FINANCE (No. 2) BILL

HL Deb 04 August 1965 vol 269 cc309-94

4.16 p.m.

Debate on Second Reading resumed.

LORD BYERS

My Lords, I think my first duty should be to thank the noble Lord, Lord Champion, for the comprehensive way in which he wound up the agricultural debate that we have just had; but I take it that we have now concluded that, and are once more dealing with the Finance Bill and the economic situation.

If I may say so, the noble Lord, Lord Carrington, has a very engaging sense of humour, and I think we all enjoyed his little joke: that if a Conservative Government were returned to-day, confidence in the pound would be immediately restored. I am afraid that the balance-of payments crisis is a great deal more difficult than one which could be solved by the return of a Conservative Government. But I do not think that the Conservatives were guilty of concealing the situation as it existed during the Election. I remember well, at a very early part of October, calling upon the Conservative Government to take some action, despite the fact that there was an Election, if the balance-of-payments situation was as bad as Mr. Maudling had then forecast. So I feel that to say they concealed the situation is not a fair charge.

What I find so depressing about our present economic situation is that "we have been here before", and it does not look as if the present Administration have any new or better ideas for dealing with these recurring crises than those whom they succeeded. I would say that if we are to have a managed economy, then it must be managed well; and I believe that we have to get the priorities right, and stick to them. I feel that we have all been guilty in some way in contributing to the situation as it exists at the moment. In my view, the first thing to do is to agree on the overall objectives, and this must surely be to increase the national wealth to a steady optimum rate, by improving efficiency, and at the same time, as the Government have made clear, to export the amount of the national wealth that is required to restore the balance of payments. Until we get to that position, we cannot, I think, afford the improved social benefits that so many of us want to see. I think the Government must make this clear. I dislike this situation intensely. It is not the sort of thing which radical reformers like to have to admit. But the fact is that if the crisis is as critical as we believe, then we must forgo the social benefits which we have advocated. I believe that this is, unfortunately, even more the case when we are in a debtor position, because our foreign creditors measure our determination to put matters right—or the lack of it—by the social benefits that we are prepared to expand or to forgo.

Having said that, however, I must add that I do not follow the noble Lord, Lord Carrington, the whole way. I think that we should make one thing absolutely clear to foreigners in general, and that is that we are not prepared to regard the old-age pension as a donation which can be increased only in times of prosperity. People in retirement have a right to a decent pension which is not constantly eroded by inflation; and it is for this reason that for some years now (I think we first put it forward in the 1945–1950 Parliament) my Party, the Liberal Party, have advocated tying the pension to the cost of living, so that there is an automatic adjustment at quarterly intervals, instead of having these dramatic increases suddenly produced. For the effect on the unsophisticated foreigner is to make him think that we are handing out money that does not belong to us. I believe that the Government would be wise to get a different attitude on this whole question of pensions. Ideally, pensions should be tied to the national wage, but I believe that the first stage is to get some relation to the cost of living, so that when something is handed out it does not appear profligate to people who do not understand our welfare system. I have said that about pensions, because I believe that if we are to get through this crisis we need to get many things into perspective.

There seems to be fairly general agreement in the debate so far as to what our problem is, but I find no general measure of agreement on how the problem should be tackled. There are two interrelated problems: first of all, the short-term crisis, which seems to recur with ever-depressing regularity; and, secondly, as the noble Lord, Lord Champion, said, there is the long-term weakness in the whole economy. Those two things are separate, yet they are interrelated. The short-term weakness arises from the excessive demand in the economy, which has been exacerbated by heavy public expenditure, and the long-term weakness arises from the fact that, broadly speaking, we are far less efficient and far less competitive than many other industrial nations. I believe that it is in their effectiveness in dealing with these two problems, the short-term and the long-term, that the Government's performance will be judged. I am not interested in who was to blame in the past. All I am interested in is whether the Government measures, and the Finance Bill, are likely to prove effective, both in the short run and in the long run.

One danger is that some of the short-term measures proposed by the Government may well impede the solution of the long-term problem. This seems to me a real danger and one that has been inherent in many of the past crises. For instance, a major factor in getting improved efficiency in industry will be in going ahead with the trunk road motorway system. It is highly depressing to see that we are going to save something like £25 million on those roads. We know that American firms now, when calculating their costs of transport in Europe and in Britain, add on more for British road conditions because of the congestion. This is going to have a bad effect, in the long run, and therefore the Government ought to look at that problem again. I was glad to see that priority is to be given to the roads giving access to the ports. But it may well be that money spent on the docks, at the expense of something like housing—in which we all believe—may give us a much better long-term answer economically, and enable us to have many more houses, schools and hospitals once we have solved this particular economic problem. I think there will have to be a cut in housing and hospitals, and in services which we should not like to see cut. But I would say this to the Government: can we not try to organise some sort of building programme which can produce the hospitals, schools and houses that we need, with far more efficiency and far less effort, and yet perhaps achieve the same total without putting an excessive strain on the industry itself?

I am particularly worried about the indication that we had to-day that university building is to be cut. I hope that this does not mean—although I think it does—that there will not be as many places in the future as we had originally anticipated, because it seems to me, as I tried to indicate at Question Time, that the wrong criteria are being used. The Government gaily come and say, "We are very sorry, but the universities have to suffer with the rest." Then we are told that it will not affect areas where there is high unemployment; nor will it affect development areas. That has nothing to do with it. The test is, are we going to have the places we need to get the trained people into our industrial, academic and professional system? It has nothing to do with unemployment, and nothing to do with development areas. This is where I think there has not been sufficient new thinking in this field. I hope that this aspect will be looked at again. The suggestion that technical colleges may be cut seems to me to be ludicrous, wherever they are, because it is the lack of technology which is one of the root causes of our present inefficiency.

The Government have now been in power for over nine months, but I have seen no real effort to expose trade union practices and restrictive practices which are holding back developments which we, as a nation, could well achieve. I do not think it is sufficient to condemn these practices. The unions must be shown that increases in real wages can only come out of productivity. That should be accepted as the starting point in wage negotiations: how to get the productivity, and how to share it. This seems to me to be the new attitude which ought to be developed by the Government, who are so closely associated with the trade union movement. Then we have George Brown, who appreciates the vital importance of productivity, and who is making a tremendous effort to get the incomes and prices policy going. I think he should be supported to the full. But the policy itself is condemned, by implication, by Mr. Cousins, who hops off to his trade union, the Transport and General Workers' Union, and, by implication, supports them in their opposition to this policy. This cannot be right, and this is what I mean by getting things in perspective.

I know the Prime Minister's difficulties. I should not like to have his job of loosening one of the nuts—or should I call it one of the bolts?—in this carefully clamped together Cabinet—because one never knows what is going to happen there. There must be a declaration by the Government that these practices are wrong, and that we are going to have an incomes policy and a price and productivity policy. We can see the lack of success in this field when we look at some of the resolutions which have been put on the agenda for the Trades Union Congress in a month's time.

So far as the management side is concerned, I would suggest to the Government that a great deal more could be done to encourage managements to improve their practices. The good managements —and, thank goodness! there are plenty of them—are always looking for ways to improve their practices; but there are many who never even think of it. I went last week to what is called a presentation put on by the British Institute of Management, in which a firm with a particular success record, including the export field, demonstrated with full figures exactly what had happened to it over a period of fifteen years. They discussed quite frankly the sort of problems they had come up against, and the way they had to solve them. This sort of thing should be going on all over the country, if necessary with Government's support, because I am quite sure that this free exchange of views is something which must lead to the higher degree of efficiency that we need.

I come back to my main concern, which is two-fold: first, that in dealing with the short-term crisis we may continue to neglect basic long-term weaknesses in the economy; and, secondly, that the short-term measures will be so non-selective that they will positively postpone the long-term recovery. I regard it as absolutely vital that productive investment is not cut back too heavily; that the restraints are selective. We should not be afraid of creating a higher level of unemployment; but once that has been done, it is no use just having the unemployment—we need to re-train it quickly, to provide proper redundancy payments, and to regard it not as unemployment but as mobility of labour.

This is the sort of way in which we can get out of the trough we are in to-day. We should try to reduce imports—and I know how difficult this is—by methods which do not give added protection to lazy managements. This is one of the curses of the import surcharge. This is a dilemma, but it seems to me that it might be worth looking at the Italian system, where they insist that the importer puts down a deposit with the bank some days, months, or weeks ahead of his receiving the goods. This acts as a brake on the import without necessarily adding to the cost. I hope that we shall not prevent the entry of imports needed for a quick turn on re-export business. And here, selectivity is very important. I believe that the proper solution is not to be concerned so much with cutting imports as with making our exports far more competitive. In Germany, imports went up by 22 per cent. in the first six months of this year, but they kept their prices stable, because of this competition of the imports that were coming in, and at the same time they revitalised their export business. I think one can get too transfixed with the idea of cutting imports. It may well be that it is that breath of competition and fresh air that we need at the moment. However, I am quite sure the Government are fully aware of this.

There is only one more point that I should like to make, and it is this. One of the reasons for these recurring short-term crises could be a lack of up-to-date, reliable information on which to base decisions. I do not know whether the Government are satisfied about the reliability of the information which they get. For instance, are we considering using, or do we use, techniques which, including computers and simulated programmes, are able to indicate what is likely to be the effect of different actions open to the Government at any particular time? In dealing with a crisis like this, one could be seriously misled by having figures which were six months out of date or which were not accurate to within 2 or 3 per cent. I believe there is a serious danger that for these and other reasons the Chancellor's measures may take longer to be effective than he is banking on at the moment, in which case things will get worse.

There is a school of thought developing in industry to the effect that expansion plans must be pushed through now, because if we wait until 1967 it will be more expensive. If these plans could be postponed without affecting the economy they should be so postponed, and the Government should watch this, because there is the temptation to say, "If we wait until 1967 we shall have to pay another 20 per cent."

Therefore all I want to say on the Finance Bill in relation to the economic situation is this. I think the fact that the Government introduced a Finance Bill of 270 pages, weighing I believe a pound and a half, must have shown that they had not appreciated how serious was the economic situation in the country. Had they done so they would not have produced a Bill which was so far-reaching, which contained two major reforms at the same time, and which required so much amendment at its various stages. In my view, businesses ought to be concentrating now on improving their efficiency and not learning new rules. I think we could have taken the capital gains tax this year and the corporation gains tax could have been left until next year. The mere fact that we got this Bill gave people the impression that the financial situation was not really too bad, otherwise the Government would not have brought in a measure of this sort.

In past debates I have made clear my position in regard to companies with overseas interests, and, as the House knows, I have my own interest to declare, which I did in the last debate. As the noble Lord, Lord Carrington, said, there has been no fundamental change so far in the attitude of the Government to the problem of the overseas company as it is at present organised, and it means that in 1967 an efficient company trying to produce raw materials for this country will be suffering a tax rate of 70 per cent. which is a penalty not suffered by the American and other companies with whom we have to compete in exploiting enterprises like mines overseas. I am not going to rub this in. I think the Government will be forced in the long run—and I hope in the short run—to look at the whole question again. All I want to emphasise is that the Finance Bill will be over and we ought to be fully concerned now with getting this pitiful situation to rights.

I hope in dealing with the short-term crisis the Government's measures will be unpopular. If they are not unpopular I do not think they will work. I hope the Government will not be frightened of this temporary unpopularity. It sounds a paradox, but if they really are unpopular they will get support; they may become popular by being unpopular. But I hope that in dealing with the short-term measures they will be really selective. If they do that, then, as a nation, we shall begin to see the daylight at the end of the tunnel, and I hope we shall not have crisis recurring after crisis.

4.38 p.m.

BARONESS PLUMMER

My Lords, since my Introduction on June 2 I have attended this House diligently, hoping to absorb the atmosphere and to adapt myself to its unique procedures. I have been riveted with interest and, I must admit, fascinated. The more I listened, the more reluctant I felt to rush in with my maiden speech. For, my Lords, although it is known that your Lordships' response to maiden speeches is generous, good-natured and benign, I am slightly bewildered as to how to render my own. This is because I particularly remember the one day on which there were two maiden speeches by my noble friends. One of them, who seemed to me to be leaning over backwards to be non-controversial, was in fact accused of "not speaking to the Bill", whereas the other was accused of being controversial. I suppose there can be many interpretations of what is a controversial speech. Indeed, having seen and heard your Lordships in this House, and having noted the calibre of the speeches, especially those of the noble and learned Lords, I think that a debate on the interpretation of a controversial speech would be highly diverting.

This brings me to my own maiden speech, and I apologise to the noble Lord, Lord Rea, and the noble Lord, Lord Byers, that it is about agriculture. I submit that this is relevant to the Finance Bill for, after all, it relates to the question of the balance of payments. In passing, I will refer to the extent to which the increase in agricultural products since the war has saved us a vast amount which would otherwise have had to be paid for imported foodstuffs. I am a farmer, and have been for many years—but I shall not be very much longer if the present weather continues. I am also a member of the N.F.U., and have been for many years. In my view agriculture—our largest industry—has not been nearly enough exploited, so far as exports are concerned.

I should like to begin with just one small section of the industry as an example—livestock for breeding exports. Three years ago I was an exporter of breeding pigs and attended most of the Eastern European agricultural shows, including that at Moscow. Incidentally, I also had the great pleasure of winning the championship with one of my breeding pigs at the Markleeberg show. Alas! since my husband's death over two years ago I have reorganised my farming operations and no longer have livestock on the farm. I do not intend to have any in the future, for personal and practical reasons. However, I have been able to see the vast potentialities in this section of the industry. For example, last year £1,143,132 worth of cattle livestock was exported for breeding purposes. This figure represents a 50 per cent. increase on the previous year's figure, which was £858,211. In April and May of this year alone, the figure stands at £446,382, which progress, if continued through to the end of the year, will show a highly satisfactory increase on last year.

One of the reasons for these encouraging figures is that about three years ago a number of enthusiastic individual exporters decided on a special export drive to promote sales. They chose Eastern Europe for this drive, because in the past no special efforts had been made in that area, and because it was an obviously immediate market, not only for livestock but for machinery and all the ancillary products. In June of last year, the first British agricultural exhibition was held in Moscow. This resulted in sales worth £750,000 in Russia alone; and as a result of contacts made there and in the other Eastern European exhibitions the trade figure of £5 million to £6 million was achieved, with prospects of a very much larger figure.

One of the most encouraging aspects of that show was that there were many small exhibitors showing for the first time outside England. With proper encouragement and promotion this type of small exhibitor could be increased by hundreds. Together with the larger firms, they could make a very important contribution to the national effort. To give another example, there is a small firm in Devon which, not having previously exported at all, sold £75,000 worth of equipment to Eastern Germany as a result of last year's Markleeberg's Exhibition. They have also had further inquiries for another £200,000 of equipment and prospects of great interest shown by Czechoslovakia. This is just one small firm which, as I said, could be repeated by hundreds.

It is interesting to note that the machinery export figures for Eastern Europe alone were £855,650 in 1963 and £1,230,470 in 1964. The total figure for the whole of the industry is £200 million. If the same efforts that were made in the Eastern European markets could be extended to the so far untouched countries like Africa, South America and the Far East, there are no limits to what extent we could increase our exports. Given the right encouragement, which I see the Government are already initiating, there are many ways of going straight ahead. For instance, supplies needed by many of these countries include package deals, such as herbicide and pesticide plants, complete feed mills, plants for packaging cheese, butter, and margarine, egg grading and sorting equipment, poultry cages, milking parlours, and so on, for we do possess the highly specialised know-how in these products.

Of course, the right sort of credit terms are essential, and here again I see from various articles in the Press that the Department of Economic Affairs plan to help speed the flow of exports. We are well aware of the formidable array of countries like Canada, France, Western Germany and Italy as our competitors in this field, and they seem to have a different system of credit aid from ours. But I am convinced that we could compete successfully if only our exporters had the desire and will to do so, for it is a well-known fact that our techniques of mechanisation are recognised as being of the highest standard, as is shown by the following figures. One British farm worker is capable of feeding 27 people, as compared to the figure of 13 to 16 people in America, Canada, France, Western Germany and Italy—again our competitors. I believe that the 1947 Act revolutionised the agriculture industry, when Tom Williams was Minister of Agriculture. We have the good fortune of having Mr. Fred Peart as our present Minister, a worthy successor to the noble Lord, Lord Williams of Barnburgh, and he too saw the importance of agricultural exports when at this year's Royal Show he said that it displayed an emphasis on exports of quality products to all parts of the world. In fact, when he said this, matters had gone even further.

When I was preparing my speech I made a note that I should plead for some sort of board or council to co-ordinate and encourage exports of agricultural products. I find I have been overtaken by events. In fact, I see again from the Press that only last Thursday the Ministry of Agriculture and the Board of Trade met representatives from all parts of the agricultural industry and agreed the introduction of just such a board as I would otherwise have been advocating to-day. I note that the constitution of representation of this board is still to be worked out, and it is my fond hope that the agricultural worker might feature in this as well as the producer organisations. I have put my point of view, but whatever the outcome I am delighted to know that at last we shall have formal machinery for encouraging and stimulating our agricultural export programme.

