Lords Sitting of 6 May 1965

Preamble
The House met at three of the clock, The LORD CHANCELLOR on the Wool-sack.
Prayers—Read by the Lord Bishop of Worcester

DECIMAL CURRENCY
3.5 p.m.
LORD FRASER OF LONSDALE: My Lords, I beg leave to ask the first Question which stands in my name on the Order Paper.
[The Question was as follows:
To ask Her Majesty's Government whether they have any statement to make as regards the decimalisation of the currency.]
LORD SHEPHERD: My Lords, I regret that I cannot add to what my noble friend Lord Rhodes said on November 10, 1964.
LORD FRASER OF LONSDALE: My Lords, is it not grievously disappointing that Her Majesty's Government cannot make up their minds about this matter? Does it not cost more every year it is delayed? Did not this Government proclaim their belief in modernisation, and is it not time they made a decision in this most practicable and important matter?
LORD SHEPHERD: My Lords, this Government certainly believe in modernisation. We also believe that what the noble Lord has in mind is most desirable. It is, however, a complex matter, and we must follow a system of priorities. We had considerable difficulties. This matter is being considered, and we hope that in the not too far distant future we shall be able to give a more satisfactory reply.
THE EARL OF DUNDEE: My Lords, is the noble Lord aware that I made an almost identical reply to my noble friend Lord Fraser of Lonsdale seven times in the last five years? Could we not now try to improve on that?
LORD SHEPHERD: My Lords, I think that my excuse is infinitely better than that of the noble Earl. His Party was in office for thirteen years; this Government has been in office for six months.
LORD BYERS: My Lords, will the noble Lords please give an undertaking that one of these two Parties will, in the near future, do something about this most important matter?
VISCOUNT AMORY: My Lords, will the Government bear in mind that about five years ago, when I was at the Treasury, I took the first bold step in this direction by abolishing the farthing, which I was told opened the way to the solution of the whole matter? May I ask him to appreciate how much I regret that the operation has not been completed?
LORD CONESFORD: My Lords, is it not a fact that a similar reason to that given by the noble Lord this afternoon was given by Mr. Gladstone?
LORD SHEPHERD: My Lords, I am afraid that my memory does not go back as far as that.
LORD BLYTON: My Lords, can the noble Lord say whether we should have decimalisation of the currency to prepare us for joining the Common Market?
LORD SHEPHERD: My Lords, I think that is quite another question.

BROADCASTING LICENCE FEES AND BLIND PERSONS
3.8 p.m.
LORD FRASER OF LONSDALE: My Lords, I beg leave to ask the second Question which stands in my name on the Order Paper.
[The Question was as follows:
To ask Her Majesty's Government whether the Postmaster General, in terms of the Wireless Telegraphy Act, 1949, as amended by the Wireless Telegraphy (Blind Persons) Act, 1955, will arrange that a blind person shall be relieved of paying the whole of the 25s. a year, being the proposed new licence fee for sound radio.]
LORD HOBSON: My Lords, I am glad to say that my right honourable friend the Postmaster General will continue the

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practice of issuing to blind people free licences for the reception of sound radio, and of abating for them the charge for a combined television and sound licence by the full amount of the charge for the sound only licence.
LORD FRASER OF LONSDALE: My Lords, will the noble Lord believe that the whole blind world deeply appreciates this small concession, which has now been made to them by the British Parliament for twenty-five or thirty years?
LORD HOBSON: My Lords, I thank the noble Lord for his remarks.

BUSINESS OF THE HOUSE
LORD SHEPHERD: My Lords, in view of the large number of speakers for this afternoon's debate, may I inform the House that light refreshments will be available later in the evening?

LAW COMMISSIONS BILL
3.10 p.m.
Order of the Day for the Third Reading read.
THE LORD CHANCELLOR (LORD GARDINER): My Lords, I beg to move that this Bill be now read a third time. During the course of the discussion on this Bill in your Lordships' House, several of your Lordships have been good enough to describe the Bill as my child. I should indeed be glad to claim parentage for it, but I must remind your Lordships that on Second Reading of the Bill I did refer to a letter written by one of my distinguished predecessors, proposing that five Law Commissioners should be appointed. As this was in 1835, I can hardly claim parentage of this Bill. But I do believe that in course of time the extent to which a Law Commission will help us to rectify and modernise our law will have the result that we shall all he wondering why on earth we never had such a body before. I beg to move.
Moved, That the Bill be now read 3a.—(The Lord Chancellor.)
VISCOUNT DILHORNE: My Lords, we have discussed this Bill in considerable detail in the course of its passage through
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this House, and I do not propose to say much on Third Reading, except that I trust that the hopes expressed by the noble and learned Lord, the Lord Chancellor, with regard to the Law Commission will be fulfilled. We shall watch with interest the Commission's activities. I hope that they will be productive, but I believe that some time is bound to elapse before we see any fruits of their labours.
Looking back on the course that this Bill has taken, upon which I will not elaborate, I must say that I feel that a considerable amount of Parliamentary time might have been saved, if not in this House, at least in another place, if this Bill had been first introduced in your Lordships' House. It is a Bill of great interest to lawyers; and lawyers are, of course, well represented in your Lordships' House. I cannot ask the noble and learned Lord to give an undertaking or any pledge in regard to this matter, but I hope that when the Law Commission does produce draft Bills, the noble and learned Lord will seriously consider whether it would not be more appropriate that they should be introduced first into this House, and go from here to another place, rather than be introduced first in another place. It seems to me that such a procedure not only would be more appropriate but might also lead to a saving of Parliamentary time, as I believe might have been the case if the present Bill had been introduced in your Lordships' House. I am not asking for a pledge or an undertaking. I merely put forward the thought in the hope that it will be acceptable to the Lord Chancellor.
I would conclude by saying that by his disclaimer of parentage the noble and learned Lord has not, in fact, made the offspring illegitimate, but has clearly accepted the rôle of guardian to the infant. I am sure that that is a rôle which he will faithfully discharge. I congratulate him on securing the passage of the first Bill which he has himself conducted through the House.
THE LORD CHANCELLOR: My Lords, I am most grateful to the noble and learned Viscount for what he has said. I am sure that when the Law Comsion has prepared draft Bills, we ought to consider whether they ought not advantageously to be introduced in your

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Lordships' House. One of our Parliamentary difficulties is that at the beginning of the Session the work in your Lordships' House tends to be minimal and later on in the Session to be crowded. I am sure that that, too, is a factor which we should bear in mind.
On Question, Bill read 3a, with the Amendments, and passed, and returned to the Commons.

