government measures to reduce the pressure of demand. For example, these accounted for 1.4 points of the 2 points rise in the Retail Price Index in April this year. But prices have also continued to increase because the rise in money incomes (wages, salaries and profits) has exceeded the rise in productivity by a substantial margin.

I do not wish to suggest that the policy for productivity, prices and incomes, foreshadowed in the Joint Statement of Intent and set out in the two subsequent White Papers, is ineffective. It is only three months since the main principles set out in these documents were endorsed by an overwhelming majority of trade unions affiliated to the Trades Union Congress. It would be quite wrong to attempt to judge, on the experience of only three months, the success of a policy designed not as a short-term expedient but to bring a lasting solution to a continuing economic problem. This is something which requires changes in our traditional habits and attitudes which simply cannot be achieved overnight. Moreover, there were a number of obstacles to making the new policy immediately effective—the high pressure of demand and acute shortage of labour, the current move towards a 40-hour week which has put heavy pressure on costs, and the forward commitments of various kinds on wages and salaries which had already been entered into. This is something which we recently discussed at some length on the Motion of the noble Lord, Lord Thomson of Fleet. To quote again from the O.E.C.D. Survey: The attempt to influence prices and incomes should not be adjudged a failure on the basis of short-term trends. Success can only be expected to come gradually. As the Prime Minister pointed out in his speech on Monday last, the most successful machinery for an incomes policy in the world, that in Sweden, took 20 years to evolve". My Lords, somehow we simply must achieve our productivity, prices and incomes policy in much less time than that, or our balance-of-payments problem will overwhelm us. I am not pessimistic about all this, for we have, despite the difficulties, made a very great deal of progress. In addition to the previously announced policy on productivity, prices and incomes, we are hoping to have our National Plan for technological progress and faster economic growth ready for publication in the autumn. This we confidently expect will enable the nation to break the vicious circle of inflationary expansion being followed by a balance-of-payments crisis. My Lords, the task ahead constitutes a challenge to the British people, and I am confident that, given the co-operation, the understanding and the support of all sections of our community, this nation of ours will successfully meet that challenge. I beg to move.

Moved, That the Bill be now read ª.—(Lord Champion.)

3.30 p.m.


My Lords, as the noble Lord, Lord Champion, has said, though we are debating the Finance Bill it is customary at this time of year to use the occasion for a general debate on economic affairs. The noble Lord has spoken with his usual care and courtesy, and I know the House is grateful. I think we shall all agree with a great deal of what he said, and he has certainly been fairly uncontroversial. It is possible that I may be rather less so.

There can be no doubt—indeed, I do not think that any member of the Government has sought to deny it, and certainly the noble Lord, Lord Champion, has not—that we are facing a serious economic situation. Though it is true that our balance-of-payments difficulties may be eased this year, there is still a very heavy deficit and one which cannot give much cause for satisfaction when we face the knowledge that, over the next few years, we have to pay back very large sums of borrowed money. The news which we have read in the news papers this morning is, to say the least of it, disturbing, and it may be—I do not know, but it may be—that the calculations of the Chancellor of the Exchequer are on the optimistic side. I shall have more to say of this later. But, before I go any further, I think I ought to dispose of the Finance Bill.

In the context of our financial situation, it seems to me utterly irrelevant. Its two main provisions, corporation tax and capital gains tax, will do nothing to help us in our present condition; and, until the Opposition in the Commons forced the Government to accept Amendments, the Bill was not only irrelevant but was, in some respects, downright harmful. I have already spoken in this House of its effects on companies trading overseas. The Government have accepted some Amendments which will delay the incidence of that extra taxation—but it is only delay, and we must hope, for the sake of our investments abroad, that wiser counsels will in the end prevail, or, even better, that we shall get a new Government before any damage is done, at any rate in this field. As for the capital gains tax, whatever the arguments for or against it, the way things are going at the present time there are not going to be many capital gains about. I must say that I think it is a great pity that so much energy and so much time should have to be devoted by the Civil Service, by Parliament, by lawyers and accountants and all the rest of it, to a Bill so little pertinent to the needs of this country.