However, at the risk of boring your Lordships, I should like to repeat that this will be no good without two other vital factors, the drive and enthusiasm of individual groups—the people who will do the exporting—and the expansion of our markets for agricultural products overseas. I have pinpointed the existing situation in Eastern European markets alone so far as exports of livestock and machinery are concerned. I have done this to illustrate that if the same sort of push and drive were made in other parts of the world the results could compare very favourably with those of other industries. Farming productivity is increasing at a rate of 5 to 6 per cent. a year, a figure almost double that of British industry. So far, and indeed for the past twenty years, other industries have not been able to close the gap of the balance of payments with sufficient speed. Of course there have been increases, but only marginal ones. We need fast and efficient increases, and there are signs in the agricultural industry that an increase of £250 to £300 million is not an impossibility given the right encouragement. These figures would go a long way towards closing the gap of the balance of payments. There are few other industries with such enormous potentialities.

I have tried to stress the importance of agriculture to this country and to the rest of the world. We have only to look at the recent reports of Common Market discussions, which seem temporarily to have broken down owing to disagreement on this vital question of agriculture.

4.47 p.m.

LORD ROBBINS

My Lords, it is always a privilege to follow a maiden speech, and I am sure that on this occasion your Lordships would wish me to congratulate the noble Baroness on her lively and distinctive contribution. In addressing myself to the subject matter of this debate, I confess that I have never felt more grateful for the asylum presented by the Cross Benches. We are confronted with a crisis in our affairs which is more menacing than any since the war, and as I myself conceive the issues it is difficult to adopt an attitude agreeable in all respects to either side of the House. The situation is indeed grim, grimmer, I think, than has appeared from any of the speeches made this afternoon so far.

Internally we are confronted with brisk inflation. Despite Mr. Brown's devoted efforts, the incomes policy is not working. Prices, as measured by the Cost of Living Index, have been rising at a rate of more than 6½ per cent. per annum, which means that all those who live on fixed incomes are likely to be that degree worse off. And if one takes account of the shrinkage in the real value of their holdings, those who hold Government stock yielding 6½ per cent.—an almost unprecedented rate in our financial history—will be lending at a zero rate of interest, and those who do not get 6½ per cent. will be lending at negative rates.

Externally the position is still worse. Our first line cash reserves have shrunk to a sum which would hardly purchase a week's imports. If we were not propped up by loans from abroad, the present parity of the pound would have disintegrated long ago. And although with the support we are receiving and the extraordinary reserves which we can muster we have managed to survive thus far, the future is very uncertain. The fundamental malaise of our balance of payments persists. It is true that the deficit is substantially smaller than it was a year ago, but it is still running at an alarmingly high rate and there are no prospects of a very rapid improvement.

Why has this happened? I think we get our perspective all wrong in this connection if we try to put the blame on deficiencies of productivity. I do not wish to deny the importance of such deficiencies. No one who has had the misfortune to have to use either London Airport or British Railways could be blind to shortcomings in that respect; and it would not be difficult to find a similar state of affairs in parts of the private sector. Nor should I wish to deny that, if productivity had increased faster and incomes had not increased, the situation would be substantially better. But these are long run considerations, highly important as regards our eventual rate of growth, but largely beside the point in relation to present difficulties. You do not get such sudden increases in aggregate production. That is why mere exhortations to produce more, to the neglect of other essential measures, are so pathetically irrelevant. You do not get a sudden emergence of difficulties in the balance of payments because growth is not as rapid as it might be.

But such a change, such a rapid emergence of difficulties, is the essence of the situation with which we are confronted. Three years ago we were not doing badly. Our exports were reasonably competitive, our imports not excessive. The figures for 1962 showed a surplus. Then last year we were out of balance to the tune of some £750 million; and even now, after all that has been done, that formidable deficit has been reduced by only half, if that. Is it really plausible to assume that such spectacular variations are the reflection of changes in productivity? I doubt it.

But if we reject explanation in terms of productivity, where are we to look? The obvious answer, I suggest, is in terms of expenditure. If aggregate expenditure grows faster than production, then the inevitable consequences are rising prices, lengthening delivery dates, increasing imports and increasing obstacles to a commensurate increase in exports. Surely this is what has happened. I should not wish to deny the influence of other adverse factors. But if we try to get things in broad proportion, I see no escape from the conclusion that the main cause of our present difficulties has been excessive aggregate expenditure. Given the fundamental disposition to save and spend, and the probable rate of increase in production, our fiscal and monetary arrangements have been such as to produce a situation in which domestic inflation and external disequilibrium were more or less inevitable. After all, this is not the first time that this sort of thing has happened. This is where we came in before.

In such circumstances, I must say that I see little point in much of the current recrimination about responsibility. I do not see how members of the late Government can repudiate some blame for failure to prevent the emergence of excess expenditure. They were in control, and they did not apply the measures of restraint that were necessary. But whatever they have done since coming into office—I shall be speaking of that later—I do not think that members of the present Government have much justification for reproaching their predecessors. I do not remember much talk on their part in the past of the necessity for going slow and curbing the rate of expansion. Indeed, I think the former Chancellor would be entitled to say to his critics, "True, I made a mistake. I underestimated the expansive forces. But if I had taken the advice I was given I should have underestimated them even more."

The fact is, surely, that public opinion has been in something of a muddle on this subject. We are all still suffering from the traumatic effect of the Great Depression of the 'thirties—the waste of manpower, the loss of production; and, regardless of the fact that the conspicuous phenomenon of the last quarter of a century has been inflation rather than deflation, we tend to exaggerate the danger of the latter and ignore the danger of the former. We are so afraid of running the economic machine at under-capacity that we are always tending to run it beyond its capacity to work without rising prices and difficulties in the balance of payments. We are so barren of invention that we seem to think that the only cure for some long lasting unemployment in the North East and parts of Scotland is to blow up the rest of the system until developing industries elsewhere find it almost impossible to recruit labour. And then, when repeated difficulties of this kind make it impossible altogether to ignore the dangers, we tend to deceive ourselves with the belief that if only the employers and the trade unions would be reasonable, all would be well.

I am not one of those who oppose an incomes policy. I am quite sure that in an economy such as ours something of the sort is desirable, if only to regularise matters in the public sector. But I am sure that all experience shows that employers and trade unionists alike would have to be recruited from some other planet before, in the face of pressures of the kind to which they have been exposed since the war, they abstained from attempting to raise wages and prices. I admire greatly the spirit which underlies Mr. George Brown's endeavours; but I am sure he will not succeed unless the pressure of demand is abated. And I would say, as regards public opinion, that the most urgent need is the realisation that, as has been recently argued by the O.E.C.D. Report, to which allusion has already been made, it is "Go-Stop", rather than "Stop-Go", policies which underlie most of our recurring difficulties.

In such circumstances, I find it wrong to withhold tribute to members of the Government for the broad conceptions with which they are tackling our present difficulties. I say "broad conceptions", for I can think of points which are not mere details on which I have many doubts and reservations. I regret the timing of the deflationary measures. A stiffer dose last Autumn might have avoided the necessity for still stiffer doses now. I wonder whether what has yet been done is sufficient to prevent grave continuing difficulties. And I regret very much indeed that so much of the pressure is put on the investment rather than the consumption end: that it bears on provision for the future—roads, public utilities, universities—rather than on enjoyment in the present. In my judgment, a stronger dose of the regulator at an early stage would have been preferable to much that has been done recently to discourage new construction. But, when all that has been said, I think we should admire the empiricism with which the Government has tackled the difficulties, putting the strength of the economy before adherence to inappropriate dogma and ideology. And I should regard with considerable distaste any attempt on the part of opposing Parties to make capital out of the ardours and endurances which such a policy may entail. I wish I could give similar praise to some of the more permanent measures embodied in the Bill which is the pretext for to-day's discussion. But, where these are concerned, I find myself in sharp opposition, both as regards substance and as regards the mode of their introduction.

I suppose few of us would object to the principle of a capital gains tax, although there are practical reasons why I personally have never felt very enthusiastic about proposals to introduce it. But in order that the principle may be acceptable, it is surely essential that it is only capital gains and not capital holdings as such which are singled out for taxation. And that is precisely what the present tax completely fails to do. There is no clause in the Bill which distinguishes the nominal increase in capital values which is, or should be, the normal accompaniment of a fall in the value of money, from real increases which may take place when the changes in the value of money have been eliminated.

This is no fine-spun academic point: it has the most important practical significance. It means that in a period of rising prices a man who has put his savings into equities to escape the inevitable depression of gilt-edged securities is taxed on realisation, even though all that has happened is that the value of his holdings has just kept pace with the decline in the purchasing power of money. That is to say, he is subject to a capital levy even though the real value of his capital has remained constant. I must say that I think this is flagrantly unjust. I also think that, in a period when one of the main desiderata is an increase in savings, it is inexpedient. The secular inflation has already undermined confidence in Government securities, and the capital gains tax is a disincentive to investment in general. I suppose it will be said that you cannot expect any Government to legislate on the assumption of its own bad faith and incompetence as regards the value of money. I can only say that I should have much more confidence in any Government which provided safeguards against just this danger.

As regards the corporation profits tax, my objections go even deeper. I object to the fundamental principles involved. I was taught by my very dear friend and splendid teacher, the late Lord Dalton, that taxes on profits as such, as distinct from taxes on the individuals who receive them, were unfair and regressive. And I object fundamentally to the principle that the joint stock company as such is an entity which should be treated differently from the individuals who own it. I am not suggesting that shareholders can run a company. Nor do I believe that management should always pay out to shareholders all profits as they arise: the distribution of earnings involves considerations of long-term as well as of short-term interests of shareholders. But I believe that it will be a bad thing for this country if ever it comes to be assumed that the payment of dividends is simply a ritual to keep the stock markets sweet, and that, if shareholders ask for less retentions, management should be deterred by the tax structure from complying with such demands. That is the precise intention of this tax—in so far as its intentions are discernible.

Objections of this sort, both in regard to the capital gains tax and in regard to the corporation profits tax, have perhaps little direct relevance to the present difficulties of the economy. But there is much relevance in the manner of their introduction. I am clear that this has a substantial responsibility for the general falling away of confidence, which is one of the main difficulties in the position of sterling at present. The introduction, at short notice, of changes affecting seriously the position of so many individuals and companies, the ham draftsmanship involving such a host of Amendments, the appalling complexity and obscurity of the Bill, even in its amended state, has created among those affected an impression of an underlying hostility to what goes on in the private sector which it will be very difficult, I am sorry to say, to remove.

I do not myself believe that this is true of Ministers, or indeed of their permanent advisers. But the impression is there. The change in the attitude of the leaders of industry and finance is one of the most conspicuous features of the psychological history of the last few months. And it tends to communicate itself in wider and wider circles. It is no use saying that all this is discounted abroad by the foreign creditor who is used to taxes of this sort. He may be used to this kind of tax, but he is not used to this mode of imposition; and, however wrongly, he has new fears for the future of capital holdings in this country. It will take much to live this down.

May I revert to more immediate problems? It is one of the drawbacks of the particular measures which have been adopted that they must take some time to show their effects. At present, despite all that has been done to deflate the economy, we are still in a state of high boom. So far, the curbs on investment are operating only in the planning back-rooms and in forward contracts. That is one reason why I should so much have preferred the use of the regulator, which can be relied on to operate strongly within a short period. But it is difficult to believe that they will not eventually produce some effect. I personally should be surprised if there is not some braking visible by mid-winter.

The momentous question remains, how much? Will the measures which have been adopted so far be sufficient to check the inflation and restore health to the external balance? Remember always as regards this latter, that we have not only to wipe out the present deficit, but also to repay what we have borrowed and to create sufficient surplus to play a suitable part in the development and pacification of the world as a whole. To the question, "Are the measures sufficient?", I find it difficult to give a definite answer, for there are so many unknowns involved. I would only say that if the Government—who should have better information than the rest of us—have any reason to doubt the effectiveness of what has been done up to date, they should not hesitate to act further. And they should not be deterred by the fear of depression later on. I find it difficult to believe that the present degree of deflation, or even some intensification thereof, is likely to cause severe depression.

After all, we are still operating at a capacity of 98.8 per cent. as measured by the employment percentage. Contraction to the figure which, in the past, has meant something like equilibrium could not by the wildest use of language be called a disaster. And if by any chance it seemed that the mark was being overshot there are plenty of means available to reverse the process. Too often, since the war, the adoption of policies to curb undue expansion has been delayed on the pretext that depression was just round the corner—as if you should delay operating the fire hose for fear of rainy weather the next winter. Our business is to solve the problem which now confronts us, not to shirk it because other problems may arise later on.

Amid all these uncertainties it is natural that there should be prevalent in many quarters queries concerning the future rate of exchange; and although, doubtless, there are considerations of prudence which should guide what one says in this connection, I do not think that it should not be mentioned in this House. When every economist and every businessman with foreign connections is discussing this question, it does not seem very grown up to proceed as if it did not exist. Let me say at once that I approve of the decision which the Government took last year to maintain the rate of exchange. In my judgment, it would have been an ignominious thing to have resorted to devaluation without making any effort to see whether the situation could be cured without it. It would also have been a dishonourable thing with so much foreign money here, which had been so placed in the belief that the rate would be maintained, would not be abandoned without a struggle.

However, I should also like to say that I am not one of those who would be opposed to devaluation in any circumstances. As the only surviving U.K. economist delegate to the Bretton Woods conference, I still believe firmly that, if an economy finds itself in what the statutes of the International Monetary Fund describe as a "fundamental disequilibrium", then, rather than inflict on itself catastrophic deflation in order to maintain existing rates, it is better for it to cut its losses and, with due consultation with other centres, adjust to a new parity. But, my Lords, the governing word is "fundamental". The men who drafted that statute, I can assure your Lordships, had in mind the disequilibria of the inter-war period, the great depression, when severe contractions and mass unemployment were insufficient to restore the position of countries such as Great Britain and the gold bloc. They were not thinking of the disequilibria of economies running at 98.8 per cent. of capacity. They were not creating an instrument providing for changes of parity on each and every occasion when spending gets out of line with domestic production and the international conditions of supply and demand. And when I think of the perilous dislocations in the world at large that would inevitably be caused by the devaluation of sterling at this juncture, I cannot but applaud the decision of Her Majesty's Government to try to fight it out the hard way.

But supposing that, as time goes on, all reasonable measures fail to work. Supposing that the withdrawal of capital becomes insupportable, or that it becomes clear that the external balance will not be restored at the existing sterling rate, save by measures which would recreate the unemployment conditions of the interwar era, then I have little doubt that we should choose the alternative of devaluation—or rather, as I should prefer, letting the rate float until the time had come when we could see what permanent rate was appropriate.

Then, supposing that day should come—I profoundly hope it will not—let no one think that that solution would be an easy way out of our troubles. Let no one think that just letting the sterling rate go would mean an end to the need for restraint and circumspection; and that, if the pound were devalued, we could just heave a sigh of relief and begin the next spending spree. We have seen that sort of thing elsewhere; and both theory and experience combine to teach us that if, in the event of devaluation, a strong curb is not still kept on aggregate expenditure, the whole process begins again—indeed, the depreciation of the rate of exchange itself becomes a factor in a further inflationary process. I hope and pray that we shall not have to contemplate this danger. But if we do, then it is quite fundamental that we should see to it that the adjustment of the rate of exchange is an adjustment to an internally stable position.

Our position is indeed very serious. There is no easy way out of these difficulties. But that is not to say that the difficulties are insurmountable, that there is no way by which we can emerge from this crisis. I think that, whatever happens, we are going to have a tough journey. But I am fully convinced that, with clear heads and strong nerves, we can come through. The important thing is to get our ideas straight, and to face the situation without illusion and without prejudice.

5.15 p.m.

VISCOUNT ECCLES

My Lords, I should like to add my congratulations to those expressed by Lord Robbins to the noble Baroness, Lady Plummer. I was so glad that she chose to speak on agriculture, and as a beef producer myself I hope that she will often intervene in our debates and give our industry, which can do so much more, the support that it needs.

The noble Lord, Lord Robbins, has made a most impressiv speech. I think we are extremely fortunate to have a Cross-Bench in your Lordships' House from which speeches of that calibre and weight can be delivered, and I would not disagree with anything the noble Lord has said about the seriousness of our position. But I should like to be "odd man out" this afternoon and talk about the Finance Bill itself; and, in particular, to pursue some of the reflections upon the corporation tax which the noble Lord. Lord Robbins, put before us in such a very thought-provoking way.

It must be clear that the two most important sections of this Bill are the capital gains tax and the corporation tax, and in another place Treasury Ministers said firmly that we must consider these two taxes together. Mr. Diamond said that no man in his senses could contemplate the introduction of one without the other. What, then, is the single premeditated aim of these fiscal twins? As your Lordships know, the [...]ate at which a new tax is first levied is usually modest, the intention being to increase the rate in future years and gradually to reveal the full purpose of the tax. So in considering the social and political effects of the Finance Bill, we should not assume that a rate of 30 per cent. for the capital gains tax, or of 35 to 40 per cent. for the corporation tax is intended to be the maximum rate for all time.