OVERSEAS INVESTMENT
3.15 p.m.
LORD ALDINGTON LORD ALDINGTON rose to call attention to the national importance of British private investment overseas; and to move for Papers. The noble Lord said: My Lords, the object of the Motion is to mark the importance of British private investment overseas, and also to discuss—and, I hope, to prevail over—the arguments which have been put forward in favour of a swingeing increase in the United Kingdom taxation on the earnings from those investments. I must at once remind your Lordships of my interests in banking, insurance and in industry which give me widely differing interests overseas, each of them affected in a very different way by fiscal policy and by changes in it.
The occasion provoking this Motion was the Chancellor of the Exchequer's remarks in the Budget debate, in which he used arguments showing that, in his view, there may be positive disadvantages to our country in investment overseas, quite apart from the immediate strain on the balance of payments, and that the tax system, in his view, is biased in favour of investment overseas as against investment at home. Though that provoked me to the Motion, the provocation has, I would say, been greatly sharpened in recent days by the publication of the clauses in the Finance Bill relating to corporation tax on overseas earnings. I must admit that my appetite for to-day's debate was further whetted on Monday when I read what the Chancellor had said on May Day about this matter.
I give the tax background as an introduction; and let there be no doubt about the devastating effect on overseas investment, and therefore on our future exports,
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of the corporation tax as now proposed: a discriminatory increase of taxation of £100 million, or about 3s. in the pound, on average, on the earnings of overseas investments, and on some an increase of as much as 8s. 3d. in the pound. I say "discriminatory", meaning as between overseas investment and investment at home. But the mathematics of tax is not my concern to-day. I want to persuade your Lordships of the damage to the national interest that will be caused unless the Government abandon what I conceive to be their misguided prejudice against overseas investment and their fallacious arguments about the present tax arrangements related to it.
However strong the national advantages of these investments are—and, as I shall show, they are, in my view, very strong—they do not, of course, remove the necessity from time to time of strict control, for balance-of-payments reasons, on the outflow of capital from this country. A control system—a good control system—already exists. That control system has been worked for some time. It does not, and should not, prevent all new investment. For example, it would obviously be madness to forbid the export of capital for an investment which in the same year would add a larger sum to the nation's exports. But I readily admit that not all cases can be like that.
There is a problem—short-term, we hope—of securing selective control, a problem on which important questions can arise. That problem is quite separate and, I would say, quite different from the long-term problem of how we treat our existing overseas investments and how we tax them. The United States of America are facing both these problems to-day. They are keeping down new lending overseas—and there is an interesting article in the Financial Times this morning about some of the measures which they are taking—but they are not punishing existing investments.
I shall this afternoon try to confine myself to consideration of the long-term problem—the problem of the existing investments which are now so threatened with indiscriminate attack by the corporation tax. The total amount of British private overseas investment is given as £10,000 million. Of this, £4,000 million is the market value of what are called the portfolio investments, and £6,000

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million is the book value of our direct investments abroad. I shall say little about the portfolio investments, but that does not mean that much could not be said, and rightly said, against the wisdom of proposals that interfere with free switching of overseas investments for their better management, and alter the tax system on their earnings to the great detriment of the British investor.
We should not overlook the value to the Western World, and to the British economy, of a free international market in portfolio investments. Nor, particularly at this time, should we forget that Britain gains greatly in having this large and self-growing reserve, now worth £4,000 million. I noted that the Prime Minister, and other members of the Government, too, have, rightly, been parading this and other strengths of our financial position in recent speeches. But though I quarrel with the attitude shown by the Chancellor of the Exchequer to these investments, I do not quarrel with the need strictly to control the outflow of new capital to purchase them; and I do not propose to refer to portfolio investments again.
Now I come to the main subject of my speech to your Lordships this afternoon; that is to say, the direct investments abroad. These have risen in book values from £5,100 million in 1962 to about £6,000 million now. Those figures are taken from the Board of Trade Journal. Where are the assets which this massive outlay has created? I think the best way of giving the geographical distribution to your Lordships is to take the geographical distribution of earnings from them, and the latest information I have about that is from 1963. In that year, the total earnings, after overseas taxation of United Kingdom companies in overseas branches, subsidiaries and associates amounted (these figures exclude the oil industry) to £334 million. Of this total about two-thirds came from the overseas sterling area, 10 per cent. from Western Europe, and the remainder, in the main, from the American continent, most of it from the United States.
Now a word about the activities from which these earnings came. The earnings from manufacturing amounted to about £148 million. Earnings from mining amounted to about £50 million. Earnings
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from plantation and agricultural activities amounted to about £27 million; and various services, including mostly banking and insurance, gave earnings of £63 million. That is the breakdown of the figures for 1963.
The 1964 figures which we have only in total show earnings (again excluding the oil industry), slightly larger than in 1963, of a total of £346 million. I will in a moment give some figures which include oil, but those that I have mentioned give some guide to the geographical distribution of the investment, and to its size, as well as to the earnings after tax. I should only add here that about half of these earnings are remitted home: the remainder are retained and added to the investment overseas.
If we include oil we get an even stronger picture for 1964. We get total earnings of £718 million, and if we deduct from that the amount retained overseas for reinvestments, plus the amount of new investment—a total for the year of £402 million—we find that in 1964 there was a net gain to the balance of payments of £316 million. That is no small amount; but it is, as I am about to try to show your Lordships, only a small part of the total advantages to the British economy of these large investments overseas which, if they could be quantified in money terms, would far, far exceed the interest and profit earnings.
Now let me try to summarise the nonfinancial advantages which accrue to the nation. First, much of this investment has secured for Britain important raw materials. This has not only ensured the supply of raw materials we need, but has also helped to ensure that the prices remain reasonable. One should not overlook, too, the help that this has given to the country's important re-export business; and the help, too, that it has given to the export of services from Britain which add to our overseas earnings—for instance, in shipping, and in the commission and brokerage earned from foreigners on the bullion, metal, commodity and produce markets in London. Nor must we overlook, I submit to your Lordships, the substantial orders which these overseas companies have placed for capital equipment exports from Britain. So much for raw materials.
Secondly, there are the gains to British manufacturing companies by the establishment of manufacturing subsidiaries overseas, gains which turn quickly into earnings of foreign currency. There are the advantages to the parent company here in receiving know-how and royalty payments (not included in the earnings figures I gave earlier) and in securing a selling outlet for its British products, other than those which it is manufacturing in that particular subsidiary—an advantage which is particularly important in countries which, for balance-of-payment reasons, have to protect their economy closely, and tend only to allow imports to firms with local manufacturing establishments. There is also the further advantage of helping the parent company in this country to establish its position throughout the world as an international trading entity, all the more important as the world grows smaller. Then there is the advantage of creating in the country overseas a body of people who understand the technical excellence of that company's products; and the advantage, on the other hand, of learning the lessons of trade in that new country and learning from others their new techniques which may be of value at home. In other words, there is the feed-out and there is the feed-back.
Thirdly, there is the direct advantage here to the company which invests overseas. That advantage is also enjoyed by British traders generally, by the establishment in overseas countries of British-owned subsidiaries which will naturally look first to Britain for the supply of their capital goods, and look first to Britain for the banking, insurance and technical services which they require. Moreover, these subsidiaries will be educating foreign engineers and commercial people in understanding the merits of what is done here. This has been going on now for many, many years. To add further to that point, if we might just look at the reverse side of the coin, there is the advantage of the overseas manufacturing unit not being under the control of one of our world competitors, who would certainly not order capital goods from us. In short, I am saying to your Lordships: help this type of overseas investment and you help exports; damage it and you damage exports.
THE LORD PRIVY SEAL (THE EARL OF LONGFORD): My Lords, may I ask the noble Lord one question which is quite fundamental to our debate this afternoon? Would he always say that £1 million invested abroad is more worth while than £1 million invested at home?
LORD ALDINGTON: My Lords, perhaps the noble Earl will wait for a moment. I am afraid I am going to take a little time, but this is, of course, one of the points that I am going to tackle and if he will be content—he may not be satisfied with what I am going to say—he will see that I do at least face up to this point. Incidentally, if I may give him warning, I am not sure that the question is not a loaded one. But we will come to that in a moment.
Fourthly, there is the more general advantage to the British economy and to British exporters of adding to the wealth of overseas countries, particularly those which are traditionally large customers, such as the Commonwealth countries, thereby increasing their capacity to buy more from us. Fifthly, there is the direct relationship of private overseas investment to the aid and overseas development policies of Her Majesty's Government, whether those are pursued through the Commonwealth Relations Office or the Foreign Office. The previous Government, in September, 1963, issued an important White Paper on aid to developing countries, which was in fact discussed in your Lordships' House. In chapter 3 of that Paper the part played by British investment now and in the past century or more was outlined, and I hope that the Government agree with all that was said in that chapter.
My sixth advantage, I should add, is the advantage to our country of having established overseas thriving banking and insurance institutions which bring into contact with British business foreign firms who might otherwise never have met us. And it is worth remarking that these institutions have built up large business at relatively low initial investment cost, and mostly without any outflow of capital at all in recent years. Those are clearly massive advantages.
However, it is said that there are countervailing disadvantages, and I will try to be fair in summarising these arguments. It is said, first, that we