The state of our economy is not a matter for Party dispute, because all of us wish to see it strong and there is no advantage for any Party in the catastrophe which will result if we do not put our house in order. Our standard of living, which has increased so greatly in the last fourteen years, will decline; we shall be unable to fulfil our obligations and commitments overseas; and we shall cease to have any influence in world affairs—for, as everyone said in the Foreign Affairs debate last week, influence in foreign affairs depends upon the strength of the economy at home. None of these things can be contemplated with anything other than dismay by any member of any Party. Yet, my Lords, it is the Government and noble Lords sitting on the Bench opposite who have been in control of our economy for the last nine months, and it is right and proper that we should examine what they have done critically, but at the same time constructively, in the hope that we may he able to pinpoint where things have gone wrong and perhaps persuade them to do a little better in the future.

I do not think that even the Government's most starry-eyed supporter would claim that their economic policy has been an unqualified success. It seems to me that the problem falls into two distinct parts, though in the final analysis they are both part of the overall problem: first, the strength of the pound and the factors which have caused it to weaken over the past months; and, secondly, the balance-of-payments deficit and the trade gap. Let me make it clear from the outset that nothing that I shall say is intended to undermine confidence in the pound. We are all agreed as to the importance of that. But the unpalatable truth about the pound is that lack of confidence coincided with the arrival of the Party opposite into office.

I do not suggest that noble Lords opposite are any less anxious than any of us on this side to see the pound maintain its strength—of course they are not. Nevertheless, there was a loss of confidence; and for two reasons, I think. First, because when, in October, the Government assumed office, they made an enormous amount of Party capital out of the trade deficit which they claimed to have discovered on their arrival in Whitehall—and I hope that noble Lords opposite have read what Mr. Maudling said in another place on this subject. It really will not do any longer to maintain the line that this was concealed by the Conservative Government, or that all the trouble stems from this. Nothing was concealed and nothing was withheld; and nobody suggested that there was not a problem to face. But the Government made so much of it, not only at home hut also, as I understand it, abroad, at the EFTA Conference which was held just after the Government took office, that for the first time they began to frighten those in other countries who had their money over here; and their subsequent actions did nothing to give confidence to those investors.

I do not know whether any of your Lordships have read an article in the Financial Times to-day by Nigel Lawson. I must say I think it is very funny, although perhaps noble Lords opposite may not think it quite so funny. It is a "spoof" of a speech which the Prime Minister may make when next he talks on the wireless, and an extract from it illustrates exactly what I mean when I say that the investors abroad had no confidence when the Government took office. In this "spoof" the Prime Minister is made to say: You know, when the country elected a Labour Government last October, we decided—and I must say this, quite honestly, we decided unanimously—to do the difficult things first. Things that needed guts, tough things—incredibly tough sometimes—like raising pensions and abolishing prescription charges. But we did them, regardless of electoral popularity". My Lords, the blunt fact is that nothing that the Government have done since then, and until the severe measures announced last week—


My Lords, would the noble Lord tell us whether this is still the "spoof" speech or whether he has resumed his own oration?


The blunt fact is that nothing that the Government have done since then, and until the severe measures announced last week—and I shall come to them in a moment—has reassured those in Europe and elsewhere who do business with, and invest in, this country that the Government are capable of restoring the British economy. In my view, this is a great pity, because, as I said earlier on, I am quite certain that the Government have done and are doing their level best to bring back that confidence.

The second difficulty—and this was brought out very forcibly in a leading article in the Financial Times yesterday and, indeed, by Mr. Heath in another place on Monday—is that the Government have never acknowledged their own policies and told the country exactly what and how much they are willing to sacrifice in the defence of sterling. In the words of the article in the Financial Times: Ever since last October Ministers have been saying one thing and doing another. In the first week after the Election they did everything possible to draw attention to the size of the deficit while assuring the country that drastic measures would not be required. And then, when they were forced into the deflationary policies which they had formed, they refused to admit what they had done and continued to talk about expansion ". The Government really must face up to the fact that people overseas are perfectly capable of reading the speeches of Ministers, and do read them; and people abroad have drawn conclusions from those speeches which have contributed to the weakening of sterling, in spite of the measures taken by the Government for exactly the opposite purpose. Ministers must now stop pretending, in speeches in the country, that everything is all right and that the Socialist millennium is just round the corner. If we are to get out of our troubles, there can be no doubt that some of the measures which the Government have taken, or perhaps all of them, must become effective; and, if they are going to become effective, they are going to hurt somebody. It is one of the unfortunate failures of the medical profession that medicines are never agreeable to take, but if you want to be cured you have got to take them. So it is with our economic affairs: if we want to get better we must take our medicine.