Be that as it may, in my submission, even if these two starting rates are never increased, the taxes are bound to have a very significant effect upon our society; upon the relations between one set of people and another. For myself, I would welcome some social changes at this time. Indeed, some very big changes are required, if only because the old constraints of poverty and unemployment, and also, over a certain sector of our economy, the constraint of competition, have been largely removed. Managers and work-people have acquired a new freedom of action but, as the noble Lord, Lord Thomson of Fleet, said in an important speech in this House a week or two ago, we are not adjusting ourselves responsibly to this freedom which has been brought by affluence. We are lacking something very important; something to put in the place of these old constraints. One thinks of a better understanding of the general good, and a willingness to accept voluntarily discipline which we accepted before because we had to. Mr. George Brown is calling in vain for such a sense of common purpose; but, of course, he cannot make himself heard. His voice is drowned by the Prime Minister's sarcasms, and by all the inconsistent actions and statements of other Ministers; not to mention the thousand Amendments that had to be put down, and debated, to this Bill.

So the question I want to ask is whether these two new taxes, so important in their principles, are well-chosen instruments for promoting the responsible and vigorous society that we all wish to see. The common object of these taxes—the pair of scissors of which each is one blade—is the intention to reduce the private ownership of wealth, and especially to reduce the value and influence of the ordinary shareholders upon British business. This is what makes this Finance Bill so interesting. It is the first taste of a new kind of Socialism. No one objects now to using the taxes to reduce gross inequalities of wealth. In the field of incomes, surtax and full employment have gone a very long way in levelling down and levelling up. A bricklayer to-day has more to spend than his parish priest, and a motor car and a holiday abroad are within the reach of millions. Now that, under Conservative Governments, there has been such a levelling up in incomes throughout the country, it is hardly surprising that a Socialist Administration should turn a green eye upon the private ownership of capital.

In my view, capital is not a sacred cow which no Chancellor should milk: but, my Lords, justice is one thing and jealousy is another. The capital gains tax, as the noble Lord, Lord Robbins, pointed out, is introduced with no provision against deterioration in the value of money, and is to start at a rate and in a manner that could easily become merely vindictive and do irreparable damage to the flow of private savings. I fear, too, that the provisions dealing with short-term capital gains will make the capital market much less flexible for all kinds of transactions, and certainly much less attractive to international business. I never thought that we should see a Chancellor of the Exchequer, with the cheerfulness of a man who does not know what he is doing, strangling his own child—the market in gilt-edged securities. From now onwards the prices of all Government stocks will be arrived at on a mass of different considerations, all of them wholly unrelated to economic logic.

Then, the attempt to value works of art as though they had been sold on April 5 last will lead to a great many injustices. Anyone who has anything to do with the market in works of art knows that this is a ridiculous proposal; and I hope that next April, a Conservative Government, while keeping a permanent capital gains tax, will get rid of the short-term provisions, will take gilt-edged securities right out of the tax, and will exempt works of art acquired before April 5, 1965.

Now I want to return to the corporation tax. The Government say that one reason why they had to have the capital gains tax was because the corporation tax is designed to persuade companies to retain profits and not to distribute them. They say that retained profits might compensate the shareholder for a lower dividend by adding to the value of his shares; and, therefore, like all good Socialists, they are determined to see that the shareholder does not get an untaxed profit on his investment. The drift of this argument can, I think, be better appreciated if I look for a moment at the underlying purpose of the corporation tax. Why did the Government introduce it in this form? They could have done everything they wanted to do by way of penalising distributed profits without all this upheaval in company accounting. They went for the kind of tax we have before us because, as a matter of political principle, they wished to separate the interests of the managers from the interests of the shareholders. In another place, Treasury Ministers made no bones about this. They said that it was their desire to diminish the value of ordinary shares and to diminish the influence of the shareholders on the conduct of a business. We have to ask ourselves whether or not this is a wise policy. Will the attack upon the ordinary shareholder, which can be pressed right home as the rate of corporation tax is increased, help us to solve the long-term economic problems which are so familiar to us?

Here my Lords I think there are two relevant, major problems. First, we have the growth of very large companies. Some 300 companies now undertake two-thirds of all the new investment in privately owned industry. This development brings with it the need to find ways of making the comparatively few people who control these great aggregates of power susceptible to social and political pressures. Therefore the responsibility of management is the first problem; and the second is the old division between capital and labour. We are taking much too long to overcome these out-dated attitudes to what should be a combined effort to produce more, and produce more efficiently. No changes in society are more urgent than those which would follow from the discovery of new ways to knit together the interests of capital, management and labour, and the interests of all three with the national good.

I am going to suggest to your Lordships that the corporation tax will fail to make a contribution to either of these problems—and, indeed, must make both of them considerably worse. Take, first, some of the pressures to which managers should be susceptible. They ought all the time to be pushed to reduce the unit costs of their output. But in conditions of creeping inflation and full employment the pressure is not there: all too easily the increased costs are passed on to the consumer. Again, management should feel the pressure to earn the highest possible return on the assets under their control. If they are not capable of doing this, someone more efficient should take over those assets and use them fully. How can pressures of this sort, in the conditions in which we are living to-day, be brought upon managers and be understood by all those who work in the business? We do not want to go back to the stick of poverty and mass unemployment—although, when I heard the noble Lord, Lord Robbins, I wondered whether he was not right in saying that there is nothing we can do except deflate really hard.

But, my Lords, the serious feature of the corporation tax is that it embodies the doctrine that the shareholder is not a fit person to assist in putting such pressures upon managers. If he is not, then comes the sinister question: who is? I know that Labour Party economists argue that ordinary shareholders in our big companies have had a negligible influence upon the managers of these businesses. In their view, if the shareholders do put on any pressure it is pressure for dividends higher than is good for the long-term health of the company. This contention, like so much else that the Labour Party are saying, is quite out of date. To-day, 25 per cent. of all the ordinary shares in British business, some £6,500 million worth, and over 50 per cent. of all the fixed interest securities in British business, are owned by insurance companies, by investment or unit trusts or by pension funds. These funds are expertly managed. Thanks to the new profession of investment analysts, we are seeing the development of very well informed views on the relative success of capital employed in one business as compared with another. The modern industrial manager, as I know very well, has to base his decisions about the employment of new capital on the standards demanded by these expert investors. This is very good for British business, but—and here is my point—this is a discipline which the corporation tax is expressly designed to weaken.

I should like to examine a little further this kind of discipline, because the new and salutary pressure which is being exercised by the representatives of the ordinary shareholders is only part of a social change that is growing very fast. Already, millions of families in this country have a stake in the equity of British business through their insurance policies, in their holdings in unit trusts and, above all, in their pension funds. But direct investors also, and particularly women, are becoming each year better informed about the affairs of the companies in which they are shareholders. My noble friend Lord Ritchie of Dundee, when he was Chairman of the Stock Exchange, did very fine work in this field and I should like to add my congratulations to him on his Privy Counsellorship. This dissemination of financial information is a very healthy process, because we shall never have enough capital to do all that we want to do; and the better informed are people who have new capital to dispose of, the better for the economy as a whole.

If we look only a few years ahead we see the opportunity for every man and woman to become an owner of property; that is, a capitalist. I know, of course, that the Party opposite were brought up to believe that such a development would be deplorable. We on these Benches have always held that the principle of "every man a capitalist" was a good thing; first, for social reasons, because a man without capital has only a limited freedom; he may find himself at the mercy of his employer or overwhelmed by some accident of fortune; and, second, because this can lead to very important results in labour relations; which is the problem that I raised a moment ago. How are we to knit together the interests of managers, wage-earners and the public at large? The Socialist answer, exemplified in this tax, is that when greedy shareholders no longer put on pressure for higher dividends, these managers and their employees will work with greater harmony and greater efficiency; further, they will take into their calculations the public interest, in place of the interests of the irresponsible owners of the business. But all the evidence we have shows that this will not happen. The nationalised industries have proved what does occur when managers do not have to think about their shareholders.

Why is nationalisation so unpopular to-day? It is precisely because the Socialist dream—that once the State owns the capital, managers and men will work harmoniously and efficiently together for the common good—has not come true. The public have seen through this delusion; the man in the street feels that his ownership of the assets does him, as an individual, no good at all. He has to buy what he is offered at prices that he really cannot compare with anything similar. And what does he get in return? Labour relations are not noticeably better in the nationalised industries; in many cases the service is noticeably worse (as one can see from the columns of The Times this morning), and the public receive not a penny of dividend for all their immense investment; indeed, there are huge losses to be written off. If the total elimination of the private shareholder has had disappointing results in the nationalised industries, why should we expect any better from the gradual elimination contemplated under the corporation tax?

There is an old-fashioned fallacy behind this tax. It is that those who work in industry, whether paid a salary or a wage, are one set of worthy people, whereas those who own the equity of the business are another, and unworthy, set of people. That conception of the two sets has never been entirely true; and every day now it is becoming less true. The overlap between these two sets of people is already very large. Directly or indirectly, we are all shareholders now, and the community of interests is growing between a man at work and a man who is saving. Here is one of those social changes which, if properly understood and encouraged, should be of immense value in going beyond the old divisions between capital and labour.

I agree with the noble Lord, Lord Robbins, when he said that men cannot be exhorted suddenly, and at one jump, in peace time, to put their own particular interests away and to think first of the common good. It is much wiser to be patient and to proceed from one stage to the next; to build up a network of less ambitious loyalties—loyalties to the place where we live and work, loyalties to the industry or profession to which we belong, loyalties to our club or to our hobby which occupies our time in our leisure hours. Where such limited loyalties do not exist, few men do their best; and, as the noble Lord, Lord Thomson of Fleet, reminded us, many men do not even pretend to work hard. We can see this happening all around us to-day.

As I said earlier, the public do not feel that they own the nationalised industries and, therefore, in these industries there is something seriously lacking without which the common loyalties between employees and owners cannot grow and are not growing. But in the private sector a much better chance presents itself for establishing a common interest between the workers and the owners, especially now that so many employees are becoming owners, in one way or another. This is a truly beneficial development, but it is a development which the corporation tax deliberately stops. The tax brings pressure on managers to pursue policies with less and less regard for the shareholders. The authors of this measure, because they are Socialists, set their faces against encouraging a community interest between capital and labour, the kind of dynamic community that could lead to a discipline that both would understand and accept.

In the form in which this tax is introduced, it is a bad tax. In combination with the capital gains tax it will damage savings, and it will increase, rather than curb, the irresponsibility of managers and men. I regret this very much, because in the difficult and depressed conditions into which we are going, and for which the Government have to bear so much responsibility, there can be nothing more important than to find new ways of knitting together the interests of capital and labour. I can only hope that before too long Mr. Edward Heath and his right honourable friends will have the power to amend this bad Bill.

5.39 p.m.

LORD WINTERBOTTOM

My Lords, my first speech in your Lordships' House naturally awakens some diffidence in me. My apprehension is increased by the fact that I am about to indulge in an essay in the "dismal science"; and, what is worse, I am doing it so shortly after the magnificent speech of the noble Lord, Lord Robbins; but I will endeavour to be brief. My noble friend Lord Champion, when opening this debate, drew our attention to the analysis by O.E.C.D. of the fundamental problem facing the country, namely, the problem that we are constantly facing with our balance of payments. I am hoping to make some contribution towards the solution of this problem in my speech to-day.

I believe that we have to create adequate exporting incentives as an essential part of our concerted attack on our general balance-of-payments problem. But may I say, in passing, how I deprecate the note of panic which can be heard on the subject in many places? Without shedding any of our international responsibilities, which would, of course, be a short cut, and a bad one, to a solution, we could, by exporting, say, a further 2 per cent. of our gross national product, bring our accounts fully into balance today. To ask our nation to send a further 2 units out of 100 abroad is not, I believe, to ask the impossible.

Any Government dealing with this problem has to mount a three-pronged attack on it. The first prong is the provision of Government services, information and so on, and the provision of adequate credit facilities. I think it true to say that information facilities nowadays are excellent and the credit facilities available as good as those available in any other nation. The second prong of the attack is the negative one of reducing imports by such steps as the import surcharge, and the restriction of home demand to free industrial capacity for export manufacture. Everyone agrees that the second course is restrictive and defensive, is a hindrance to a national growth policy, and does not necessarily win friends abroad.

It is the third line of attack that I wish to discuss to-day, and that is a policy of going over to the offensive and of increasing our exports by the provision of adequate export incentives. By "incentives" I do not mean exhortation; of that we have had more than sufficient. I think it true to say that an aggressive policy will not be possible until the basic facts are grasped. The first is that profit margins on goods sold in export markets must, almost by definition, be lower than if the same goods were sold at home. The second is that the responsibility of directors of companies is to their owners, the shareholders, not to the State or anyone else. Their job is to maximise the return on the capital entrusted to them, and they will tend, therefore, to sell their goods in the market where they can earn the greatest return.

Your Lordships will notice that I said "tend", because in fact a responsible board will take the national and other interests into some account. Mr. Harold Wincott, in a recent article in the Financial Times, wrote: Although it is clear that when the chips arc down it is the shareholders who take the decisions which really matter about the future of a company, I have the best reasons for knowing that the successful company is the company which gives equal weight to the interests of those who own it, those who work for it, those who buy its products, and, if you like, the interests of the community at large. Indeed, I don't believe any company can succeed if it doesn't give equal weight to all those interests. I would agree with Mr. Wincott's sentiments but not his weighting. The first responsibility of boards is to their owners, and all the rest is enlightened self-interest; and enlightened self-interest, I think your Lordships will agree, is about as common a virtue as common sense.

I hope your Lordships will excuse me if I illustrate this point from a company about whose work I know something. The company is relatively small and efficient and operates outside the trade association of an industry dominated by two giants. The quality of its products is high and its prices below those of its rivals. It can, therefore, sell all its output in the home market, or indeed in the export market. It cannot quickly increase production because it works 24 hours per day in a continuous cycle of 24 weeks. It takes care to grow only as fast as its rivals, so as to ensure that the wrath of Gog and Magog is not awakened. The profit margin on home sales is about 10 per cent. and that on export sales about 6 per cent.

A complete switch from the home market to exports would mean a drop in the trading profit of 40 per cent., which would be unacceptable to its owners and, for many reasons, bad for the people who work in it. The compromise, born of enlightened self-interest, which has been worked out by the firm, is that exports are limited to about 12 per cent. of its total sales, which enables the firm to make some contribution towards the cost of its imported raw materials and to keep in touch with developments overseas. If an export incentive of 4 per cent. were given, it would be as profitable to sell abroad as at home, and it would become possible and acceptable for this firm to send a far larger proportion of its output overseas. But, let us face it, until the return on export sales can be brought nearer, by fixed fiscal action, to that on home sales, it will be no good telling directors to rise to their feet and get cracking on exports.

If the problem is to be solved, our fiscal system must be adapted to make it more beneficial to owners to export than to sell at home. My right honourable friend, the Chancellor of the Exchequer, in November last year, I think it was, took the decisive first step with his export rebates scheme. This is excellent in principle and I believe a very important breakthrough in our approach to this problem; but, because of the basic differences between the British and the Continental systems of taxation, this type of export rebate can be only limited in its extent. It is not yet large enough to equate the profitability of selling abroad with that of selling at home and it cannot become large enough until the spread of indirect taxation on which the Chancellor can draw for this purpose is far wider than at present.

I think it should also be brought to your Lordships' attention that this rebate is far smaller than the equivalent rebates offered, for instance, to our German competitors. Again I hope that the House will forgive me if I give an example from my own experience. A product, if made in this country, is granted an export rebate of 1½ per cent. If the identical product is made in Germany, a total rebate of 7 per cent. is granted, made up of 3 per cent. refund of turnover tax and 4 per cent. export rebate. My German friends inform me that it is believed that a similar French product would be granted an overall rebate of 20 per cent., although that sounds unbelievably high.

I believe that we must continue to reform our fiscal system in order to take these facts into account, and that as we reform it we must work towards a system closer to that existing in Europe. I believe it for two reasons. The first is because I am sure that we must throw in our lot with the Europe which one day must evolve from the discussions which are taking place there at the moment. To prepare for this day we must cease to be peculiar people and try to do the routine things in the Continental fashion. Secondly, I believe that only by adopting the added-value tax in one of its forms can we, while honouring our international agreements, give our exporters the incentives that they must have to make it possible for them, while carrying out their duties to their owners, to send their goods abroad rather than sell them at home.

I make this suggestion knowing what a burden on the Treasury it would be—and I should think that the Treasury has carried quite a burden in past years. I also know that such a change of taxation must cause a significant shift in the price structure of this country. Yet, my Lords, I believe that in the long run this is the direction in which we must go, because it is the direction in which members of the Common Market are going. The change must, of course, take time. The year 1969 is the European deadline for a common added-value tax, and so perhaps an alternative interim measure might merit consideration. France and Germany both have payroll taxes which can be, and are, treated as indirect taxes by international convention, and hence can be used to finance export rebates. A tax of this kind would be simple to operate, it would not affect the balance of our price structure to the same extent as would an added-value tax, and it could be used—I think this is important—to prevent the wasteful usage of labour which is one of the shortcomings of our economy.

I hope that my noble friends who are in a position to influence the fiscal policy of this country will consider this suggestion. I hope that they will not be over-influenced by the Richardson Report, which I believe to be a thoroughly negative document. And I hope that they will recognise that it is not always idleness or vice which inhibits many firms from sending a larger proportion of their products abroad, but simply that it is sometimes unprofitable to do so and that their board's responsibility to their shareholders therefore makes it impossible. Perhaps at this moment it may be worth while to pay tribute to those firms who have done so much in the field of exports, in spite of the more realistic fiscal policies of their competitors' Governments.