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cannot afford the money. We have, it is said, been lending long out of money borrowed short. We have not earned the capital before we have invested it. But it is surely wrong just to take the private capital outflow and make that argument against it alone: we should also take the totality of our overseas expenditure, including Government expenditure on capital and revenue account. They all need to he looked art together, and we must judge the advantage of each to the national interest. But, whatever conclusion we come to on this point, I would say to your Lordships that this argument is surely most relevant to exchange control decisions for future exports of capital, and does not justify a decision to damage or destroy existing investments, regardless of their proven value.
Then it is said that the return to the nation from investment overseas, in economic and social terms, is not as great as the return from investment at home. This, I think, is the noble Earl's point. Frankly, I admit that I do not understand completely the basis upon which the comparisons which lead to this conclusion have been made. It seems to me probable, having read a great many documents both before and after I put down this Motion, that the studies which tend to support this conclusion omit altogether the non-financial advantages of overseas investment, most of which I have already summarised. It is wrong, in my view, to consider overseas investment in a vacuum without regard to its effect on exports and other foreign exchange earnings.
Some attempts have been made by the Federation of British Industries, and others in industry, to try to quantify the national advantage of this non-financial nature. These inquiries have provided clear proof, over a fairly wide area, of a very close relationship between overseas investment and export. I think they have also provided proof of very substantial gains in the short term as well as in the long term to the balance of payments from such investments—and I think the Government have been made aware of the results of these inquiries. There are many cases which can be quoted, some, as I have indicated, showing how the value of additional exports have, over a year or two, exceeded the amount of
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the original capital investment. There is plenty of evidence from I.C.I., for example, which I believe one of my noble friends will be mentioning later. There is also the clear evidence in Sir Louis Spears's letter to The Times on April 26 of the gain to Britain and to Ghana of the activities of Ashanti Goldfields, without one pound of sterling being remitted from Britain since the war.
On top of this, let me just quote one figure about the oil industry. I am told that the net inflow of foreign currency into Britain because of British oil companies in this country in the last ten years, plus the saving on buying their oil in pounds rather than dollars, amounts to a sum of over £1,500 million. Perhaps the best way of shortening the discussion, at any rate from my point of view, on this point of comparative return between home and overseas investment is to give a quotation from an Oxonian economist, if that will appeal to the noble Earl.
THE EARL OF LONGFORD: It depends on who he is.
LORD ALDINGTON: I do not think, if I may say so, that that is quite fair. I will say in a moment who he is, but let me first read the quotation:
"The presumption that domestic investment yields greater external economies to the investing country than investment abroad is insufficient to justify drastic curtailment of foreign investment or the general encouragement to the entry of foreign capital from abroad. It constitutes a case for control of capital exports …"
As I think the noble Earl has already guessed, the author of that statement is none other than Mr. Balogh, and it is to be found on page 224 of the Bulletin of Oxford University Institute of Statistics. I may add that that is not the only place in which Mr. Balogh has shown that that was his view; for any of your Lordships who care to study the memorandum he submitted to the Radcliffe Committee in 1958 or 1959 will see that he poured scorn on those who attacked overseas investments indiscriminately. Incidentally, I am sorry that Mr. Balogh is not well, not only for his own sake, but because he is not pouring scorn at the minute.
There is one other man who has been writing about this subject: Professor Dunning, who has made an oft-quoted

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study headed, "Does foreign investment pay?" This study is often quoted in support of the Chancellor's view against the return of overseas investment. The article was published last autumn, but Professor Dunning had to admit at the very end of his article that he still cannot answer the question with any precision. In any case, the study has limited value, as he himself admitted, because it is based on figures which omit oil, insurance and banking. But, even if it were demonstrably true that financial return of overseas investment was lower than that of home investment, what then? We do not argue against exporting because the profit in exporting is lower than the profit of home sales. There are other factors. One further comment, if I may make it, on this argument is that all these comparisons are based on averages. Does it really make sense to compare the average return on total investment overseas with the average return on home investment? Everyone knows that in every investment decision ad hoc analysis is essential; and, if I may just turn this argument against the Government, who would ever approve of investment in any of the nationalised industries on an average basis?
Then, it is also said that there is a direct loss to the British economy in that the tax paid as a result of the investment overseas is received by a foreign country and not by the British Exchequer. This taxation point is, in my view, being heavily overplayed. By all means, in the totality of the arguments, take account of the amount received from taxes, but let us remember that we here receive an enormous amount of taxation from the earnings of foreign investments in Britain. This is always left out of account; and in any case, it really is no good, at this stage, trying to reverse the international usage which has by now settled that a country in which trading profits arise has not only the right to tax those profits, to whomsoever they belong, but also a prior right to take tax as against the country in which the owner resides.
The fiscal and public policy involved here has been examined twice in the last ten years. In neither case can one find a trace of support for the views of the Government, except, of course, in a famous Minority Report which gave support for these special increases in taxa-
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tion of overseas earnings. I will come to that in a minute. The majority of the Royal Commission on Taxation, which reported in 1955, came down in favour, not just of the present system of double taxation relief as we know it, but of special arrangements for overseas trade corporations, and in favour, as I have said, of the retention of the full measure of double tax relief which we have known in recent years. So that I may make my position quite clear to your Lordships, let me say that this double tax relief establishes, I understand, that a British company pays no more tax on its overseas earnings than the higher of the United Kingdom rate or the foreign rate.
Then, the Minority Report came to a very different conclusion from that—curiously, but perhaps not so curiously, to exactly the same conclusion (in so much of it) as is to be found in the Finance Bill and in the Budget Statement. The author of that Minority Report, as I think your Lordships know, was none other than Mr. Kaldor, who has been the author of several tax reforms overseas which I understand he himself jocularly admits have led to disaster and near-revolution in those countries.
LORD BOOTHBY: My Lords, does the noble Lord realise that, as I understand, Mr. Kaldor has changed his views altogether within the last fortnight?
LORD ALDINGTON: My Lords, I did not understand either that my noble friend understood that or that it had happened; but I am glad to hear it.
There was a second inquiry, the Radcliffe Committee. They mentioned in their Report that some of the witnesses had argued that overseas investment was competitive with, on the one hand, domestic investment, which was inadequate, and, on the other hand, with the rebuilding of reserves to a more desirable level. Despite that evidence, they came down in favour of the importance of overseas investment, and made the point that circumstances give us no free choice in this matter. Then they went on to show that they attached considerable importance to the role of the United Kingdom in contributing to the more rapid development of all the Commonwealth countries. I cannot believe, after yesterday's debate and after everything that has