I very much hope that the measures the Government took last week will be successful in restoring confidence in the pound. I think it is too early yet to say whether they have or whether they have not, but I want to ask the noble Earl a question. It is this: if the measures of last week are not adequate, will the Government be prepared to take further action, and take it quickly?—because slowness and indecision have been the Government's greatest faults.

The key matter in our economic situation is this confidence in the pound; and I am sure that the Government mean to take steps to regain that confidence abroad. If they find they cannot do it, that their image is already so tarnished and their competence to deal with the situation is already so much in doubt, then they must go before it is too late. I am certain of one thing: if to-morrow there was a Conservative Government you would find the situation transformed and confidence would once more begin to flow back into the pound and into the future of this country—


Hear, hear!


My Lords, has the noble Lord finished?


For the moment, yes.


My Lords, would the noble Lord feel able to disclose the hitherto well-concealed secret of what the Conservatives would do which is different from what we are doing?


The noble Earl is really a compulsive interrupter. At the slightest breath of criticism of the Government it is as if an enormous spring had shot the noble Earl forward to the Dispatch Box, inquiring and inquisitive. Of course, I am coming to all that. I am sorry, but I have more of my speech to make. If the noble Earl will be patient he will, I hope, be rewarded by listening patiently and calmly to what I have to say.

The second problem, which is interrelated, is that of our balance of payments. I remember talking to a very eminent man in the City not so very long ago about this problem. He said that the whole thing could be solved in a flash were we not spending £2,000 million a year on Defence. That may be perfectly true. It would be equally true to say that the problem would be solved in a flash if we were not spending hundreds of millions of pounds a year on a great many other necessary and desirable things. But I hope that the temptation to abandon our commitments overseas and to reduce Defence services to a level which we on this side of the House might find absolutely unacceptable will continue to be resisted by the Government. I think I can give them credit—and I hope I am right—for being generally anxious to maintain our obligations overseas. But there is very heavy pressure from the Left Wing of their Party—the 75 signatures in Tribune and now, I understand, an acceptance by the Parliamentary Labour Party of the need for an immediate arms cut, though that may be just papering over the cracks. But this is not the way of a great nation. Abdication of our responsibilities is not, in the end, a solution which honourable people can accept.

In any event, the problem, in my view, is rather more complicated than that. Almost ever since I can remember there have been at intervals—and not very long intervals at that—economic crises, and all of them have been due to our precarious trade position. There have been glaring headlines in the newspapers, solemn discussions on radio and television, stern speeches of warning from Ministers, of whichever Party were in office, and others on what must be done to put the matter right, and, in the end, for one reason or another, we have got through—sometimes because the Government took the right steps at the right time; sometimes, perhaps, because prices moved in our favour, sometimes, perhaps, because we were just plain lucky. There may have been temporary increases in taxation, temporary cuts in Government spending, but generally speaking, nobody has been greatly inconvenienced, although, naturally, I except from this the 1931 crisis.

I believe it is true that the average man and woman in this country does not really believe in any of it any longer. They have heard it all so often before. All the phrases are familiar, including, with respect, some of the phrases that the noble Lord, Lord Champion, used this afternoon: "greater productivity", "the importance of exports", and so on. All the remedies seem familiar; everyone is firmly convinced that it will he all right in the end, that something will happen. Somehow, some way or other, the trade figures—if anybody really believes in them—will take a turn for the better. Anyway, it is not much concern of theirs this is a matter for the Government, for they—it is always "they"—are in charge of the situation. I am afraid that a lot of people have become rather cynical about politicians of all Parties and the exhortations made by politicians for harder work and more exports. It has always been all right before. Why should it be any different this time? So they say, "Why not let the politicians go on with their talking while we get on with our affairs?"

I am not at all sure that it is in fact going to be all right this time, unless we do something about it. No one can be much heartened by the present export figures for this year; nor, indeed, can anybody be greatly relieved by the downturn in imports according to the figures so far published. There does not seem to be any widespread realisation as to what these figures mean or the consequences for us if there is not a radical improvement in them. For never let us forget that we are in debt to the tune of billions of dollars to the International Monetary Fund. Successive Governments have failed to bring these economic truths home to the man in the street. Certainly the back-to-Dunkirk spirit of the Prime Minister's first few speeches struck in most of us a thoroughly jarring note. We have seen little in the last months of the promises of the new and modern Britain which, if I may say so, fell so glibly from the tongues of noble Lords opposite during and before the Election campaign. Somehow or other, the Government have got to bring home these facts. I do not believe it is possible to do it by exhortation. I hope that we shall hear later this afternoon from the noble Earl the Leader of the House what the Government propose to do.