5.51 p.m.

LORD GRANTCHESTER

My Lords, my first duty and pleasure is to congratulate the noble Lord, Lord Winterbottom, on his maiden speech, even if some of us may have reservations on some of his arguments. On the point that we should move nearer to the fiscal policies adopted by the countries of the European community, I would agree with him. The noble Lord is no political novice, nor is he without experience in industry, as we have observed from his remarks. In addressing your Lordships he has drawn upon a past in which he has already distinguished himself. I am sure that I may say on behalf of all that we shall listen to what he has to say on future occasions with pleasure and with benefit to our understanding of current problems.

As I have already explained to the noble Earl the Leader of the House, I have a month old engagement for this evening which I cannot miss. I have apologised to the noble Earl and I wish to apologise to other noble Lords who might have thought me discourteous in leaving before the end of this important debate.

After the speeches of the noble Lord, Lord Robbins, and the noble Viscount, Lord Eccles, I should not wish to detract in any way from what they have said. Rather do I hope in more homely and general terms to continue along similar lines. There is no longer an opportunity of influencing any changes in the Bill before the House, so I do not propose to prolong the arguments about the many details which make it, in my view, a damaging blow at recovery and a barrier to the restoration of confidence. There is no need for me to repeat the arguments of the noble Lord, Lord Robbins, who has put them much better than I could, but I believe I am in agreement with him in coming to this conclusion. It is a national disaster when confidence at home is undermined; it is an international disaster as well as a national disaster when confidence abroad in this country and its good sense is undermined.

Perhaps I may say a few simple words in support of another point made by the noble Lord, Lord Robbins. I myself meet quite a number of those who are occupied in business and industry and the ancillary services. They are full of uncertainty about the meaning and implications of this Bill. They have spent a lot of valuable time which could have been better employed in discussions with lawyers, accountants and actuaries. The lawyers, even those who specialise in this field, say that it is likely to be some three years or more before the implications of this Bill can be fully judged.

Uncertainty in the effects of legislation is always bad. At a time like the present, deliberately to create uncertainty is unforgivable. To put it in plain language, this Bill has made many businessmen feel that their work has been made a pest rather than a pleasure, and that they are being harried by petty persecution, whatever Ministers may say about their intentions.

To what have Government descended when a report by the City Editor of a widely read evening paper last night can contain a sentence like this: The Bank of England and Treasury are free to 'cook the books' and have been doing so for some months. This, at a time when there is a widespread feeling abroad that the Government have shown an unusual disregard of the rules of good housekeeping which the world believed had become an integral part of the British character. This was the shock which first shattered confidence.

The present Government are not committed to joining the European Economic Community. They are committed, however, to following the same pattern of administrative development, a point made by the noble Lord, Lord Winterbottom. During our recent economics debate I asked for a comparison of the burden laid upon a British citizen compared with the burden upon his German competitor. I got no reply. The answer is that the scales are weighted heavily against the British citizen. There are some special reasons for this, and recently I addressed a question to the Council of Ministers of Western European Union to look at these reasons and express an opinion on them. My question to the Council of Ministers was by-passed and, so far as I know, the British representative on that Council has tabled no memorandum on this question which might help the serious consideration of our world-wide obligations in a European setting. In my view, this problem is not being tackled in a sensible way.

Coming hard upon actions which I believe have irretrievably damaged confidence in the present Government at home and abroad, about which we spoke yesterday, we have now the spectacle of the reversal, or retraction, even if called temporary, of so many of the policies and professed beliefs of the Government Party paraded before the electorate during 1964. I apologise to Members of the Government for saying this, as I have received, personally, from them the utmost courtesy. For their views on some matters I have the greatest respect, but, with proper deference to the humility which we must try to show on all occasions, I cannot conceal my opinion—and it would not be right for me to do so—on matters which are overridingly vital to the recovery of this country.

Although in my youth I was taught that it is the business of an Opposition to oppose and not to propose measures, I will say that, in my view, the present difficulties require a further tightening up of the quantity of money in circulation (which I think was the effect of one of the points made by the noble Lord, Lord Robbins) together with, at the same time, a substantial cut in existing protective tariffs. This is the only way we can ensure a competitive spirit in British industry. When the new franc was introduced and the reform of the currency undertaken by M. Rueff this was the action taken. By acting as it has done, in taking a new attitude on major aspects of foreign policy—for, my Lords, either the Government Party was right in 1964 and is wrong now, or if it is right now it was wrong in 1964—it is not only on foreign policy that it has retracted. In handling the incomes policy it started off by setting the worst of examples. In its contradictory acts affecting the welfare services, mortgages, efficiency, the cost of living and inflation, I think it has really made itself ridiculous. I notice that the Daily Telegraph this morning calls part of the policy "ludicrous".

Ministers have appealed to those who do not agree with them to help the country's recovery by patriotic effort. Well and good. But, with the greatest respect, I would say to Ministers that, if they find it impossible, as I fear they may, quickly to regain the confidence they have so disturbed abroad and in large measure at home, and if they find it impossible, as I fear they may, quickly to live down the sense of having become ridiculous by the wide variety and contradictions of their thoughts and actions, the only patriotic course that I believe they can adopt will be to invite the electorate to pass the task of governing to a new Government. I know that this would bring bitter disappointment to Ministers and entail personal sacrifice, but I am sure they would face up to such a decision rather than allow disaster to overtake this country. I am distressed that Parliament should be sent away at such a moment. In my opinion it should be recalled to review the position within a matter of, say, four to six weeks.

6.5 p.m.

LORD CITRINE

My Lords, I should like to join with the noble Lord, Lord Grantchester, in offering my congratulations to the noble Baroness, Lady Plummer, and the noble Lord, Lord Winterbottom, on their most effective maiden speeches. Like the noble Lord, I am sure that we all look forward to hearing from both of them on many future occasions, because they will be an asset to our deliberations.

I should like, in passing, to make reference to the speech of the noble Lord, Lord Carrington, the Leader of the Opposition. The noble Lord is a man whose objectivity of mind I have long admired, and he has impressed me with his sense of fairness. Therefore I was sorry to find this afternoon that, to some extent, he departed from this. Whether or not he was prompted by the example of his strong-armed colleagues in the other place, he did bang the Party political drum, although perhaps not quite so strongly or loudly as they did. I hope that on the next occasion when we have the pleasure of listening to him the noble Lord will resume his normal, fair-minded, objective approach to the subjects that come before us.

I am not going to argue the general case in regard to the economic position of this country. They have been doing that in the other place day and night, with the assistance of those invalids who could be brought in on stretchers to give them added strength in their deliberations. It seems to me that we are getting to the state of attrition in this country, when most of our wise legislation will be done in the early hours of the morning by men who are physically exhausted. I need not traverse some of the critical arguments which have been raised in the debate to-day. I am content to rely, in this respect, upon the considered opinion of the Organisation for Economic Cooperation and Development. They say, on page 27 of their Report: The Government's goal of reaching overall balance of payments equilibrium by the end of 1966 is not an easy one. Then, in the same paragraph they wind up by saying: Its achievement will depend upon a readiness to persevere with existing policies and to reinforce them if need be shown. If English means anything, "to persevere with existing policies" can mean only that they approve of the policies now being followed by Her Majesty's Government. It is commonly recognised that the policies which have been recently enunciated are bound to prove unpopular; and if they have to be reinforced by traversing along broadly similar roads, they will become more unpopular. I hope that noble Lords opposite, and their colleagues in the other place, will at least have the conception of responsibility not to exploit that situation for Party political objectives. We are in too serious a position as a country for that. I thought that the speech of the noble Lord, Lord Byers, in most respects, was admirable. He carefully avoided any measure of recrimination about what he thought were mistakes, and he put, in my opinion, a most reasoned case.

I want to confine myself entirely to one aspect of policy, but it is one which I feel is fundamental to this question of recovery. I refer, of course, to the prices and incomes policy. All agree, I should say, with the exception of a solitary ex-Cabinet Minister, who so far as I know is not likely to enter this House, that it is a desirable objective. It is something which we should all like to see. It is a policy that was enunciated for the first time in this House, so far as my recollection goes, by the noble Viscount, Lord Amory, after his period as Chancellor of the Exchequer and Governor of Canada. That policy was in part, at least, attempted by the late Conservative Government, and while I have said in this House that I think some of the methods used to try to implement that policy were wrong in timing, and perhaps in character, I have never denounced such a policy except in some of the minor aspects.

The present Government have made it quite clear that they intend to succeed in the implementation of this policy. What I am rather amazed at is the attempt to criticise and castigate the Government because they have not implemented their policy in the nine months in which they have been in office. I know, from having been in charge of a large industrial State undertaking, how long it takes to evolve policy, and how long to establish the machinery to carry out that policy. Yet the Government are being upbraided because their policy has not matured over the nine months they have been in office. No such mistake is made in the Report to which I have already referred, that of the Organisation for Economic Co-operation and Development. They say on page 26: The new Prices and Incomes Policy needs to be aimed not only at moderating the rise in cost and prices but in creating a situation in which they rise markedly less rapidly than in the other main manufacturing countries. For this to be achieved and to have results on the trend of exports and imports, many years of continued efforts may be needed. They do not say "months", they say "years"; and I hope that some notice will be taken of those words.

Some of us, from the beginning of this policy, expressed doubts as to the practicability of its implementation. In this House I confessed myself unable to understand the remedies which could be effective, either in the sphere so glibly referred to from time to time, of the elimination of restrictive practices by workers, or as the means of controlling prices. We have yet to sec whether that can be effective. We all hope that it will be, but the difficulties in the way arc enormous. So, while hoping for the best, I am prepared to recognise that, no matter how well-intentioned the policy may be, it may be impracticable to carry out the Government's full intent. The Prime Minister has several times announced that if voluntary methods fail, recourse will have to be had to some measure of compulsion. I should be very sorry indeed to find that situation developing. I do not like to contemplate it, because my imagination carries me into all sorts of internecine struggles, whether it is with labour, workers in the workshops, with employers, or whoever it may be, which must, if they eventuate, deflect the country from its major objectives.

But the Government may have no alternative. They may find that voluntary methods fail. Broadly, this problem is to keep incomes and prices—incomes in particular—in step with increases in production. I should have thought that that was sheer common sense, as any other course must essentially mean inflation. But the curious factor is this: Although this policy of getting incomes and production in step is one which most people would accept, they never apply it to themselves. They always think in some vague way that it is to be applied to the economy as an economy, but not to themselves—not to their own trade union; not to their own group of manufactures; not even to the judges. Farmers, doctors, dentists, teachers and a host of others, who cannot be described as militant trade unionists, are pressing the Government, and have been pressing them for a long time past, with demands for improvements in their salaries which are very far out of line with the policy we have been discussing. In justice to the judges, it must be said that their increase has been long overdue. I understand that the last increase they had was in 1954, so I suppose that the present increase works out at an average of about 2 per cent. per annum, which is rather below the norm that the Government are asking trade unions and others generally to observe.

But I cannot escape the conclusion that this example, in regard to the judges, and to other sections of the community, who are not trade unionists, in the sense that we understand it, will be quoted very widely among workers and must create a prejudice that will militate against acceptance of the policy. I do not believe that many people have a glimmer of an understanding of the problem we are having to face. I have quoted on other occasions, though not in this House, the Report of the Trades Union Congress for as far back as 1956, in which they used these words: One lesson which every working class family has learned over the last fifteen years is that increases in wages have largely been cancelled out by increases in prices. This process will continue unless rises in incomes are kept broadly in line with increases in output—or until it is terminated by unemployment. A little later they go on: The rest of the world does not owe British workpeople a living, and competition for overseas markets is becoming more intense. I regard that as a very courageous statement. But what actually followed? Have the unions observed these principles? I have already said that scarcely any other section of the community has even bothered about it. It looks very much like a scramble in which" the Devil takes the hindmost".

Recently there was a conference of the Executives of trade unions called by the Trades Union Congress. With some dissentients—some of them very powerful dissentients—they supported the policy which the General Council had accepted in the Declaration of Intent, and the other documents on the policy of incomes and prices. Next month the T.U.C. is to meet, and on its agenda—as has already been mentioned in this debate—there is an open challenge to that policy. A number of resolutions are down on the agenda, some of which reject the policy as a policy. Others qualify it, but in all of them one can sense a resistance to the policy. I am not now able to enter, perhaps, so closely into the mind of the T.U.C. as I did in former days, but personally I believe that the policy will be upheld. What does that mean? It does not advance us very much, except in a purely moral sense. The Trades Union Congress has no powers over its unions, any more than the Federation of British Industries or the British Employers' Confederation have over their members. It cannot require them to conform to policy; it must trust to their sense of decency and readiness to accept majority decisions.

For years the trade union movement has demanded a planned economy. Surely it is implicit in a planned economy that wages cannot be left out of that planning. Wages still remain in some industries a major item in the cost of production. In mining it used to represent about two-thirds of the cost, but I imagine that mechanisation has now reduced that proportion considerably. Therefore it seems to me completely inconsistent for the unions (I am now referring to individual unions, of course, and not to the Trades Union Congress) to resist any kind of attempt to approach a planned policy in respect of wages.

This system of annual applications for increases in wages will destroy our economy. In my days as a trade union official, it was the custom to make agreements for from three to five years, and during that period the rough was taken with the smooth; and it was reasonable that that should be so. How in the wide world can any exporter, or indeed anyone else in business, put in firm prices when they do not know what their labour costs will be? That seems to me to be so plain that I cannot understand there being any challenge to it. We certainly cannot expect stability or effective competition in the export markets while that system remains. I believe that it is detrimental to the interests of the individual trade unionist who may feel that he is getting some temporary advantage, but soon finds it stolen away from him by increases in prices. Of course there is the exceptional case, where there are sub stantial increases in the cost of living; but even there some qualification is needed, and some measure of increase cannot escape being expected.

I want to say, as strongly as I can, to those trade unionists who in former days had some respect for me, that inflation is destroying the value of money. That is what is happening, however imperceptible—except, of course when the wife goes along to the shops—it may be. There are many causes for it. There is no single cause, but it cannot be contended that this matter of wages is not a major cause. As has been said earlier in the debate, I think by the noble Lord, Lord Carrington, the workers do not feel any sense of crisis whatever. They are perfectly equable about the whole thing. Remember what was said by the T.U.C., and how long ago it is. They wound up by saying: For the last ten years we have had the novel experience of full employment in peace time. It was novel, my Lords: we never had it before. The problems we have been meeting are of a new kind—they are problems of full employment, of economic expansion. They are not insoluble, but they will not be solved by trusting to luck, or by the Government or anyone else relying on outworn economic and industrial policies. Nor can the trade union movement tolerate irresponsible or selfish action, whether from other sections of the community or from within its own ranks, which would erode the foundations of full employment. I hope that my friends in the trade union movement, when they read these words, will not be irritated by what I am saying. I am trying to say in this House what I would have said from the platform of the Trades Union Congress had I remained Secretary.

I think it is far too important to mince words in a situation like this. But in the mind of the average worker—what then? What has happened in these nine years? There has been no large-scale unemployment; earnings have increased, and at one time we had a political slogan, extensively advertised: "You've never had it so good". And this despite the fact that the country has been getting deeper and deeper into the morass. Some feel that it is a temporary phenomenon, but enough has been said to-day to dispose of that idea. It is basic in our economy. But can you wonder that the workers remain unconvinced? All responsible people who are at all well informed know the dangers that lie in front of us. I say, persuasively if I can, but emphatically, and not with any intention to preach or lecture, that the time has come for trade union leaders to make a stand against pressure from their own members; and I would apply that doctrine also to other sections of the community. It is not something which applies alone to trade unions.

This is a test of leadership. Leadership does not consist in doing what the crowd wants you to do on every occasion; it consists in trying to guide the crowd, in trying to show them that the policy you are expounding is a just and proper one, and one which will, in the long run, benefit them. It requires moral courage to do this, and many trade union officers are in a precarious position when it comes to the exercise of moral courage. As a result of the system of election, their livelihood depends almost entirely upon the mood of the members to whom they are addressing their advice. It is difficult for them—and let us all recognise this—but I would say to them and to those delegates, and those steadfast trade unionists who will attend the Trades Union Congress at Brighton in early September: "This is a Government largely of your own creation. Your sustained advocacy, your efforts and your money have gone to its establishment. I feel confident you will avoid any action which might frustrate its endeavours to deal effectively with the most serious economic problem which has confronted our country for many years".

6.28 p.m.

LORD SHERFIELD

My Lords, first I should like to add my congratulations to the noble Baroness, Lady Plummer, and to the noble Lord, Lord Winter-bottom, for their interesting and distinguished maiden speeches.

I intervene briefly to deal with two points which have not, I think, been substantially covered in this debate. In deciding to introduce, at a time of acute economic and financial difficulty, a major reform of the tax structure, the Government have placed a heavy burden on many sections of the community, but on none can the burden have been heavier than on their own servants, and I am thinking particularly of the officials of the Treasury and the Inland Revenue Departments. They have had to adjust themselves to a new Government, to a considerable reorganisation of the Administration, and they were dealing with a critical economic position.