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been said on this subject before, that the present Government's policy is to alter the policies that have been pursued since the war of helping in every way possible the progress of developing countries, and particularly those within the Commonwealth. indeed, they have appointed a Cabinet Minister for that especial purpose. That we should let our existing investments go on growing in the developing countries is especially important now, when new lending by the United States, as well as by Britain, is likely to be very restricted. There can be little doubt that it is very much to the interests both of this country and of the developing countries that Government aid, which is important in itself, should be complemented by private investment.
This, indeed, is what many of the receiving countries like best. The Finance Minister of India, for example, said recently that private investment has no political strings attached to it and provides for India a number of new friends and advocates outside India. We all know that private investment brings advantage to the developing country of new processes and of technical training and aid in a very practical form. I have read United Nations Reports that confirm that this is their view, too. For those who are worried about the possible wastefulness of some of the development expenditure going on in the world, surely some comfort should be found from the fact that private investment is likely to be much more careful than public investment in this matter.
I saw that in the debate in another place the Chancellor of the Exchequer was concerned at the reduction of new private investment in developing countries in very recent years. I think there were some overseas political reasons for this. But one thing is certain; he is not going to get an increase in this kind of investment by his new tax proposals. All these arguments will, I am sure, be massively reinforced to-day, and in face of them I cannot understand why the Government and the Chancellor have taken the view that I understand they have taken.
Many people are wondering whether the Chancellor has since changed his position. They hope he has; I think he has; I hope he has changed it more than I think he has. It seems to me that his
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main change is in emphasising rather more the case for using the tax weapon and rather less his opposition to overseas investment. Over the last week-end the Chancellor was reported as saying that the Government were not against overseas investment, but that he has to face the problem of tax concessions to overseas investment that are too attractive relative to investment at home, and that his object was to mitigate the bias—mark those words!—of the tax system and to stop the kind of tax preference which overseas companies have enjoyed till now. He was referring there not to overseas trade corporations, which is another matter, but to the double taxation relief system which I have already described, and to his decision not to allow in future double relief above the maximum of the new corporation tax—which is, of course, much lower than the tax in many countries—and not to allow that relief to spill over as before into the income tax attributable to any dividend paid. Thereby he is hoping to raise £100 million more in taxes.
I have already reminded your Lordships that the effect of the present double tax relief is quite simple. The taxpayer in Britain pays the full United Kingdom rate of tax on all his earnings, or the foreign rate if it is higher. How such a system can be said to have a bias in it in favour of overseas investment even Humpty-Dumpty would have found it difficult to explain. In this talk of tax bias I think the Chancellor must be thinking solely, selfishly and small-mindedly of the Exchequer's receipts. Those opprobrious words are used about him in his official, predatory position, and not as a person. He is leaving out of account any comparison of the total tax paid on overseas investment earnings by British companies, either with the total tax paid by them or others on their earnings at home, or with the total tax paid on their world-wide earnings by foreign competitors.
If he made those comparisons, he would be satisfied that there was no bias in favour of overseas investors. There is, indeed, a bias against them. What other country applies such a fiscal cosh as is now to be introduced to its nationals who invest overseas? Many of them treat overseas investment much better than we do at the moment. Of course

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I accept that the Chancellor, in thinking about this, is sincere when he says that the Government and he are not against overseas investment; but to talk in the next breath of removing a tax bias in their favour, by which he means using new taxes as a clumsy, unselective weapon against all existing overseas investment, is preposterous double-talk—and double-talk that I hope (in fact, I am fairly certain) is not founded yet on double-think.
Finally, may I make this last series of points to your Lordships? Do not let us overlook what is likely to happen to our investments overseas if the Chancellor takes his "taxation bash" at their resources. Increases in taxation of this order must lead to the reduction in the retentions of companies with investments abroad, or, in the alternative, to the reduction of the dividends, with the inevitable result that they will find it difficult to get new capital; or to a combination of both. In a number of cases—I will not put it any higher; I do not wish to overstate the case—this will soon result in the running-down of these enterprises. In the worst-hit cases, if the investment is not to be allowed to run down, it must be sold. Surely no one can deny that if these investments are sold to our main competitors in world trade—whether it be to the Germans or other Europeans or to the Japanese—
LORD BOOTHBY: Or to the Chinese.
LORD ALDINGTON: —or to the Americans, our exports must suffer, and suffer quickly. Nor can I think that we should view with anything but the greatest disfavour the migration of any of our great overseas investment companies from Britain to overseas. These are not wild fears; they are the realistic and almost inevitable consequences of wildly wrong thinking on this important question. And, however allergic your Lordships may be to the cry of "Wolf!"—and I must confess I am—I cannot omit the point that if existing investments overseas are withdrawn or reduced, the Governments of developing countries will, whether in retaliation against us or merely in furthering their own people's advantage, give other countries greater opportunities of trade than they give to us.
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Many developing countries mind very much about British investments. I can imagine, for example, the points put to the President of the Board of Trade when he was in India last month. He is reported in the Statesman, the Indian newspaper, of May 1, as having said, in answer to some questions:
"He hoped that the withdrawal of tax concessions on overseas investment would only be temporary."
Is that a correct report? Are the hopes of the President of the Board of Trade based on the Government changing their view, or just on the Government changing? I will not bring myself to believe that, after this debate and after all the evidence mounting outside, the Government will maintain their present attitude. But if they are not persuaded conclusively by your Lordships to-day and by the evidence mounting outside, at the very least they should set on foot the most thorough examination of all the arguments by independent minds, and, pending their report, continue the full measure of double tax relief enjoyed up to date. If they do not do that, they will be forcing through a revolution in conditions of world trading for British companies, in the teeth of opinion at home and without any support from three independent inquiries that have taken place in the last ten years; the Royal Commission on Taxation, the Radcliffe Committee and the examination by "Neddy" in 1963. I beg to move for Papers.
3.50 p.m.
LORD BYERS: My Lords, I think the House will be grateful to the noble Lord, Lord Aldington, not only for having initiated this debate, which is on a topical subject and one of great concern in this country and in countries overseas, but also for giving us the opportunity of speaking on this subject. If I may say so, I think the case has been ably made by the noble Lord and inevitably this must mean that there will be some repetition as we go along. I hope I shall not develop my argument with perhaps the asperity which the noble Lord brought to it, but I do not think that was intentional. This is a serious matter for the country as a whole and I should like to preface my more specific arguments, in favour of overseas investment and operation, with some general comments on the background against which the particular