There was very little that was constructive in the Prime Minister's performance on Monday night in another place, but there is one thing about which I want to ask the noble Earl the Leader of the House. In column 1192 of the Hansard of the other place, the Prime Minister, in talking about incomes and prices, said: If the voluntary system fails, we might have to provide for statutory reference of every claim for increased incomes above the norm to go to an expanded and strengthened Prices and Incomes Board, just as in the absence of voluntary agreement we might have to require a compulsory early warning system for reference to the Board of proposed price increases in cases which seem to require justification."—[OFFICIAL REPORT, Commons, Vol. 717 (No. 166), August 2, 1965.] May I ask the noble Earl these questions? What will be the criteria of failure of the voluntary incomes and prices policy? How long will the Government leave it before they take action, and by what degree will incomes have to go up before they take that action? Finally, what does the Prime Minister mean when he says he is going to provide for statutory reference of every claim for increased incomes above the norm to go to this Board? I should have thought that was a very difficult thing. I should be grateful to the noble Earl if he were to explain later in the debate some of these rather difficult things.

We were told at the time of the Election, and for months before, that many new ideas were to be brought into the management of our economy. Britain was to be modernised; there was to be no "Stop—Go". Your Lordships will remember the sneering references made to my right honourable friends Mr. Maudling and Mr. Selwyn Lloyd. The Conservative Government were pilloried for having brought about a materialistic society. The Labour Party was to alter all this—though how was never specified and has not been specified to this day. What are the proposals of noble Lords opposite? So far, in spite of the jeers, we have had nothing but "Stop" with occasional spurts of unexplained and uncontrolled acceleration, and the attempts of the Chancellor and the Prime Minister to pretend that the lastest measures announced last week are not "Stop" would be hilariously funny were they not rather pathetic.

We in the Conservative Party believe that there must be a new approach to this problem, the sort of approach outlined by Mr. Heath in his speech on Monday, an aspect certainly obscured by what I thought were the trivialities of so much of the comment on that debate. He made these three points. I make no apology for repeating them here in this House, for they are the kernel of the more detailed policies which we in the Conservative Party shall unfold in the next few months. First, he said that the taxation system must be adapted to the encouragement of people to better themselves, to get on in the world and to produce more. We on this side of the House believe that incentive should be rewarded: that somebody who is working hard, and using his brains, skill and inventiveness for himself and the good of the country, should be rewarded and not penalised. We do not believe in an egalitarian society.

Secondly, he said that we must re-create a competitive economy and that in doing this we shall have to tackle restrictive practices in labour and industry. Your Lordships will remember that it was Mr. Heath who led the attack on restrictive practices in retailing. We just cannot afford any more the obstacles to productivity which these restrictive practices put in front of us. There is not one Member of your Lordships' House who could not get up and, with no more than a moment's thought, give more than one example in his own personal knowledge of a restrictive practice. There are a great many ordinary men and women in this country who are thoroughly ashamed of many of these practices and would willingly see them disappear. This can be done, we believe, without bringing in hardship for anybody involved.

My right honourable friend went on to talk about the reform of company law and the terms of wage settlements which deal with productivity. As he said, this is an outline, but we, as Conservatives, believe that we can put the economy right by greater competitiveness, by the encouragement of incentives and by the abolition of restrictive trade practices. There is nothing wrong with our economy that good leadership and sound policies cannot put right.


My Lords, before the noble Lord sits down, may I ask him a question? He has made the point that in last September and October there was no concealment of the trade gap. In a technical sense, and from the fact that official statistics were being produced, he may be right; but would not he agree that under-playing, under-emphasising, the importance of the deficit and all its consequences is at least a first cousin to denial of its importance?


No, my Lords, I would not agree with that. Mr. Maudling, when he was Chancellor of the Exchequer, frequently, in public speeches, made it plain that we were facing difficulties. As a matter of fact, I thought that someone would say that, and so I took the trouble to get a quotation. On September 26, 1964, Mr. Maudling said: It is true we are facing difficulties and no one has attempted to disguise this, but one thing is crystal clear. The greater our difficulties the more disastrous Mr. Wilson's policies would be for the country.