As one who has had some experience of the pressures on officials, both in normal and in abnormal times—though recently the times seem to have been rather consistently abnormal—I can well imagine the conditions under which these officials and draftsmen, both Departmental and Parliamentary, have been operating. With the officials working against time and against the inevitably shifting background of inter-ministerial discussion which I can well imagine, it is not surprising that a considerable number of Amendments had to be put forward in another place. I should like to express some recognition here for the anonymous band who have carried this burden for many months.

My second point is of a different kind. Recently the sector of industry with which I have been most concerned has been that of the smaller industrial company. I suppose that over 90 per cent. of the companies and businesses which have recently come within my purview are, by definition under the Finance Bill, close companies. The importance of the medium and small business in our industrial structure can be roughly measured by the fact that about one-third of those employed in industry are working in companies with less than 500 employees, or, on another yardstick, that unquoted and private companies account for some two-fifths of the employment in manufacturing industry and some 30 per cent. of its output. There is, of course, a trend—on the whole, a desirable trend—through merger or expansion to rather larger units, many of which are, or become, public companies; and I would not venture to give figures as to the percentage of the companies in this broad sector which are in fact close companies, but it is certainly large.

The publication of the close companies provisions of this Bill upset this sector of industry. Those who were about to complete arrangements for investment leading to expansion or greater efficiency hesitated to do so. Those whose plans were less mature held them up. There was a general slowing down of desirable activity. As the noble Lord, Lord Champion, said in his opening speech this afternoon, the original close companies provisions of this Bill have been extensively amended in another place. And though I would not say that the revised sections are entirely satisfactory, the worst features have been removed, and this section of the Bill has certainly been much improved. I think the important thing now is to restore confidence and this will depend very much on the way in which the provisions of this Bill—and I am referring to the close company provisions—are applied in practice; that is to say, whether they are sympathetically administered and, above all, whether cases are dealt with quickly and, in particular, whether prior clearance can be obtained.

I am sure this is possible but it depends on two things. It depends, first of all, on the general guidance given by the Government to their servants, and, secondly, on the ability of the officials concerned, mainly the officials of the Treasury and Inland Revenue Departments, to deal quickly and sympathetically with the affairs of the companies concerned. I have no doubt that the latter will do their very best within their staffing position and the time available, but much more depends on their directives.

I must confess—and I am speaking entirely for myself—that I have been somewhat puzzled by the attitude of the Government towards the private sector of industry and business, particularly towards the group of smaller companies and industries to which I have referred. I am not clear whether the Government are trying to encourage them to be more efficient or prosperous, or to knock them. Perhaps the policy is intended to be one of stick and carrot. If so, I suggest that the amount of carrot so far dangled is scarcely enough to entice even the most co-operative donkey.

It is, of course, a general feature of the way we conduct our affairs that in the field of legislation and administration it is held to be better that 999 good citizens should have their lives made a burden to them in order to prevent one person exploiting, abusing or getting away with something. There are some examples of this in the present Bill—entertainment expenses for example, which are not, I think, abused by most people, and where in case of abuse the Inland Revenue has the necessary powers. I thought far too much prejudice emerged from the way in which the Government approached this question. The noble Viscount, Lord Eccles, indeed extended that thought to the major provisions of the Bill, but I am talking only about close companies, and in their case I think there was something of the same kind in the original draft.

No doubt there are, or were, close companies which were designed to act as, I think the expression is, "money boxes" for the benefit of a few individuals; but those are exceptions, and if the Government are to recover the confidence which has been shaken, I hope that they will make it clear that they are the exceptions. I hope they will make it clear that they intend to promote and encourage the efficiency and prosperity of the smaller firms, and so enable the provisions of this Bill to be applied in an atmosphere of confidence on the part of that particular section of industry and business. If the Government could bring themselves to give some assurance in this respect, I think it would be both salutary and helpful.

6.36 p.m.

LORD SAINSBURY

My Lords, as an old friend and neighbour of the noble Baroness Lady Plummer and her late husband, Sir Leslie Plummer, I should like to add my congratulations to the many she has already received on her expert and constructive maiden speech.

It is our custom when discussing the Finance Bill in this House to range far and wide on matters that concern the national economy. We should all, irrespective of Party, be able to agree on certain basic aims of economic policy, such as the stability of the pound, the long-term balancing of our external payments and a sustained rate of economic growth. Let us face it, my Lords: we have never since the war achieved those three aims at the same time. The sickness of the British economy is of long duration and did not start on that day in October last when there was a change in Her Majesty's Government. For example, the United Kingdom's official gold and foreign currency reserves in mid-1964 were actually lower than seven years earlier, and seven years ago they were totally inadequate. Last year's deficit, of course, swallowed almost the whole of them. As the Observer put it last Sunday: The cash in the till only balances the money we owe to our creditors.'' Similarly between 1958 and 1964 our share in world trade fell by 4 per cent. from 17.7 to 13.7.

Last week's O.E.C.D. Economic Survey of the United Kingdom, which has been referred to many times during the debate, refers to the persistent deep-seated weaknesses in the economy which have grown up over a number of years. It further goes on to say in another paragraph that this persistence of an unsatisfactory underlying balance-of-payments position in good years and bad points to fundamental factors.

Over the years we have followed a policy of deflation and reflation, and the great difficulties here are the right timing and the degree of both measures. Hitherto, we have succeeded in restoring the balance of payments only at the cost of arresting the growth of production. The aim of the present Government is to lessen domestic overstrain and not to cut future demand so that it brings increases in production to a halt and reduces capital investment indiscriminately. In my view, that was what happened in 1961. We must never lose sight of the obvious relationship of capital investment to imports. The "little Neddy" for the chemical industry has investigated the import of chemicals which, between 1962 and 1964, rose, by no less than 46 per cent., to £252 million. The Committee suggested that if more plant capacity had been in existence in this country there would not have been such a rapid rise in imports. Another example of the need for import substitution is in the machine-tool industry. Here again, the "little Neddy" for this industry agreed that production capacity needed to be substantially increased.

The next point that I should like to raise is the question of business confidence, which is so important if we are to sustain the right level of capital investment in a mixed economy of both public and private enterprise. During the war it was an offence, and rightly so, to spread alarm and despondency. To-day, faced as we are with great economic difficulties, it is still, in my view, an offence, though only a moral one. People who should know better talk of a pending crisis in the inevitability of devaluation. It is such talk that can help to bring about the particular events we all hope to avoid.

This talk that causes alarm and despondency is not confined to this country. Recently the Chairman of the Federal Reserve Board of the United States, Mr. William Martin, said that he found disquieting similarities in the United States between the present prosperity and that of the fabulous 'twenties which led to the 1929 crash. I do not believe that these parallels between the present time and the situation in 1929 and the early '30s are in any way justified. History rarely repeats itself exactly, and, whatever our shortcomings and failures, world statesmen have learned something in the intervening 35 years. The great Lord Keynes did not live entirely in vain. Today, there are both international organisations and international co-operation on currency and financial matters which did not exist in those earlier years.

But this is not to say that the situation of this country is not serious and has not been serious for a long time. At the moment it is not helped by the general deterioration in the world trading climate. However unpleasant it is, let us face it, in recent years we have not fully earned our rising standard of living; and for this both sides of industry, and the community as a whole, cannot escape responsibility. Restrictive practices, lack of the competitive spirit, overmanning and the refusal of many to accept the challenge of change have added to our difficulties. We have failed to make up our mind to give priority to investment rather than to consumption. We have invested less proportionately than, for example, West Germany, one of our major industrial competitors. We have invested too much abroad and too little at home. Another unpalatable truth is that if you borrow large sums of money from other countries you must have regard to the effect of your actions on the opinions of those countries' Governments.

In this serious situation, scoring Party points, indulging in carping criticism, is of little constructive value. In my opinion, the only way to achieve a strong pound in the long term and to assure our future prosperity, is by better and more discriminate use of all our resources. This is the task to which we, as a nation, should address ourselves.

6.47 p.m.

LORD BARNBY

My Lords, I find myself fortunate in, for the first time, following the noble Lord who has just sat down. I have the opportunity of emphasising with what pleasure I listened to the reasoning which he gave. I, like others, have been able to enjoy several speeches that he has made since joining your Lordships' House. They have always been couched in humane and liberal principles. But I have always found myself in difficulty in understanding how he manages to combine what is required for his brilliant success as head of a vast organisation with being able to sit on that side of the House.

It was not my intention to presume to address myself at all to the underlying principles of taxation in this Bill. It is a long Bill of 270 pages. It has been gone through thoroughly. I think there have been 250 Government Amendments. And at this stage of a debate there is need for compassion on subsequent speakers and on the House in general, so I shall certainly try to follow the recommendation so eloquently made to us recently by my noble friend Lord Egremont, that speeches in this House should be shorter.

I was motivated to intervene because I wanted to bring up three small points which have been causing concern to industry. The first has already been dealt with most adequately by Lord Sherfield. I was delighted to find him defending the close companies' case. His long and brilliant record in the Civil and Diplomatic Services gives power to his plea. The close company is referred to in Part II of the Bill, at page 205. The point I want to reinforce is that, after taxation and possible direction, it seems that the capital formation can often be inadequate to assure the successful development of an efficient firm. In the event of capital not being adequately generated, nor being obtainable from any other direction, it might be loaned by the "participators" as a private loan to the firm. But if that were done the interest for their loans would not be a charge to trade. That seems a very unfair provision in the Bill.

The next point I would make is with regard to the repatriation of funds. The desirability of this has been repeatedly emphasised. It is difficult to understand the reasonings of this. Many small rivulets make a large stream. Over a long life I have had experience of this sort of thing in business. When capital was abroad there were considerations as to whether the return upon it would be greater abroad than it would be in this country. On the remittance of the funds so received, if advantage is taken of the security premium, some 25 per cent. has to be surrendered to the Exchange Control at the official rate. This does not seem logical or encouraging to repatriation.

I come now to the third point which is causing great concern in the small companies in industry. While we are in sympathy with the suppression of the absurd past abuses in expenses, smaller companies are compelled to incur expenses to develop their businesses and to get foreign customers. Therefore, it seems harsh that the manner in which the principles of the Bill will perhaps be enforced might hamper them greatly.

The provisions in regard to corporation tax make it difficult to recapture the initial and investment allowances and, indeed, tax loss carry-forwards. There was encouragement, very properly, in legislation introduced by the previous Government, which would also no doubt have the sympathy of the present Government, that where large investments have been made there should be a considerable part recaptured against tax. Those recoveries have been made more difficult by corporation tax. Productivity has certainly been ridden hard in this debate, but no one is going to quarrel with the idea that we want higher productivity. We are all seeking to find out how that can be achieved. I cannot help quoting from my experience, as a good part of my industrial life has been spent in North America. There was always there a pool of under-employed labour to draw upon, and of course there is high productivity and high efficiency. For this country, I will merely quote from the Financial Times leader this morning: There seems little prospect of moderating the rise in wages until Mr. Callaghan's deflationary measures begin to have their effect on the unemployment rate. I want to refer to overseas investments, which have received rather rough handling in the decisions of the Government. The noble Lord, Lord Aldington, in a debate in your Lordships' House some weeks ago, laid such emphasis on the fact that generous overseas investment is the surest way to increase exports. Naturally, all of us in our particular spheres of activity feel preferences in priorities. There has been much reference in speeches today about them. I want to suggest that if we want to make an impression that we are economising so that this can be actively brought home to foreign countries, we should drastically curtail loans or subventions to emerging countries and in other overseas directions; in this I would include contributions to the United Nations.

It would be unfortunate if there were restriction of expenditure on all roads. This matter was referred to by the noble Lord, Lord Byers. I know that the emphasis has been put on main trunk roads, but local authorities were also urged to spend less. Those of us who come back from foreign travel and come along the Cromwell Road up to the Terminal and cross Warwick Road must think what a bad impression it must make on the hundreds of thousands of overseas visitors to our islands when they often have to wait in a long queue just because we have not provided a fly-over or underpass.

Lastly, I would make a reference to telephones. I have spent a good deal of my time, as I have said, in North America. I have made criticisms in this House of the poor telephone system for about thirty years. I have been told in the past that it is unpatriotic to criticise when people are doing their best to serve the country; that it is a bad example to hold this matter up as one of inefficiency. The telephone service in this country is grossly ineffective compared with the service in Canada and the United States. There is room for great improvement here. We are just not getting the service we need to deal efficiently with a proper export trade. I support the Bill.

6.57 p.m.

LORD FRANCIS-WILLIAMS

My Lords, like other noble Lords, I begin by congratulating the noble Baroness, Lady Plummer, and Lord Winterbottom on their maiden speeches, both of which appeared to me to be excellent. Perhaps because I know the noble Lady best, I particularly enjoyed the speech of Lady Plummer, who hit on the secret of addressing your Lordships' House by talking knowledgeably about something which she knew well—in her case, agriculture.

I must at once confess to your Lordships that I spent the early part of the debate in what might perhaps properly be described as a "tizzy" of excitement, because, following the interruption by my noble friend Lord Longford (an interruption which I thought was carried out with his usual courtesy and desire for information which so distinguishes him, but which seemed to annoy the noble Lord, Lord Carrington) we were promised by Lord Carrington that he would, in due course, reveal to us what a Conservative Government would do in this situation, in the unlikely and lamentable event of their being called upon to do so. Since I have read all the speeches in another place without, I must say, getting much light thrown upon the matter, I waited in great expectation until the moment of revelation should come. Then at last, my Lords, the wraps were taken off, and the noble Lord, Lord Carrington, told all.

And what did we get? We got three resounding platitudes. I do not think "resounding" is the right word: they did not resound, they draped. We were told that taxation would be adapted to the desire of people to better themselves. There is a great original thought for you. I should have thought that most Chancellors had been trying for a considerable time, in view of the necessity of raising money to cover the national requirements, to find ways of taxing which would enable people to better themselves. This has been one of the great social purposes of the whole of this century.

Then we were told that the Conservatives would recreate a competitive economy. One wonders what they were doing during the whole of the thirteen years when they were in office. Were they destroying the competitive economy then, so that they could subsequently recreate it, or what? Finally, there was to be a reform of company law and methods of wage settlements—both admirable purposes, but not, I think, to be described by anybody, however benevolent towards Conservatism, as earth-shaking, major departures in political philosophy. Really, my Lords, if this is the new "wind on the Heath, brothers," one can only say that it neither nips nor invigorates. However, there is still the noble Lord, Lord Erroll of Hale, to come along. I suggest to him that he could gain—I will not say immortality, but, at any rate, a down column headline in The Times, if he would tell us what these platitudes really mean.

To help him, I will put some specific questions. If it means anything at all to say that taxes are to be adapted to help those who are trying to better themselves, which is an excellent principle in itself, does Conservative thinking on this involve reducing taxation at higher income levels and putting more on the less well-off in the form of more indirect taxation? Do they see those who are seeking to better themselves being helped at the expense of others in the community, who may for one reason or another not be in a position to better themselves in quite the same way, or have the Conservatives discovered some new source of national income undiscovered by the rest of us, which they intend to call upon for this purpose?

When the noble Lord, Lord Carrington, says that they are going to recreate a competitive economy, what exactly is meant by that? What is this act of recreation that is going to take place, and will it include—as probably any sound competitive economy in these days ought to include—a certain amount of competition between publicly-owned and privately-owned enterprises? Does it mean that, in the recreating of this competitive economy, the Conservatives are going to do a good deal more than they did in their past thirteen years to break up monopolies and, perhaps, trade associations, and so on? What do they mean? I am sure we shall all hang on the words of the noble Lord, Lord Erroll of Hale, to find out.

I do not want to go too much back into the past but this idea that keeps popping up with a sort of glassy-eyed desperation on the Benches opposite, that despite an £800 million deficit there would not have been any crisis if the Labour Government had not mentioned it, is really too much. It is like saying, "Of course it's all right for the next-door neighbour to know that little Johnny has chickenpox; but don't tell the doctor. It might frighten him." The gentlemen in Zurich and Amsterdam and Paris and New York—the doctors of the financial world—are experts. They can count the spots. They can tell what is wrong, without having to be told so.

This reminds me of an occasion at the beginning of the war, when I was editor of a daily newspaper. One night all my papers, and all the papers published by every other newspaper office, were seized on the newspaper trains by the police and taken away into custody. In addition, cars leaving London were stopped and the papers that people had bought in the streets were taken from them. After urgent telephoning, we found that this was because all the papers were publishing the news that British troops had arrived in France, which had been broadcast on the French radio. Next morning we had a rather excitable meeting with the War Office. I said to the General who was acting as the spokesman, "But look. Obviously, if this had been broadcast in this way on a foreign radio, the Germans knew all about it"; to which he replied, "But nobody believes foreigners." It may be that the Conservative Party thinks that nobody believes foreigners, and that if the Labour Government had not pointed out the extent of the deficit which they had to face nobody would have believed it, not even the foreigners themselves. I find it very difficult to agree with that; because, indeed, it was a very bitter inheritance which was to have, and has gone on having, continuous effects—one not only of a deficit, but of a degree of overspending which was carried on with an irresponsibility which, I think, is very remarkable indeed.