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importance of these activities has to be judged in the short and the long run.
First, I want to say that no Chancellor of the Exchequer can ignore the serious problem of the balance of payments. Effective action to control the export of capital while the balance of payments is seriously out of adjustment is not only justified but absolutely imperative. As has been said, the machinery for this exists and, if necessary, it could be extended to cover all overseas remittances for any purpose whatsoever, even within the sterling area, as a temporary measure. President Johnson is applying informal investment control by means of interest rates and a successful appeal to industry for voluntary restraint. In this way the American problem is apparently being overcome quite rapidly.
Secondly, I believe that some simplification of our tax structure in this country is long overdue, and as part of this reform the substitution of a unified corporation tax in place of an income tax and profits tax commands widespread support. If I may for one moment take a political line, the Liberal Party's tax inquiry in 1962, under Professor Wheatcroft, in fact advocated a corporation tax, which it called a company tax, because it saw the advantage of being able to vary this tax quite apart from the personal income tax. I think this is a good thing.
The third point is that where a major reform of this nature is introduced right across the board, as it has to be for a corporation tax, inevitably there will be some sectors of the economy which will benefit more and others which will suffer more, and I think it is the duty of the Legislature to expose these particular areas in which injustice can happen and to deal with them in the course of the examination which will be part of the study of the Finance Bill itself. I have mentioned this background because I have been an executive director, and I am, speaking with a good deal of sympathy for the very serious situation which they as a Government and which we as a country are facing.
At this stage I must declare my interest, and I make no apology in so doing. For the last fifteen years I have been an executive directer, and still am, of an international mining company; and, what is worse, during most of that
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time I have been responsible for overseas exploration, which of course is a pretty good headache; but it has enabled me to get a fairly deep experience of the problems which have had to be faced in this field over quite a period of time, problems which in some respects are peculiar to the extractive industries. These overseas assets are not built up by magic or by accident. They are the product of a very long and arduous process. In some cases over ten years can elapse from the first geological survey until one actually gets the metal out at the other end, and in the period during which the company is at risk a great deal of hard and technical work has to be done.
I think the reason why the U.K. mining companies, on the whole, operate overseas is very simple. It is that that is where the major ore deposits are to be found, and it is extremely difficult to move a mine except in small quantities of so many tons a day. In order to go for big ore deposits one has to operate overseas. Many of us have done exploration in this country, but not with a great deal of success. The record of U.K. mining companies is a pretty good one, not only in finding deposits but in securing vital raw materials for this country at advantageous prices. In a way, I think it is the success which the U.K. mining and extractive industries have had in building up the value of the overseas assets that has given the erroneous impression that the life-blood of the country has been drained overseas. People seem to think that the value of these assets represents the export of U.K. capital. That is not true. There is a very big difference between the amount of capital which one sends overseas and the final value of the asset after all the work has been done to it.
There is an equally false doctrine that the building up of our overseas assets has been done at the expense of British industry in the U.K. I think this was what the noble Earl had in mind when he posed his question to the noble Lord, Lord Aldington. I think people feel that the money would have been better invested in domestic operations in the United Kingdom rather than being sent overseas, but the short answer is that overseas a very little goes a long way if you plan your money-raising and development correctly.

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I want now to refer to what the Prime Minister said recently to the Economic Club in New York. He said that the £11,000 million of overseas interests, of which £6,000 million is in direct investment, is the substratum of sterling. This is the real security which sterling requires when it goes into the world and the sterling area needs temporary loans, and this is why it is so vital that we should do nothing to undermine this substratum at a time when world trade is expanding. It is absolutely vital that we should increase and not diminish this substratum for the sterling which is so important as a reserve currency. What I think is not recognised in the case of the extractive industries, especially mining, is the way in which a small contribution of sterling from the United Kingdom can act as a catalyst to obtain international finance in non-sterling currencies: and this increases the value of the asset out of all proportion to the United Kingdom sterling contribution. It is in fact the gearing which one can obtain.
In addition, if a mining group intends to develop several major projects at the same time, it must keep the equity element of the capital structure as a whole as low as possible and borrow the rest from lending institutions. Otherwise it ties up far too much of its own money and can carry out only a limited number of projects. If the mining group has a "prime credit rating", the equity element can be kept low and the amount needed from the United Kingdom is kept small because one can borrow more money from the lending institution.
To give one example, the capital cost of developing one particular major copper operation to-day, of which I have first-hand knowledge, is £37 million. Of this only £3·5 million has been exported from the United Kingdom, and with that £3·5 million a 40 per cent. interest in the project has been purchased. The remaining capital has been provided from Germany and the United States and by local shareholders and local banks, and a great deal of it on loan. The equity element here is about one-third, the loan element two-thirds. This is the way in which United Kingdom currency can be made to appreciate in value overseas, by raising money in this way and bringing
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with the money the technical skills which are needed to develop projects of this sort. This is the sort of thing we are in danger of damaging, unless careful consideration is given to measures which are brought in by the Government.
This 40 per cent. interest should earn the United Kingdom company several million pounds a year in a few years' time. On the present rate, this should be nearly £3 million. There should be a revenue to the sterling area of £20 million to £24 million a year, and a good deal of that is going to be in hard currency, The hard currency contracts already entered into amount to £160 million. I am not saying that all this starts from the original £3½ million, but it has been done without the investment of more than that, and a great deal of expertise has had to go into it. This is only one of four similar operations within my own experience, some of which have made no demand on funds from the United Kingdom. Not only is the drain on sterling small, but the increase in the value of the overseas assets is very considerable indeed.
The fact is that our credit abroad depends not only on a healthy economy at home, but also on the high value of our overseas assets themselves. The gold reserves can be regarded as just day-to-day working capital. But we have to be very careful not to undermine the underlying security represented by overseas assets. If the economy is to be strong, a proper balance has to be struck between the prudent use of money for developing the home industry, on the one hand, and overseas assets, on the other. I submit to the Government that it cannot be right to penalise one against the other or to sacrifice one for the other.
As the Chancellor's proposals now stand, they will weaken the capacity of many industries to maintain and build up the overseas assets which are the substratum of sterling and make it difficult, if not impossible, for operations such as I have described to continue. For instance, it is estimated that many of the extractive industries working overseas, will have deducted home and overseas tax to a total of about 70 per cent.—this is certainly true if they have no plough-in—instead of the 53 per cent. now levied. The United Kingdom company will still be taxed in the low fifties. The result of

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this is to force the highly taxed company to reduce the dividend or to reduce the amount of retained profits. Either way, the industry is going to be at a disadvantage vis-à-vis a company operating in the United Kingdom and vis-à-vis a company of some other nation competing with it in the same field.
One effect of this discrimination in taxation is that it creates an inability to raise money upon anything like the same terms as a United Kingdom company can do, because people are not willingly going to invest in a company which is allowed to retain only 30 to 35 per cent. of profits, when a United Kingdom company will be retaining very nearly 50 per cent. This, I believe, must have the effect of lowering the price of the shares in the market, and when a company wants to raise capital, which it will have to do more often in future if unable to retain profits, it will find that it is a much more expensive operation to raise the money it needs to go forward and develop its overseas assets.
In fact, when this happens it is a deliberate weakening of the position of the company. I do not think that this was what the Chancellor intended—to have a bias against companies which are building up their overseas assets. At least, I hope he did not. But the idea seems to have grown up that overseas investment is wrong and shameful. Not even the Minority Report of the Royal Commission on Taxation, signed by Mr. George Woodcock, Mr. Bullock and one other, went so far as that. What they said was:
"We do not see the justification for arrangements which secure privileged treatment for foreign investment as compared with home investment."
This is a different case, and I believe that they may be right; but the present proposals will penalise overseas operations and the country must inevitably suffer. Many people are under the impression, as my noble friend Lord Aldington said, that there has been a bias in favour of operations overseas. Many of us find it difficult to see where this bias is, because a company is forced to pay the overseas tax rate or the United Kingdom tax rate, whichever is the higher.
To summarise, I would say this to the Government. Because of the importance of maintaining the value of our overseas
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assets, action to restore the balance of payments should be only temporary, should properly be selective and designed not to impose a permanent handicap on companies responsible for building up those overseas assets which are the substratum of sterling. This is not a matter of Party politics; it is a highly technical problem. I believe that President Johnson is right in adopting a more flexible approach in controlling the export of capital, in a firm but temporary manner, without jeopardising the long-term interests of American companies that operate overseas. I think that this is the right answer. A recognition of the importance of overseas operations by Her Majesty's Government, coupled with the decision to place such companies in no worse position than domestic ones, would do much to restore confidence here and confidence in overseas countries.
4.8 p.m.
LORD CARRINGTON: My Lords, my noble friend Lord Aldington has done a great service to the House in putting down this Motion. Before I say any more, I should, like him and the noble Lord, Lord Byers, declare an interest in that I am a director of a company engaged in trading overseas. And I make no apology for that. Indeed it was precisely because that company was engaged in operations abroad, in two countries with which I am very familiar, and because by its operations it adds to British influence and prestige in those countries, and by its success contributes to our overseas trading position, that I joined its board.
In the last six months and until quite recently, the Government have had a remarkably good Press. I find this puzzling, since I think that they have done unbelievably badly. Perhaps they were being given a run for their money.
SEVERAL NOBLE LORDS SEVERAL NOBLE LORDS: Our money!
LORD CARRINGTON: Yes, our money. But they have had a good Press, and it is all the more significant, therefore, that on this particular issue, on the change of our system of taxation, which directly and purposely, as I understand it, hits companies trading overseas very hard indeed, there has been unanimous condemnation by all informed opinion; and I suspect that there will be unanimous condemnation in this House. I