I think it is well summarised in a comment on the O.E.C.D. Survey of the British economy, which has been mentioned several times this afternoon—a comment made by the economic editor of the Spectator. That is a paper of which, as your Lordships will know, Mr. Iain Macleod is the editor, although I sometimes doubt whether he reads everything that goes in it, or at any rate understands it. The economic editor of that paper said that, on the basis of the comments in the O.E.C.D. Survey, it is clear that—and I quote— … this is a caustic indictment of Mr. Reginald Maudling's much-praised reflation policy, and it gives Mr. Harold Wilson the opportunity to tell the public that not only did his Government inherit the worst balance of payments crisis in history, but the most reckless programme of public spending ever planned. That, my Lords, as I say, is a quotation from the Spectator, edited—nominally, at any rate—by Mr. Iain Macleod; and it seems to me a fair summary of the problems.

Although he had much criticism to make, I was particularly glad to hear the noble Lord, Lord Robbins, congratulate the Labour Government on the courageous empiricism of its policy. Indeed, when one considers the number of unpopular decisions that this Government have been prepared to take on a majority of three and compares it with the constant burking of responsibility of a Conservative Government with a majority of 100, then I think it must be regarded as one of the most notable acts of political courage in our Parliamentary history. Those who complain, as they frequently do, that this Government have failed to fulfil their promises because a programme promised for a full Parliament has not all been carried out in nine months, seem to me about as sensible as somebody demanding to pull the communication cord in the Flying Scotsman when they are an hour out of London because they are not yet in Edinburgh. My Lords, have no doubt; we shall get there. We shall get there because we have the great advantage of having a Government who are prepared to face up to these problems, who are refusing to allow themselves to be governed by dogma, but are prepared to look at the problems afresh in the light of the necessities of the time; and who do not shirk unpopularity but put the national interest first.

7.15 p.m.

LORD HAIRE OF WHITEABBEY

My Lords, I must say that I find it very pleasing to be batting alongside my noble friend Lord Francis-Williams. I think it will be readily agreed by all of us that he has swiped the bowling so far to right and left, and he has left very little else for us to do except hold up our own ends.

Before I go on to my own speech, I, too, should like to refer, as he did, to the two maiden speeches we have had in to-day's debate. Perhaps, as I echo his words, I may say that, because I know him best, I should like to refer first to the speech of my noble friend Lord Winterbottom, who was a contemporary of mine in another place, and I heartily congratulate him on a most considered, most carefully thought-out contribution to one of the problems of our economic times. May I also say to the noble Baroness, Lady Plummer, that I greatly enjoyed her charming speech, which I felt was a most useful contribution?

My Lords, this debate started off with a discussion of the Finance Bill, but like the events of the past few weeks, the Finance Bill is already heavily overshadowed; it has become the headlines of yesterday. The corporation tax and the capital gains tax are, in my view, now almost historic, and we are faced with a spotlight which is now trained on the cuts announced last week and the reduction of the gold and dollar reserves which were announced yesterday. It is not just in the film industry that the word "cut" is part of the jargon: it seems it is an essential part of the jargon of politics and economics.

My whole life seems to have been be-devilled by cuts. Before I was ten, my father had lost his job because there was a cut in Government contracts in the textile industry, in which he was employed, and he was out of work for eight years. When I was twenty and in my first job as a schoolmaster, teachers' salaries were cut in the national emergency of that year. When I was 30, the war had just started, and everything was cut. When I was 40, I was in Parliament, and, because of the national emergency at that time, I found myself voting for cuts. To-day we have another period of restriction. So all my life—the life, in fact, of every man or woman under 50 in this country—has been seared with cuts.

Whichever the Government during these years, there were the ups and downs of the trade cycles, now called the imbalance of our trade and the gap in our balance of payments. This has menaced all our lives. Yet 99.9 per cent. of our people go on "living it up", oblivious of the fact that the nation's wellbeing is at stake. It is so easy to blame our present Labour Government; it is so easy to blame the previous Tory Government; it is so easy for an Opposition in Parliament, whether in this House or in another place, to provoke, as we have seen done in the past week, a national inquisition into "Whodunnit?" The plain fact is that it is the nation which has done it. We do not work hard enough; we do not make enough; we do not export enough; we do not care enough. I could not say it in more basic English. It is to-day the basic truth in our English way of life.

For fifty years, as the noble Lord, Lord Robbins, has told us this afternoon, this malady has been creeping on us; and now we are at fever pitch again. Once again the Government of the day are expected to pull the chestnuts out of the fire. It is the duty of every one of us to stand by and to assist those who are in leadership at this dreadful time. Even this hard-working Government, even the Prime Minister, with all his experience, are not going to find it easy in the face of the debt of £800 million that we inherited and about which we have heard so much. Nor would a Tory Government, if the luck of the ballot boxes had gone the other way, have found it easy. No one can say that this Government are not setting an example of hard work. This is the most hard-working Cabinet of the century. It is, indeed, a Ministry of all the talents, if I can throw that across to noble Lords opposite. I venture to suggest that the average working day of a Cabinet Minister in the present Government is something like fourteen hours and that of the Prime Minister, is frequently eighteen hours. Would that every manager and every trade unionist in the country could boast of half as much!

One thing is certain. This Government will not countenance a Micawber-type economy, waiting for something to turn up: they will be much too busy removing the stigma of debt from the national accounts. We must be able to pay for what we buy; we must be able to pay our way in the world; we must export or perish. I must say that I get very tired at times of exhorting others to export more; but, at least, mine is one of those 300 firms which together account for more than 50 per cent. of our total national exports. If 300 firms can carry half the load that must mean that a very large number of firms in our country are not pulling their weight.

The O.E.C.D. Survey has been referred to many times to-day; but, till now, the paragraph I am about to read has not been quoted. No wonder this Survey, which is an independent Survey, has this to say about our export performance: During 1958/64 export performance has been rather consistently unsatisfactory although world demand conditions have been generally buoyant. Exports of manufactured goods, which make up the bulk of United Kingdom exports, have risen less fast than those of the other major industrial countries taken as a whole, so the United Kingdom's share of such trade has declined steadily. It is not so many years ago, when the first Labour Government were in power, that 25 per cent. of the world's trade was undertaken by this country. At that time our share of world trade was 25 per cent. To-day, as my noble friend Lord Sainsbury has said, it is down to 13.7 per cent. Since 1958, when it was 17.7, it has declined to 13.7.

At this late hour I have no desire to detain your Lordships; but I should like to ask a few questions of my noble friend the Leader of the House, and perhaps make a few suggestions about exports. I wonder whether any progress has been made by the Working Party set up to investigate collective selling organisations. This was referred to in the debate in your Lordships' House on February 11 last, on exports. I should like to know when that Working Party is going to report, because this happens to be a subject in which I am very much interested. In that debate, it was announced that a publicity campaign for exports was to be launched. I have not seen very much of a publicity campaign. Perhaps there has been one and I have missed it; but I should like to know from my noble friend whether one has taken place.

On the question of exports, I have to make what I hope will be a few constructive suggestions. Could we not encourage our exporters to do much more advertising abroad; and could we not introduce a scheme of shared advertising? For instance, in my own organisation we arrange that our agents who do foreign advertising share the cost with us, pound for pound, up to a given limit. Could the Government not, in fact, have some such scheme to encourage further exporting? Yesterday we had the long-awaited news of the Queen's Award to Industry. I welcome the suggestion that we should have this beautiful award handed to those who have made a great success in exporting. I think it will certainly introduce a competitive spirit; it should bring new exporters, and it may increase our total volume of exports.

Some of us on this side of the House have been giving consideration, unofficially, to ways and means of encouraging exporting. We had worked out (perhaps, as yet, not fully) a graded scheme for exporters. Roughly, the suggestion was that our exporters should be graded into a one-star, two-star and up to five-star classification; that is, those who had achieved a certain specified target figure would be so classified. This will be quite a simple scheme to operate. The classification could appear on the firm's notepaper; the firm could be so registered in Government Departments, and so on. And when the classified firm applied, for example, to a labour exchange for scarce labour, it would be given priority. When the firm applied to suppliers for scarce materials, these suppliers could be encouraged to give priority; and, indeed, when the firm applied to the bank for scarce credit, perhaps the bank could be encouraged to give, say, a five-star firm more priority than a one-star firm. I feel that in such a way the "no-star" firm would soon find it to its benefit to become an exporter and would try to achieve the qualifying target figure.

My last suggestion which is perhaps the easiest to apply is this. Why do we not encourage more incoming tourists into this country? Why do we not encourage tourists, who bring with them foreign currency, to come to this country in many more thousands than they do at the present time? We hear at this time of our own holiday-makers who are going abroad and taking currency with them. I am aware, of course, that the Government support the British Travel Association and make a handsome contribution to them for publicity and promotion. But every country in Europe supports its tourist industry in a much more emphatic and positive way than we do. For example, these countries subsidise the building of new hotels; I cannot see why we should not do the same.

Nor can I see why we should not encourage hoteliers to reduce their rates for overseas visitors. I suggest that we could subsidise motor inns on holiday routes; we could subsidise the construction of more holidaycamps, morecamping sites, and so on; and developers might be given tax and rate rebates for a period, as is done even in little Northern Ireland, a part of the United Kingdom, and in the Republic of Ireland, where tourism is greatly encouraged. Like all the European countries we should try to make our tourist industry grow into a leading industry so that it will bring much valuable foreign currency to us. Our tourist publicity is at present based on the image of a Beefeater and a Guards Drum-Major. London is made a magnet, and is already overcrowded. The tourists, however, want to move around. Let us try to help them. The tourist industry can make an enormous untapped contribution to our export drive.

But if we are going to do this, we must get going. Time is not on our side, at least for 1966; for by the time we are back in this House in October the tourist agents will be busily promoting the next season. Our municipalities could investigate and report now on these proposals; if they did, we might still be in time for 1966. This is the kind of drive that we have to make if we are to win through in our national economic crisis. How much more worthwhile is it than wasting our hard-earned foreign currency on such useless foreign imports as "one-armed bandits" and pornographic literature, which I believe is costing us something like £20 million a year.

My Lords, my final word is to the noble Lords on the Benches opposite. If two out of the three days which were recently spent in another place on their Censure Motions had been spent discussing such vital subjects as exports, the nation might realise that we mean business.

7.30 p.m.

LORD COHEN OF BRIGHTON

My Lords, as one of the last speakers this evening, may I first congratulate the noble Lord, Lord Winterbottom, and the noble Baroness, Lady Plummer, on their speeches? I know the noble Lady was very nervous, but I do not think she needed to be. I am sure that after her experience to-day she will be encouraged and will not shake at all when she makes another speech.

It has been a long debate and I am glad that towards the end of it we were able to hear a lively speech from my noble friend Lord Francis-Williams. It really woke up things, I think, and I am waiting to hear the reply which I am sure that his caustic comments deserve; one that will support the point of view expressed from the Benches opposite earlier in the debate.

I propose to take a different line from that taken by speakers so far. As I see it, our problem is a twofold one: we have a problem to deal with immediately, but there is also a long-term problem. Many of the comments made during this debate have referred only to the long-term problem. It is no use saying what we are going to do in two, three or four years' time, and thinking it provides an answer to our immediate problem, which is to deal with the overheating of the economy. I believe that the reduction of £200 million in public spending achieved by the Chancellor, or which will result from his proposals made this week, may provide us with the breathing space which is so necessary. I will give my reason for saying that. On this side of the House we are very proud of the fact that the Chancellor has reduced our national deficit by 50 per cent. during the short period in which the Labour Government have been in office. The remainder of the deficit will eventually be eliminated, so we may face the future knowing that although we shall have a very long haul before us, the deficit has been completely wiped out.

For the first time in many months the economic indicators are all pointing the same way and indicating that the boom is over. The reduction of expenditure by £200 million resulting from the Chancellor's proposals mean that the boom is over; and when the latest cuts are added to that £200 million and there is the further tightening of hire-purchase restrictions they will provide a further indication. Incidentally, I wish that the cuts had been a little more drastic. A period of six months' reduction in the hire-purchase period, in my opinion, is not enough. Complaints of insufficient capacity to meet demand are likely to diminish sharply over the next two months. The amount of work in hand in both the private and public sectors is well above the 1961 levels and the phasing out of the deflationary measures has probably been better for industry than a massive once-for-all package—although, of course, it has not helped sterling.

I believe the squeeze will have an increasing impact on imports, and I wish to deal with this matter fully, because it is not only a question of exports; it is a matter of imports as well. While it would be too pessimistic to write off any question of a rise in exports over the next few months, the deterioration in world economic conditions certainly means that Britain cannot look to an increase in exports to cure her trade gap. I am, of course, talking of the short term. We cannot do that for the moment because there is an economic depression in the world. We cannot hope for a rebate or for any major increase in our exports. More unused capacity at home may free resources for exports, but it does not secure export orders if most other countries are also tightening their belts.

Over the short-term, therefore, the import side of the trade equation is the most important. I make that point because I do not think that it has been sufficiently emphasised so far. In the short-term it is imports that matter, because it will be very difficult to build up exports in the current world economic position, and a fall of some 5 per cent would eliminate the gap. Indeed, a 5 per cent. fall seems well within reach by the end of the year, with a continued import surcharge, stricter control over import finance, the levelling out of home demand—because we have taken some of the heat out of the economy—and the ending of the stockpiling cycle all working in that direction.

Despite the continued lack of confidence in sterling, once the balance-of-trade deficit is eliminated and the deflationary measures really start to work on the economy, from the short-term point of view I do not think—with the exception of the problem created by the state of our gold reserves—that it will be as difficult as some people are suggesting to face the sombre picture which has been painted. We may get out of our difficulty by imposing a reduction in the money available in the community and by manufacturing in this country—this is important—many of the things which we are at present importing. We are importing far too many goods which we should be manufacturing. That is one of the things we must remember.

There is another point with which I wish to deal because it has not yet been touched on, and it relates to something with which I am particularly familiar. One of the reasons for the difficulty which occurred last year was the withdrawal of foreign balances which had been loaned short-term to a very large number of local authorities. Those balances have been more or less restored, but local authorities are borrowing, and have borrowed, the astronomical sum of £2,224 million a year. I consider that at the present time local authorities have far too much short-term money. It is true that the amount of money which the local authorities can obtain short-term is controlled, but there is a very big loophole which Members of your Lordships' House may perceive if they read the Financial Times. I say this because it is my duty to invest many millions of pounds each year in connection with the organisation with which I am associated, to get the highest rate of interest for my members, and also to have liquidity.

There is a very simple way to do this. Noble Lords may have noticed that local authority loans in this country are available for five years at 6⅞ per cent. or 7 per cent. and, at the option of the lenders, it is possible to withdraw after eleven months on giving fourteen days' notice. That has been going on for a long time and the local authorities have been building up loans over two, three or five years. If at any time there were a run on the local authorities—it would of course be met by the Treasury and there is no question of anybody losing money—it might create problems of the kind we faced last year. I say to the Government that they ought to take steps to prevent, not just this leak in the restrictions, but generally the borrowing by local authorities of what is really "hot" money.

In the organisation of which I am a member, which controls with other organisations £5,000 million worth of assets, we have a great deal of money coming in. A lot of this money is not put in the Stock Exchange and a great flow of fresh money is coming in to local authorities. When the Stock Exchange recovers—I will not say, when a Tory Government comes in—that money will go out and the local authorities will find themselves in difficulty. It is important that we should deal with this problem, and I hope that the Government will think over this suggestion.

I am now going to say something which I know will not be popular, certainly not on the other side of the House. It is proposed to cut £100 million to £150 million from our Defence expenditure next year. I was delighted to read in the paper that at a meeting of my political Party on Monday it was agreed that there should be further cuts in Defence expenditure. At a time of great financial strain, the estimated running costs of the overseas British Forces in 1964 was no less than £320 million. When we have commitments to others, we have to be careful about withdrawing our existing Defence arrangements if it is going to make a great difference, but, at the same time, I believe that some of this could be saved. We are spending £105 million in Germany, £8 million on NATO, Europe, £75 million in the Mediterranean and the Near East, £86 million in the Far East—and also the lives of our men there—£27 million in Asia and the Persian Gulf, and so on. I would suggest that, so long as we are not upsetting our relations with our allies, this is a matter into which the Government should look seriously.

In your Lordships' House the other day we heard an excellent speech by the noble Lord, Lord Thomson of Fleet, who rightly said that there was a great deal to do to reinvigorate our economy. He criticised workers for restrictive practices. But I do not think that he really dealt with the whole problem. In my view, there are some of our manufacturers and businessmen who have not moved with the times. They are not up to date and they are not meeting foreign competition. A short time ago, I was in America investigating certain industries there and I went to White Plains, just outside New York, to visit the headquarters of General Foods, one of the world's largest firms in the food industry. They showed me their charts and organisation surveys, and to my surprise I found that they owned a number of food firms in this country which I had always thought of as British; I will not mention the names. They showed me the figures before they acquired these firms and the figures afterwards, and I could see the difference that American enthusiasm had made to these businesses. I do not agree that everything American is good, but I do say that we have to get far more enthusiasm into the development of business and into the modernisation of plant and equipment.