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have not noticed noble Lords who sit opposite galloping to the aid of their Front Bench. I see that only the noble Lord, Lord Francis-Williams, is down to speak on this subject, and perhaps he, too, may condemn the Government. All this condemnation has had, I think, and will have, I hope, some effect; for I get the feeling, like my noble friend, from the speech made by the Chancellor of the Exchequer last Sunday, that even he is beginning to wonder whether he has not gone rather too far.
He started off with statements to the effect that overseas investment must be cut; that overseas companies had had it too good: a further £100 million must he taken from them; that it was more profitable and, I think by inference, more patriotic to invest money in the United Kingdom than overseas. Gradually, there has been, I think, a watering down of these sentiments; but there is still a long way to go, and we must hope that in the debate this afternoon Government speakers will take another step forward, or, more accurately, a step backward. One cannot assess the importance, as both previous speakers have said, of overseas investment without taking into account other money spent abroad. For it is the balance-of-payments problem which is the primary reason for calling into question the scale of our overseas investments.
I do not intend this afternoon to discuss the expenditure on defence or aid, except to say that when calculating how much can be afforded for overseas investment the figures for these two items must necessarily be taken into account. It is also true that aid and trade in the form of overseas investment are inexplicably bound up; and it can be argued that, though in some cases aid in the form of outright gifts is most useful, in many cases investment in primary and secondary industries can be just as useful to a developing country, and, incidentally, far more profitable to ourselves. Those who give aid do not necessarily make themselves universally popular or influential, as our American allies have discovered in the last twenty years. No one could have given more or given more generously, yet no one has been as much blamed for not giving more or for giving it in the
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wrong way. So let us look carefully at our aid programme. In any event I do not think it is possible, logically, to restrict investment without endangering the effectiveness of our aid programme.
But it is overseas investment that will be worst hit by the legislation in the Finance Bill. I recognise that it is the duty of the Government to decide how our resources are to be used: they would be failing in their duty if they did not do so. But some of us wonder whether there is not in certain Government circles a tendency to bias against overseas investment and a tendency to belittle its importance. At the end of the eighteenth century, when my forbear, who was a banker, took his seat in this House and went through the same ceremony which we so often see to-day, every single Member of the House got up and walked out; because banking was commerce, and commerce was not respectable. I often think that there are a large number of members of the Labour Party today, 170 years later, who have exactly the same mentality as those Tory Peers of 1790. They seem to think that there is something rather discreditable and indelicate about making money and being engaged in commerce; that if it has to be done, then it should be done here in England, where it can be properly controlled and managed by the men in Whitehall who know best.
There can be no doubt that Britain's economy benefits from the operations of these companies, and that without them there would be a fall in our trade. Provided that money for investment abroad is available, it pays handsome dividends to this country; and not only purely in terms of money. Those of your Lordships who, like myself, have lived and represented this country abroad know only too well how important British investment can be in influence and prestige. The fact, for example, that we have such a large stake in the Australian economy in itself ensures that British views are listened to with respect, and our close ties with Australia are maintained and strengthened. It is no coincidence that the decline of British influence in South America began with the decline in our investment and the size of our stake in the various countries of that Continent.

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Fifty years ago many of the public utilities and other big enterprises in South America were British-owned, and British effectiveness in that area was enormous. To-day, with some honourable exceptions, they have mostly gone, through no fault of ours or the companies concerned; and, again, it is no coincidence that, with the emergence of the United States as the chief investor in those countries, so has their influence become paramount.
But the truth of the matter is that this country has lived on its investment overseas for many years—and very grateful we have been for it in two world wars. But for these reserves, we should have been in great trouble. The Prime Minister himself drew attention to the £11,000 million in overseas investment which we now have, and which, because it is there, gives strength to sterling and confidence to our friends and allies. Let us, therefore, beware of those who look on these complex matters solely on narrow accounting grounds and, with their slide rule poised, seem so easily to be able to prove that it is more profitable for the country to invest here at home than it is to invest overseas.
Very often, as my noble friend behind me has said, they undervalue or ignore the ancillary benefits which go with overseas investment. A British enterprise overseas, as well as paying what one hopes is a handsome return, usually does a great many other things. In an underdeveloped country, for example, by mobilising local resources it can help to expand the market for other British goods. Very often, if there is a plant overseas making, say, motor vehicles, the parent company is able for that reason to export components which it would otherwise not be able to do. Companies engaged in producing raw materials abroad not only pay their shareholders their dividend, but ensure for the United Kingdom supplies of that raw material which might otherwise be irregular or much more expensive.
Increasingly around the world countries are adopting protectionist policies which often exclude direct imports. A British manufacturer has no option, if he wishes to retain his share of the market, but to embark on local manufacture. And so one could go on.
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Let us take an oil company—for example, B.P. or Shell, who, on the face of it, just like Lord Byers' company, can do little else but invest abroad if they are to stay in the oil business. If one or other of them decides to build an oil refinery, many other British companies will benefit, in the provision of plant and machinery for its erection and operation; and I noticed in The Times the other day that British-registered oil companies last year spent nearly £115 million in the United Kingdom on equipment and materials alone.
As I have said, it is right that the Government should decide how much overseas investment we can afford. But it is surely absolutely wrong, and absolutely insane, that by their actions the Government should undermine the value and the competitiveness of our existing investments—though this is precisely what the corporation tax, as applied to companies trading overseas, will do. All your Lordships will have seen examples of the figures given by companies which are affected. Not only will these companies be at a disadvantage compared with those trading only in the United Kingdom, but they will be at a serious disadvantage compared with their overseas competitors.
Putting it at its simplest, as did the noble Lord, Lord Byers, they will have the choice of either maintaining their dividend and cutting back the money available for reserve, sometimes to a point where it is non-existent, or of cutting their dividend and maintaining the money for reserve. In either case, there will be a serious effect. If the dividend is cut, the company is less attractive to investors; and continued investment is essential for future growth. Any enterprise will wither away if support and confidence are lacking. If the money available for ploughing back into the business is cut, then the efficiency of that business will suffer and its competitors abroad will leap ahead. This surely cannot be the Government's intention. If they will forgive me for saying so—and even if they will not—if it is their intention, then they are absolutely barmy.
It is, of course, perfectly true that the Government have announced transitional arrangements to offset for five years some of the consequences. But it has already been shown by a number of companies