Incidentally, I completely disagree with the criticism of the corporation tax, because obviously if you do not dispose of all your profit in dividend, you have an opportunity of bringing in some of that new plant and equipment which is so necessary to many of our manufacturers—although I know it makes a clash between duty to shareholders and that to the community. It is so easy to sell in England and so difficult to sell abroad. We have just heard it said that sometimes it does not pay to sell abroad, because probably one may make a smaller profit. I am a European. I believe that we have to go into Europe. Unless we can stand competition abroad, we cannot stand competition at home. We have to see to it that our manufacturers are re-equipped, have enthusiasm and drive, so that we can reinstate ourselves, not as the greatest manufacturing country in the world, but as one that can stand on its own and face the world without any deficit. I believe that that is the answer to our problems.

I do not believe that the situation is as serious as it is painted by the Press and the Party opposite and sometimes by our own people on this side. We are pulling round and when we are out of debt next year we shall have the opportunity of going ahead. I agree with my noble friends on this side who have said that the Labour Party in power is going to carry out its promises during its period of office. It is not going to he displaced by those who, after a few months, say that we have failed to do the things which we were elected to do. In doing these things, I believe that we shall give a new inspiration to British industry to go ahead, to face the com petition from the rest of the world and achieve the success which I am sure we can achieve if we all put our hearts into it.

7.48 p.m.

LORD ERROLL OF HALE

My Lords, I am sure that your Lordships will agree that we have had a most interesting debate this afternoon, comprising a satisfactory blend of political wisdom and a certain amount of repartee, with which I hope to deal in the course of my remarks. May I add my congratulations to the two maiden speakers, particularly to the noble Baroness, Lady Plummer, not only on her excellent maiden speech but also on her considerable success in a specialised part of the export field. I am glad to see a former colleague from another place, the noble Lord, Lord Winterbottom, speaking here in the same characteristic and open way as he did in another place.

Perhaps I may deal with one point made by the noble Lords, Lord Francis-Williams and Lord Cohen of Brighton, who tried to defend the present Government by saying that it was not possible to do everything in the first nine months. In that case, why did they repeatedly say during the Election that the Labour Party was poised for instant action? Now, as the days go past, I know that supporters of the Labour Party are glad to try to forget those "100 days of dynamic action."

While it is inevitable that recriminations will be made for some time to come about the position in October, 1964, the public is becoming increasingly tired of the recriminations of the two principal political Parties about what was or was not the situation at the time and about who was to blame and who was not to blame. But there was one new factor, introduced by the Prime Minister in the course of the debate on Monday evening, which has not been answered and which I think should be answered clearly and decisively now, because I had a good deal to do with the matter myself. At the end of the debate in another place, the Prime Minister accused the former Conservative Government of having had ready a complete plan for import controls which was handed to the Labour Government by officials, all ready for putting into operation.

There is no need to have any secrets about import controls and import surcharges, which were also the subject of criticism earlier in the year. There is quite a long history attached to these and other possible measures. As one of the Cabinet Ministers concerned, I should like to explain the facts, so that we need not return to this subject either here or in another place. During the Summer of 1962, I suggested to one or two of my colleagues that we should look at measures introduced by Mr. Selwyn Lloyd in the summer of 1961, in order to see what effects they had had, and so that, if need be, we should be better prepared in the future. It was also suggested that we should look at any other weapons which might be used on a future occasion, and study these, as well as those already tried, in order to assess their practicability in an orderly fashion, and not in the urgency of a crisis atmosphere. Accordingly, as President of the Board of Trade, I had studies put in hand of hire-purchase controls, the use of the regulator, particularly as regards its effect on industry, the possible use of a system of quantitative import controls, and the institution of an import surcharge. During the winter of 1962–63 a great deal of work was done on all these subjects, and particularly on import controls and the import surcharge.

The advantages of import controls were that they could bite decisively and quickly, the precise imports to be imported could be specified and the amounts to be admitted laid down. It would be possible to ensure a definite monetary reduction in imports, and the system could be varied piecemeal, in the light of experience. Import controls had the further important advantage that they would be in conformity with GATT and other trade agreements. The administrative problems were also thoroughly gone into at the time, including such questions as staffing, administration, accommodation and anticipatory buying. A similar evaluation of the surcharge was also made. Its advantages and disadvantages, particularly the breaking of so many of our international trading agreements, were fully gone into. In doing all this, we were taking right and prudent steps to guard against a possible contingency in the future. So, far from criticising us for this preparatory work, the Govern ment to-day ought to be congratulating us and thanking us for having behaved in a responsible way.

Perhaps I may give an illustration from another aspect of our national life. The Government have inherited our plans for Civil Defence and, indeed, for Defence generally. I hope that the Government are keeping those plans up to date in the light of experience.

LORD SHEPHERD

My Lords, may I ask the noble Lord one question? I take it from the criticisms he made earlier in the Session, that he and his colleagues were against surcharges; that they would have thought it right, and certainly more legal internationally, if we had gone for quantity controls. The noble Lord says that this matter was examined. Can he say how his Government, had it been necessary to bring in controls, would have brought them in without taking legislative action?

LORD EROLL OF HALE

My Lords, what I was trying to explain was that in 1962–63 the Government had prepared alternative plans, so that they would be ready, should the need arise; and had the need arisen, clearly the Conservative Government would have looked at both plans and decided, in the light of the circumstances of the time, which was the better one to adopt.

LORD SHEPHERD

But what action would they have taken?

LORD ERROLL OF HALE

No action was necessary, and no action would have been necessary.

As I was saying, in regard to another aspect of our national life, namely, Defence, we left behind us plans which I hope are being kept up to date in the light of experience. Naturally, we all hope that they will never be required, but it would be a foolish Government which did not make plans for difficult situations appertaining to the defence of the country and the defence of the pound. I hope, therefore, that we shall hear no more of the ridiculous charges which have been made by members of the Government, and by the Prime Minister, in particular, on the score of import surcharges and import controls.

I intend to move on from October. 1964, to a few weeks later, because this is a matter for which the Government, in my belief, are entirely responsible—namely, their failure to maintain world confidence in sterling. The noble Earl who is to reply was, I think, Chairman of a well-known bank. I am sure he would be the first to agree with me that if one of the directors of his bank had gone around the City saying that his bank was bankrupt it would have had a serious effect on the fortunes of his bank.

THE EARL OF LONGFORD

My Lords, I hope that I may be allowed to interrupt the noble Lord, though I know that the Leader of the Opposition is not keen on it. The point is that when I came into the bank it was flourishing, and it was flourishing still more when I left. I did not inherit a most abominable mess. That is the great difference.

LORD ERROLL OF HALE

The noble Earl will surely appreciate that if one of his directors had gone around saying that his bank was bankrupt this would have had an adverse effect. This is exactly what the then Foreign Minister did in Geneva, when he went to the meeting of Ministers in EFTA. He said: Gentlemen, Britain is bankrupt. He said that in Geneva, which is only a one-franc telephone call from Zurich, and the news got there very quickly. Of course the situation was a difficult one (I hope the noble Earl will allow me to finish my sentence), but at a time like that it was essential not to exaggerate the difficulties, and certainly essential not to exaggerate them in public and in front of those very people whose confidence was most urgently required. I will gladly give way if the noble Earl wishes—I see that he does not. So this was entirely the responsibility of the Government, and this is one of the reasons why we are in such difficulties to-day: because the Government initially lost the confidence of the world in the pound, and subsequent actions have not so far been sufficient to restore that confidence.

One of the growing practices, not only of the Government but, I regret to say, of many noble Lords opposite during the debate to-day, has been to make general strictures on British industry. I feel that this can do this country very little good. The Prime Minister himself, of course, is an expert at slamming sluggish directors and bad managers; and, interestingly enough, he now castigates even the general body of workpeople—I think at the Durham Miners' Gala—about their restrictive practices and the like. Maybe there are some sluggish directors, bad managers and restrictive practices among workpeople; but I do not think it does much good to make broad sweeping generalisations of this kind. The noble Lord, Lord Byers, in an interesting and customarily forthright speech, said: "We are far less competitive and efficient than a number of other nations." Personally, I do not believe it. I think we are holding our own pretty well.

LORD BYERS

My Lords, may I ask the noble Lord whether this is really the new policy of the Conservative Party, to shut their eyes to what is actually happening? If we are not going to recognise this sort of thing, how are we going to put it right?

LORD ERROLL OF HALE

Of course, there is always room for improvement. But a nation that can export something like £3,500 million worth of goods to all the markets of the world in a single year cannot be all that inefficient, although I am the first to realise that there is room for improvement. What damages this country are these sweeping generalisations with little supporting evidence.

LORD HAWKE

My Lords, before my noble friend leaves that point, would he care to make some comment on the campaign of denigration of the British aircraft industry which appears to have been carried on by that well-read paper, the Economist?

LORD ERROLL OF HALE

I sometimes wonder on whose side the Economist is. I agree that what they say does not do anything to help; nor does the cancellation of British aircraft do anything to help the British aircraft industry.

What happens as a result of these sweeping generalisations is that foreign confidence in British industry is undermined; and furthermore, it makes the task of our exporters all that much more difficult. If directors are to be made more efficient, if restrictive practices by workers are to be removed, let us go about it quietly, without undue publicity. The "blowing off" about it (if I may so put it colloquially to noble Lords opposite and to the noble Lord, Lord Byers) does not put it right. What does put it right is to seek out the places where action is required, and to get it done quietly and efficiently.

The Government are very fond of committees and councils, and have set up a great number since they came into office. It would be one of my strictures on the Government that when faced with a problem they set up a committee, or when faced with a difficult situation they set up a regional council, an economic council or a planning council. Obviously, in a complicated country such as ours there must be a number of committees and there must be proper interchange of views and the cross-fertilisation of ideas. But from the long list in Hansard which was given in answer to a Question of mine in April of this year, it is apparent that the Government have gone mad on committees. While, as I say, committees are required, I think the time has come to reverse this process, because we believe that fundamental change and economic improvement come through the will and effort of the individual. While committees may do valuable work in coordination and ensuring uniformity of action over a broad field, what will really make this country go ahead more is to give more opportunity for the individual to exercise his will and to make his effort. That is to be my text when making some observations about the Finance Bill.

I was particularly interested in the speech of my noble friend Lord Eccles, who dealt almost entirely with the Finance Bill. I should like to say that I always enjoyed working for him in the Board of Trade when I was his Parliamentary Secretary, and therefore I was particularly fascinated in listening to the way he philosophised so ingeniously and cleverly on the future problems of Britain. Needless to say, I was extremely interested in the speech of the noble Lord, Lord Robbins, who said that he found the Finance Bill one of unparalleled difficulty and complexity. Perhaps I could point out to him that it is considerably easier to understand in the original Hungarian text.

LORD SHEPHERD

Let us have a new one, for a change!

LORD ERROLL OF HALE

Not everybody has heard that one. I tried it out this afternoon on two of my noble friends, and as they had not heard it I thought it was worth the risk.

The basic trouble with the Finance Bill is that it does not provide any help or assistance to individual or collective effort. The noble Lord, Lord Francis-Williams, asked me if I would suggest what the Conservatives would do—was there any source of untapped wealth? I would say that there are considerable sources of untapped energy at all levels of our society, because the present level of taxation discourages a man from giving that extra bit of effort which makes all the difference. This applies not only to the relatively well-to-do executive, who likes to have a day off, or does not go for the higher job; it applies also to the work-people who are not prepared to do overtime or to work on a Sunday to secure the completion of an urgent export order, because the additional earnings would attract a higher rate of income tax. The first thing this Finance Bill does is to raise the standard rate of income tax, and to provide a very real deterrent to increased personal effort at all levels.

LORD FRANCIS-WILLIAMS

My Lords, I do not want to interrupt the noble Lord, but I am very puzzled. If they now recognise this source of untapped energy—and I agree it does exist in this country—why did they not do anything about tapping it properly during the last thirteen years?

LORD ERROLL OF HALE

We reduced income tax on several occasions during our thirteen years; and we were also able to reduce indirect taxation. I feel that, if there has to be a choice, I should prefer myself to see a reduction of direct taxation taking priority over a reduction of indirect taxation.

LORD FRANCIS-WILLIAMS

Would the noble Lord—

LORD ERROLL OF HALE

I said priorities, and if the noble Lord will forgive me, I have been on my feet for eighteen minutes and I should like to keep my speech down to a reasonable length.

As regards the corporation tax, which was so brilliantly dealt with by my noble friend Lord Eccles, I am sure the mistake here was to bring it in so quickly. A further year spent in studying its effects would have ensured a much smoother introduction of this tax. As it is, it has caused a great diversion of effort on the part of men engaged in business, because they had to work out the new arrangements which will apply. It has also, through its over-hasty introduction, seriously affected our overseas investment, as illustrated by some remarks made by the noble Lord, Lord Byers. Indeed, I know of at least one case where a senior executive of a very large company had to cancel his export sales tour because the complexities of this new tax and its effect on his business were such that he had to remain in England to sort them out.

There is also an important disadvantage of the new corporation tax, which I should like to couple with a point raised by the noble Lord, Lord Winterbottorm, in his maiden speech, when he referred to bringing the United Kingdom tax system into line with the systems of the countries comprising the E.E.C. In fact the way in which this Bill will alter our company tax system is exactly the reverse way to the direction in which the countries of the E.E.C. are moving. In my view, this is one of the most regrettable aspects of the corporation tax in the long run, for if we later wish to enter the E.E.C. we shall need to turn our whole system back to the present balance.

Finally, in my remarks on the Finance Bill, I come to the capital gains tax, which seems irrelevant at the present time, since most people who are fortunate enough to possess capital are accumulating losses to set off against possible gains in the future. I have always felt that a capital gains tax was an experiment worth trying if thereby one could win over the acceptance of the unions to the Labour Government's Prices and Incomes policy. If we could have real price stability, then taxation of small but genuine capital gains would be a price well worth paying, and there would be none of the deterioration in the value of money to which the noble Lord, Lord Robbins, referred so eloquently in his speech.

Of course, what happened is more or less what we might expect. We have the capital gains tax, but no response from the unions at all. Indeed, the record is a pretty sorry one. In the 42 major settlements this year, only one is below the norm of 3½ per cent. set by the First Secretary in his policy. Needless to say, the one which is below is an award to hospital workers of only 2½ per cent. So much for Labour's Election promise to ensure that the lower paid workers and public employees would not be exploited. All the major awards are above the norm set, and therefore prices are bound to continue to rise and we shall all be the sufferers.

I should have liked to refer, in the context of the Finance Bill, to the question of close companies, because here again close companies are those owned by individuals, in the main very often built up by the founders. The proposals for close companies were particularly savage in their attacks on the enterprise of individuals. I was not able to be present to listen to his speech, but I know that the noble Lord, Lord Sherfield, referred to that matter extensively and with expert knowledge.

The noble Lord, Lord Cohen of Brighton, said very frankly that the boom is over. I was interested to hear what he had to say, because the Chancellor of the Exchequer, both last November and early this year, had been putting on the brakes more speedily, but it seemed as though the brakes were not having any effect. Those of us who were connected with the Treasury and Government Departments in the last Administration know that it takes time for the brakes to have any effect. Personally, I thought in June and July that there were signs of the brakes beginning to take effect: National Savings were down; used car prices were down 10 per cent; unemployment was marginally up against the traditional seasonal trend, and there were a number of similar factors. I think probably the Chancellor of the Exchequer thought the same, because in winding up on the Third Reading of the Finance Bill, on July 15, he said: There is a temptation to assume … that we should rush into further measures which would have the effect of restraining the economy even more. This would be an unfortunate thing to do and I am resisting the temptation to do it."—[OFFICIAL REPORT, Commons, Vol. 716 (No. 665), col. 911, July 15. 1965] Twelve days later came the announcement of further savage cuts, undoubtedly brought about by his growing realisation that his Government had still failed to win over foreign confidence and that these further measures were needed, not to keep the economy on an even keel but in order to satisfy the foreigners who still doubt the ability of the Government to pull the country through.

As a result of this further severe and savage application of the brake, I think we must expect to see a considerable degree of recession during the winter. It will not necessarily lead to unemployment because, of course, the first step is to abandon overtime earnings, and then there comes a period on short-time earnings. But the result is smaller take-home pay packets, and there will be considerable discomfort and inconvenience, because all this will come at the very time when higher prices caused by the recent wage awards will be working through to the shops and to their customers. So I venture to say to noble Lords that we on this side of the House do not like the situation at all. We are filled with foreboding. We hope that the noble Earl, when he comes to wind up the debate, will be able to reassure us, but I hope that, in speaking frankly, as we on this side of the House have done, our motives will not be misunderstood.

I am sorry to have to say that I detect a growing tendency on the part of the Government to call in question the patriotism of Members of the Opposition in another place and in this Chamber. One example was when the noble Lord, Lord Rhodes, was winding up a debate on June 2. Referring to my criticisms of the Government's prices and incomes policy, he said: 'We must remember Nurse Cavell's words 'Patriotism is not enough'; and in my view an attack on this policy by the Opposition is unpatriotic."—[OFFICIAL REPORT, Vol. 266 (No. 84), col. 1168.] Then we had the Chancellor of the Exchequer saying, on August 3, in reply to a supplementary question by an Opposition Member: I am bound to say that the level of patriotism among honourable Members opposite gets lower and lower as the Session wears On. …—[OFFICIAL REPORT, Commons, Vol. 717 (No. 167), col. 1255.]