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that the proposals announced by the Government would be negligible. In any event, it is only postponing the evil day. I find it a little puzzling that the Government should have bothered with this proposal; but, though it may give no financial relief to companies concerned, they will no doubt hope that, long before the five years are up, a new Government will be in office, pledged and determined to put this situation right.
LORD BOOTHBY: Or they will change their minds.
LORD CARRINGTON: Or they will change their minds.
THE EARL OF LONGFORD: The noble Lord may not be very familiar with the terms for compensation. I gather that if these companies he is referring to would have to find £100 million a year extra in the first two years, they would receive compensation to the tune of £65 million. I think to call that "negligible" might be about as barmy, if I may say so, as the view which the noble Lord mentioned.
LORD CARRINGTON: I wonder whether that is right; because I read with great interest the statement made the other day by Sir Maurice Bridgeman, the Chairman of B.P., who said that, from the point of view of B.P., these proposals would be absolutely negligible. That is as I understood him. I do not want to misrepresent him.
THE EARL OF LONGFORD: I am afraid that Sir Maurice Bridgeman is a great deal more biased in this matter than the Government.
LORD BOOTHBY LORD BOOTHBY: That is not true.
LORD CARRINGTON: I am giving the Government the benefit of the doubt when I say that I wonder whether there has not been a little muddled thinking about all this.
As my noble friend Lord Aldington has said, companies trading overseas do not pay less in total tax than companies trading at home, though they pay less to the Exchequer. This may be very irritating for the Chancellor, but it does not seem to me a good reason for penalising those companies by double taxation and putting them at the grave dis-
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advantage which I have already described. Equally, if it is claimed that individuals investing in foreign companies trading overseas get an undue advantage under our present taxation system—and my noble friend behind me does not think they do—I should have thought it comparatively simple to differentiate between portfolio investments in foreign companies trading overseas and British companies trading overseas, and so to arrange things that the whole basis and prosperity of our overseas companies is not threatened.
I think I am right in saying that a number of proposals to achieve this have been put forward at one time or another, some of them to the Lord Chancellor and the Treasury. I beg noble Lords opposite to have another look at this, for whatever we may think of the corporation tax and the philosophy that lies behind it—and no doubt we shall say more about that when we discuss the Finance Bill—it is very strange that a number of other countries who used to have taxation systems which achieved what the corporation tax will try to do are now either returning or thinking of returning to the sort of system which Her Majesty's Government propose to abandon. But, whatever we may think of it, one of the side effects, whether intentionally or unintentionally, will be to undermine the whole value of our vast investment overseas. There is still time to put it right, if noble Lords opposite and the Government are prepared to do so. We on this side look upon their decision as a test of their competence and fitness to govern.
4.23 p.m.
LORD SHEPHERD: My Lords, the Government welcome this debate and share with the House the feeling of gratitude to the noble Lord, Lord Aldington, for putting this Motion before us. I say that because, as we know, this House is precluded from moving Amendments on the Finance Bill, and we do not normally discuss the separate clauses of the Bill when it comes to this House. So we have now an opportunity to discuss a particular aspect of the Finance Bill as though it were a Committee stage. I will certainly respond to the plea of the noble Lord, the Leader of the Opposition, that we on this side of the House will treat this as though it were a Committee

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stage, and will certainly listen and consider all the points that are made.
The Chancellor of the Exchequer has on innumerable occasions said that he was always ready to receive opinions and advice, even though it came from interested parties. I think we should look at this matter not within just the narrow aspect of the Motion. Perhaps we could forgive the noble Lords, Lord Aldington and Lord Byers, and also the Leader of the Opposition, for the fact that their speeches were on a narrow issue. This was due to the narrow drafting of the Motion. But overseas investment arises from the monies that we earn from production and what we can earn in selling abroad. I beg the House to consider this matter within the broad financial and economic policy arid position of this country.
I must remind the House of the situation which this country faced at the end of 1964. We had a visible deficit of £553 million. If we were to deduct the very valuable earnings—the invisible earnings —we had a current deficit, the largest in our history, of £374 million. The longterm capital deficit—that is, the amount, Government and private, of money that had been invested overseas during that period—was £371 million. Compare that figure with the figures for 1960 and 1963. in 1960 it was £188 million, and in 1963 it was £174 million. We had a startling increase in outflow of Government and private investment to £371 million. Perhaps the largest part of this was the increase in net private investment by £180 million to £251 million in 1964.
Some reference has been made—and I think it is right we should take count—to Government expenditure overseas. This, for 1964, was £551 million compared with £492 million for the previous year. Just consider how that is made up and the extent to which it could be reduced. It is a matter to which the Government are giving careful thought. Of that sum, £300 million is defence expenditure, and the noble Lord, Lord Carrington, would be the first to admit the great difficulties the Government will face in dealing with this. The Government also invested in the developing areas, by way of economic aid, to the tune of £190 million. There is not a great deal of Government expenditure unless you
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can make a major attack—and I personally do not believe this is possible—within the defence expenditure realm. It may well be that 1964 was exceptional—it certainly was. But I think we should look at the trends of the last ten years.
These figures have been given before, but I will give them again because they are important. Our overseas expenditure, both of Government and private investment, has been running for the last ten years at the rate of £170 million a year, and, at the same time, our net surplus on current account has been at £25 million. How long could this country continue at that rate? I do not believe that any sensible man, looking at this situation, could believe that that could continue at that rate, and at an increasing rate (because larger amounts have been going out in more recent years) without placing this country in a very difficult situation. I would agree that in this House and within the Government we value our overseas investments and the benefits which they bring. The Government are certainly aware of the importance of these overseas investments as an aid to exports (as has been mentioned), as a means of developing the sources of raw materials (which the noble Lord, Lord Byers, mentioned), and particularly of developing international co-operation and our relationship.
There are many other reasons, but I will not deal with them now—the noble Lord, Lord Aldington, mentioned a number in detail. Nobody would deny, for example, that there is a very real connection between some kinds of overseas investments and exports, particularly where the investment represents the setting up of the sales organisations, the servicing organisations, which the motor industry, in particular, requires, and the assembly plant making use of British-made components. This export benefit is very hard to quantify; it is particularly hard to identify as a particular operation. But there is no doubt that it is real and important. Listening to this debate and reading the newspapers, however, one would imagine that what the Government intend is to cripple and destroy United Kingdom overseas investment. If it is any satisfaction to the noble Lord, Lord Carrington, may I say that this is a travesty of the position. Naturally, the various firms are concerned