A NOBLE LORD

Read the question! What was the question?

LORD ERROLL OF HALE

The question was by Captain Elliot, the honourable Member for Carshalton, and was as follows: When the Socialists locusts have eaten these reserves, which reserves have they earmarked to eat next? As they have already liquefied part of the American investments held by the Government, preparatory (as the Chancellor of the Exchequer had admitted) to bringing them into the first-line reserves, I think it was perfectly reasonable for Captain Elliot to ask what the next line of reserves to be so liquefied would be.

I want to say to your Lordships that we on this side of your Lordships' House yield to no one in our sense of patriotism, and we strongly resent the criticisms which are creeping in on the question of patriotism at the present time. We believe it to be our patriotic duty to show up the faults of the Government, to try to persuade them to mend their ways in the short time left to them before a shocked electorate throws them out.

8.15 p.m.

THE EARL OF LONGFORD

My Lords, I came down to the House to-day well aware that this was the last major debate of a very happy year and intending to make a speech which would be as nearly statesmanlike as lies within my compass. The House will be relieved to hear that I am not going to stick to that purpose too closely, in view of some of the comments which have fallen from the noble Lord, Lord Erroll of Hale, and one or two other things which have been said at different times.

The noble Lord, Lord Erroll of Hale, has, if I may say so, certainly become a most acceptable Member of this House, in the short time he has been with us, and again, unless I much mistake it, he is a man sweet-natured and sensitive; therefore I hope I shall not cause him undue distress if I say just one or two things fairly clearly about the speech which he has just delivered. In twenty years I have listened to a great many complacent speeches from both sides of this House, and I may even have made a few myself, but never have I heard a speech so full of complacency, as the noble Lord, Lord Byers, a dispassionate umpire, so to speak, can no doubt testify.

We were told earlier on by the noble Lord, Lord Carrington, that the right honourable gentleman Mr. Heath has a new three-pronged policy, and the second aspect of that policy, as the noble Lord, Lord Francis-Williams, demonstrated in one of the most brilliant speeches for a long time—was vague enough, but this, at any rate, was intelligible. He said we must grapple—perhaps it has been put off for too long—with one of the essential problems of the British economy, namely restrictive labour practices; and he went on to set that out as one of the three main planks of the Conservative policy. How are you going to do all this good by stealth? Are you going to, sort of, creep up on a restrictive gentleman and stop his restrictiveness? Of course, it is so absurd that I think the noble Lord, on reflection, would want to correct Hansard, and I am quite ready for him to do it.

I will return for a moment or two to say one or two things about the noble Lord's speech. He asked me to say that he is patriotic. I am quite certain that the noble Lord is as patriotic as I am. I am half Irish, and whether that makes me a good English patriot the noble Lord himself must judge, but I am sure lie is as patriotic as I am. However the noble Lord, Lord Rhodes, was perfectly entitled to point out that some line he was taking was not calculated to help the country. If we cannot say that, I really do not know what we can say in political controversy. But I am a little surprised, because I was accused of being over-sensitive, along with a few other things, earlier on. I think noble Lords opposite are getting over-sensitive if they go ferreting round for statements we are supposed to have made about their patriotism. In particular the noble Lord has invented, as far as I can judge, what he calls "a series of sweeping denigrations of British industry by the Prime Minister". He does not quote these things. I would venture to say there has never been a Prime Minister who was personally so actively and intimately concerned with the welfare of British industry. It just happens to be the passion of his life, and everyone knows it, so all this talk of sweeping denigrations I am afraid is moonshine.

The noble Lord gave us an interesting piece of history of the origin of these plans for dealing with excess imports. I am not going to pursue that matter further, because everyone will want to look at what he said and see if it leads them in any way to alter their views about anything. But do not let me fail to remind the House of what the Prime Minister said in that debate. He said that the Leader of the Opposition—and I think he must have meant Mr. Heath—condemned the actions we took on taking office, but the right honourable Member for Barnet at that time said that this was his diagnosis and these were his remedies. I am only quoting what the Prime Minister said, so we do not need to pursue that matter further to-day.

I would express my admiration for those who, so to speak, fought their way clear of the Party atmosphere and delivered dispassionate speeches. We certainly heard one from the noble Lord, Lord Byers, and, if I may say so, from two of my colleagues, the noble Lord, Lord Sainsbury, and the noble Lord, Lord Citrine, who spoke very bravely. I am told that in the other place the Conservatives under their new Leader have organised what is called "group conversation" while the Leader of the Government is speaking. I hope we are not going to suffer that here. Already we have had a ban on interruptions imposed under the new leadership and all this talk about "roughing it up", and so on; but I think I would rather be stopped from interrupting when someone else is speaking than he stopped from speaking by a buzz of conversation when I am supposed to hold the Floor after about seven hours in the Chamber.

The noble Lord, Lord Robbins, made one of the most impressive speeches we have heard here for many years. I am going to say relatively little about it because I think everyone will wish to study it, but I would say that it ranks with that classic speech on his own Report which he delivered some years ago; and it was an occasion when the noble Viscount, Lord Eccles, also made one of the most influential speeches since the war.

The noble Lord, Lord Carrington, asked me one or two precise questions, which I will come to later on. I know he will take it in the best spirit, but he has developed a habit when asked about his Party's policy of referring us to statements made elsewhere. The other day we were referred to Sir Alec Douglas-Home's views on Europe on a particular occasion, only to find that he had not spoken of Europe. To-day we have been referred to a statement made by the Leader of the Opposition, and my noble friend Lord Francis-Williams has dealt with all that. There is one advantage about this tactic of referring to statements made elsewhere: it enables me to avoid replying at length to the arguments about corporation tax and capital gains tax. They have been deployed on both sides for weary months, and the House will forgive me for not making an elaborate defence of them to-day beyond what was said by my noble friend Lord Champion, who opened so well some hours ago.

As the noble Viscount, Lord Eccles, has courteously told me that he has to go in a few minutes, perhaps I could say one thing about the corporation and capital gains taxes before he leaves. One would think from what the noble Viscount said that these taxes were in some way inspired by malevolent Socialism amounting to Marxism. But in fact these taxes are used in America, and that is hardly a Socialist country, if I may say so to the noble Viscount, who cannot fail to be interesting, whatever line he takes. I thought all the tremendous argumentation about Socialist mentality behind the taxes was as remote from reality as some of the remarks I referred to earlier. I would remind him that the right honourable gentleman, Mr. Heath—to whom I wish all good fortune, in case I did not make that plain a moment or two ago—said, on Third Reading of the Finance Bill, on July 15: Moreover, we have not opposed the principle of the capital gains tax or the corporation tax at any stage in the debates on the Bill. Then he went on to say, along with the noble Lord, Lord Robbins, and no doubt the noble Viscount, Lord Eccles, would agree, that he did not like the form or the timing. But, if I may say so, the whole philosophical argument against these taxes falls to the ground if we are to understand the Conservative Party did not object to them in principle.

The noble Lord, Lord Barnby, is with us, and perhaps he will forgive me if I do not answer all the points, some of which were intricate. Perhaps I may answer just one of them with regard to close companies, to which the noble Lord, Lord Sherfield, also referred. Here may I join, as we all do—I am sure the House is agreed—in paying tribute to the civil servants that Lord Sherfield men tioned earlier. The noble Lord, Lord Barnby, questioned the treatment of interest paid by the close company. Briefly, the position is that interest paid to a director or associate of a director is taxed in the same way as dividends. If the company goes to an outside source for its loan capital the interest would be allowed as a deduction in computing the profits. The Chancellor introduced an Amendment on this point during the passage of the Finance Bill. The rules are now the same, subject to technical qualifications, as for the existing profits tax, and there is no reason to suppose that they adversely affect the conduct of business. That answer will be in Hansard, and perhaps I can deal with the noble Lord's other points in correspondence.

LORD BARNBY

My Lords, I am obliged to the noble Earl. It still seems rather unclear.

THE EARL OF LONGFORD

It is a difficult subject and it may be that the noble Lord understands it better than I do, but may I write to him to give the full answer by correspondence? The noble Lord, Lord Erroll of Hale, criticised us for discouraging investment. I think that would be a fair summary of that part of his argument. I cannot pursue the theory of that now, except to point out that investment is still very high. There is no sign that it has been discouraged. I would submit to the noble Lord that if he is correct there is certainly no sign of this discouragement he has in mind.

May I congratulate the two maiden speakers—the noble Baroness, Lady Plummer, a real maiden in Parliamentary life, and the noble Lord, Lord Winterbottom, a hard-bitten warrior from the House of Commons? I think we all felt that they discovered what was necessary to make an attractive speech in this House, and both made speeches which gave the utmost pleasure. Many of us are thinking very much at this moment of Lady Plummer's husband, so dear to so many Parliamentarians.

I am sure the noble Viscount, Lord Eccles, and the noble Lord, Lord Erroll of Hale, who is tremendously interested in exports, and a very patriotic businessman, if I may use that phrase again, will be pleased that so many of our speakers have dedicated so much of their speeches to exports. Time was when it might have been thought by noble Lords opposite that the Labour Party were not interested in business or exports, and here we have a whole string of speeches about exports, which cannot be properly answered by me, least of all at this time. Perhaps I might give official answers at the moment, and the matters can be pursued with the speakers in question.

The Government are immensely interested in the question raised by the noble Baroness, Lady Plummer, about agricultural exports, and only last week the Minister of Agriculture, Fisheries and Food met representatives of some twenty agricultural organisations with an interest in exports to see what more might be done to ensure full use is made of these measures. I can assure the noble Baroness that this will be followed up. When all is said and done, agriculture's principal contribution to our balance of payments is as a saver of imports. That does not mean that a great deal more cannot be done.

The noble Lord, Lord Winterbottom, showed great practical knowledge of the export trade as did the noble Lord, Lord Haire of Whiteabbey, and they will forgive me if their speeches are dealt with by correspondence through the Ministries. They are both aware of the difficulties that arise through our international commitments, particularly in GATT, which forbid the use of subsidies to promote exports. The noble Lord, Lord Winterbottom, knows all about this. It is in our own interests as an exporting country to see that GATT is observed. That is rather an overriding point. But, nevertheless, I should like the noble Lord to feel that he has started a train of thought which I am sure will not finish here.

I would say the same in effect to the noble Lord, Lord Haire of Whiteabbey. I think I have time to deal with only one of his points. He referred to the collective selling organisations. I can tell him that the working party set up by the British National Export Council to inquire into the feasibility of establishing a new form of export sales corporation to mobilise the export potential of the medium-sized and smaller firms, has engaged consultants to make pilot surveys in Western Germany. Western U.S.A. and British Columbia, and the consultants will advise on the type of organisation which will help to meet them.

I must not speak for too long, but I will try to put some of these matters in something of a perspective and end, I hope, on a note which is perhaps more or less agreed. Since 1963 (my mind goes back to that year partcularly; I do not know whether the noble Lord, Lord Robbins, regarded this as a favourable year) there has been a fairly general agreement among the leaders of the political Parties, and I would think among the majority of experts—I must not say ail the experts—that, with a reasonable degree of careful planning, it should be possible to increase the national income of the country by something like 4 per cent. a year. There was a widespread agreement about that. It was proclaimed by the late Chancellor of the Exchequer, and much applauded by all sides of this House.

But it was recognised then, and it has been recognised ever since, that even if this country were relatively self-contained, if there were no foreign balances and no awkward problems of this kind, this kind of policy, this systematic growth, would be defeated if money incomes increased much faster than production; that inflation could arise even in a closed society. I would disagree with any noble Lord who shows any sign of defeatism about the attempt to secure an incomes policy. I must not accuse the noble Lord opposite of despair, because that is the worst of all sins, but I would accuse him of pessimism about it. I would think that there are good prospects of this incomes policy succeeding, provided that the employers and the leaders of the trade unions persevere and proceed along the lines upon which they have started. I would think that success was extremely likely so long as we do not lose confidence. But, of course, if the noble Lord and his colleagues and those who represent something like half this country lose confidence in the success of the enterprise, the chances of success are greatly diminished.

We all remember that striking tribute paid by the noble Lord, Lord Thomson of Fleet, in a recent debate to Mr. George Brown and his labours. I should have thought that most noble Lords would echo that tribute. I do not think the noble Lord, Lord Erroll of Hale, dissented from the tribute. I think he thought that Mr. George Brown was extremely likely to fail. Trying to be realistic, what I should say is that, if he is given proper backing, he, and whoever happens to be doing the job at the time, will succeed; but he will not succeed immediately. It is going to take time. I recognise, if we are being realistic, that the grim situation described by the noble Lord, Lord Robbins, is with us now; so the fact that I think that this incomes policy will succeed a little further on is not an immediate answer to our problems. I recognise that.

The noble Lord the Leader of the Opposition asked me to interpret what he found to be a rather cryptic utterance of the Prime Minister about the steps that would need to be taken there if things went wrong. I am afraid that I am not at liberty to say what steps are in mind, and I do not honestly think that the noble Lord, who is a most experienced ex-Cabinet Minister, if he had steps in mind himself, would go any further than the Prime Minister has gone on that matter recently.

The noble Lord, Lord Robbins, devoted a large part of that weighty speech to a discussion of what might roughly be called the financial as opposed to the industrial problem. I would not offer a personal opinion which could be set against his, but I was most interested in the extreme emphasis that he laid on the financial aspect. I think that the Government and its advisers must make up their own minds when they study his speech as to how far they can go in accepting that particular analysis. It was certainly most impressive, and it was interesting that, coming at it from a different point of view, the noble Lord, Lord Cohen of Brighton, who spoke with splendid verve and sparkle, reached much the same conclusion from these Benches as the noble Lord, Lord Robbins, that these measures of restraint were highly necessary and perhaps overdue, and must be supported at all costs.

That was where the noble Lord, Lord Byers, was extremely helpful. He even urged us to become unpopular in order to become popular. I suppose that we must not even make the political calculation as to at what moment the Election would come, whether we were still unpopular or had become popular. I suppose we must not even think that one out. I do not think it is asking too much of a Government. I think we should not be masochistic. We have not got to seek popularity; I think we must be ready to face unpopularity. That is certainly the spirit of the present Government.

I must draw to a close. The Prime Minister said elsewhere—and I do not think he was differing from the noble Lord, Lord Robbins, except possibly in emphasis, and of course he had not heard the noble Lord's speech and the particular emphasis that he laid—that basically the trouble is industrial. Of course, there is a financial aspect to all this, and there is an industrial aspect, and the Prime Minister was calling attention to the fact that in the last year, for example, world manufactured exports went up 14 per cent. and ours went up only 4 per cent., and therefore we must redouble every effort to stimulate exports. There we can all agree. The noble Lord is as keen on stimulating exports as any of us. I would therefore express confidence myself that, as we look further on, we shall pull ourselves out of this particular difficulty; but I think it will be some time. I do not see any sort of easy escape from our difficulties. I think it would be a great mistake to make any assumption of that sort.

Before I utter my last words—which I will utter in a moment—may I say to the noble Lord, Lord Sherfield, what I should have said earlier, that of course the Government are deeply interested in the welfare of the small companies, and I am quite certain that they appreciate the great efforts he himself is making at the moment to help them.

My own last thought—and I will not take more than a moment—is this. I think our real trouble as a nation at the moment—I do not say it is getting worse, but it might be becoming more dangerous because our need is greater—is a kind of collective selfishness. I think many of us are ready to support a demand made on behalf of our group which we should never make on behalf of ourselves. The other day I was almost abused at a meeting by a most high-minded professional man, because I thought his particular group ought not to have more than a 13 per cent. increase. He would never have made that suggestion or taken up that attitude about his own personal fortune. I think that the problem before all of us is to make sure, in our membership of a group, whether it is a trade union, a professional body or any kind of business association, that we watch very carefully any assertion of group interests, because at the present time it is our group interests, if anything—our assertion of group interests regardless of the national income—which would destroy us if anything could.

I finish optimistically. I believe, in spite of the oppositional points made opposite, that we have reason to be grateful for the genuine, if critical, goodwill of noble Lords in all parts of the House. I take this opportunity of saying, particularly to the noble Lord, Lord Carrington, what an advantage I think it is in this House that there should be so much co-operation by people who recognise that, with all our faults, we are human.

LORD CARRINGTON

My Lords, the noble Earl is a most disarming Earl. But may I point out to him that he has not answered one of my questions? He explained to me, most courteously, why he was not going to answer the other one, but he has not even mentioned this one, of which I gave him notice. It is not a Party question. I think it is a question the answer to which would be considered helpful if he could give it. I asked him, if the measures of last week—that is, the financial measures that the Chancellor announced last week—are not adequate, will the Government be prepared to take further action, and take it quickly?

THE EARL OF LONGFORD

My Lords, the answer is that if these measures should not prove adequate, this Government, like the Government of noble Lords opposite, would take further measures and act quickly. But I do not want that to be the last word. I do not want to give the impression that at this moment we are considering other measures. We are confident that these measures will succeed.

On Question, Bill read 2ª: Committee negatived.

Then, Standing Order No. 41 having been suspended (pursuant to the Resolution of July 22), Bill read 3ª, and passed.