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over this matter, and I have already offered that whatever may be said here will be considered by the Chancellor of the Exchequer.
I believe that the critics are arguing the wrong case. It is the Government's view, and the Chancellor's view, as he said in another place, that we do not intend to become a tight little island: we intend to match up to our responsibilities. We believe that we must have overseas investment, and we will do what we can to help it. But there must be a balance, particularly at this time, in the way we use very precious resources, not only for the good of our own nation but for the good of the Commonwealth and our allies. For many years, as the House will know, and as I have already mentioned, there has been a difficult balance-of-payments situation. The problem has been with us for a long time, and I do not think there is any doubt that it has inhibited our economic progress. And the Government's view is that it is due to a weakness in our present taxation arrangements, which have been perhaps a bit too favourable to investment overseas, as opposed to home investment. In particular, they do not give sufficient incentive to industries to plough back profits to increase their own efficiency.
I would accept from the noble Lord, Lord Aldington, what he said about the difficulty of making a comparison between overseas and domestic investment. In many cases it is not a straightforward comparison. The income which we earn abroad (I think the noble Lord, Lord Aldington, stressed this) normally pays tax in the country of origin, and the benefit to the United Kingdom is measured largely by what is left after the payments of the taxes. But I readily admit that there are the spin-off (the phrase he used), feedback or feed-off, that arise from exports. In the case of investment at home on the other hand—and this is particularly true today—it is the return on the investment before tax which measures the benefit to the national economy. The fact that the State takes a share of the profits by taxation does not diminish the advantage to the nation as a whole which results from that investment. The value of particular investments cannot, I know, be measured by
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their return alone; there may be additional benefits, such as employment, technological benefits and the benefit to exports which I have already mentioned. When investment takes place at home, of course, it is our own country which benefits, and, in the long run, our friends and allies overseas.
I have always been interested in the problem of exports, having been an exporter and having been for quite a number of years, I like to think, one of the spearheads of British industry selling overseas. I am not so sure that our exports are dependent upon overseas investment. My experience has been that the ability to export depends upon the quality offered, the price, the quality of the goods and deliveries. Businessmen the world over are the same. When it comes to a question of profit they are not sentimentalists, and they are not burning patriots. I have seen—and no doubt Lord Aldington has seen, many of our British companies going to overseas countries for their purchases, not because they wanted to but because the business laws require them to do so.
If the noble Lord, Lord Aldington is right, and these overseas investments are so vital to our export trade, I wonder how he can explain that during the last ten years we have invested overseas £4,000 million and during that time our share of world trade has dropped from 25 per cent. to 13 per cent. One would have thought that with this vast sum of money being invested overseas, we should have seen a dramatic increase in British exports.
LORD ALDINGTON: My Lords, may I interrupt the noble Lord? I think it is this awful use of percentages—I think I was responsible for it, too. Though the noble Lord is quite right in saying that our percentage of world trade has fallen, that is because other people have come in. Our absolute performance in exports has gone on rising each year, and they have risen, in fact, very substantially.
LORD SHEPHERD: Of course, they have risen. But have they risen at the same rate as the other industrialised countries of Europe in the same position as ourselves with raw material and manpower? The noble Lord knows that this is not so. Let us look at countries like Germany—I will forget Japan for

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this purpose, because they have particular advantages by way of labour. But there are many countries in Europe which have been able to develop exports while making little or no overseas investment. I think we should try to get this matter into some perspective.
I agree with the noble Lord, Lord Byers, that this £10,000 million or £11,000 million invested is the basis of our pound. I agree with him, however, that the gold and dollar reserves are the ready money upon which this country can call. We have increased our short-term liabilities, and no doubt these are well in excess of the monies that we should have available from our reserves. We have to find some way of increasing the monies that are available to meet any immediate demand.
LORD BYERS: My Lords, perhaps I may intervene. This is, I think, the crux of the matter. The Chancellor of the Exchequer has it within his power to-day to stop the outflow of any money he desires without doing permanent damage to investment overseas.
LORD SHEPHERD: I was just coming to that. We have, in fact, taken action in that matter. The noble Lord will be aware that the Government have proposed exchange control measures affecting investment, and I do not believe any noble Lord, including the noble Lord, Lord Aldington, would disagree with what we have done there. We are making matters a great deal more stringent. We are also establishing means of ensuring that when securities are sold overseas a certain proportion should come back and be put into the immediate available stock of reserves. We have also taken the view that the overseas trading corporations, these organisations which under the Act of 1957 are able to operate in any country, irrespective of the standard of income tax that may prevail there, ought not to be able to operate and receive investment from here without making any contribution at all to our resources.
The introduction of the corporation tax, as the House knows, is regarded by the Government as a fundamental feature of our tax reforms. I am glad that the noble Lord, Lord Byers, agrees with this. We believe that this will give a sense of flexibility and, in the end a
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sense of simplicity. Certainly, we shall now Abe able to deal, if we so wish, much more easily with personal income tax and company tax. One must not forget in this matter that the corporation tax is not being brought in to deal mainly with overseas investment; it is being brought in to provide a means by which companies will plough back more of their profits for increased efficiency.
We recognise that it must affect the position of overseas companies. So far as the companies are concerned, the fact that they do not get as much credit from overseas taxation as before, because the rate of the corporation tax will be so much lower than the present combined rate of income and profits tax, does not, as such, operate to their disadvantage. That relates to the company. Certainly it operates against the investor. But it does not operate against, and it does not weaken—we should get this clear in our own minds—the strength of the company as a whole, because even if it is an overseas company the profit that can be retained, assuming there is no increase in dividends, will be larger.
LORD BYERS: My Lords, if I may intervene—I will not intervene again—may I say that if the investor is not going to support the company because the returns on the earnings are going to be less attractive, then surely the company is thereby weakened.
LORD SHEPHERD: That is a valid argument. But is it not a fact—I noticed that the noble Lord, Lord Aldington, would not give way on this point—that what we are now proposing in these taxes is similar, if not identical, in type to—indeed it is below the rate, in most cases —the corporation tax that is operated by other countries.
LORD BYERS: My Lords, may I put the noble Lord right? Where you have a corporation tax of this sort it is normally about 50 per cent. But then a credit is given to the shareholders for about half of the withholding tax. This is much more tolerable. All I am saying to the Government is, is it not right to look at these problems and not get wedded to one tax straight across the board which is going to make certain sectors suffer when others will not? This is a highly technical matter, but each country has dealt with it in a different

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way. In some places it has worked well. France discovered that it did not work well, and they are about to change it now.
LORD SHEPHERD: This is probably one of the difficulties of generalisation, because there are some countries which are operating the corporation tax and the personal tax in different ways for different reasons, according to the needs and requirements of the time. But I stand by what I said earlier.
In regard to the overseas undeveloped countries, I can sympathise greatly with what the noble Lord, Lord Carrington, said yesterday, for I have lived in one of those countries. But I am sure he will be one of the first to recognise the rather remarkable changes in recent years in private investment from this country into the underdeveloped countries. It has fallen quite sharply since 1958. May I give these figures? In 1958, we invested by private investment at the rate of £144 million in the year. In 1963, it had fallen to £65 million. Yet, in that same time, investment into other more developed and advanced countries had increased from £163 million to £273 million.
I recognise some of the difficulties that will arise through the corporation tax and its imposition upon overseas investment, particularly so far as more risky markets like the underdeveloped countries are concerned. The Chancellor of the Exchequer has himself recognised this, and has said that he will be ready to look at this matter in particular. I feel that I have been on my feet far too long, but I would—
LORD BARNBY: My Lords, could the noble Lord at this stage add anything on the priorities, as to the savings that are possible? He mentioned the figure of £190 million as aids and advances during the year. Is he able to give any information on the priorities, of the possibility of reducing them as against the great damage that it has on all sides been suggested will be done to our export trade and therefore to the domestic economic position as a result of the proposals?
LORD SHEPHERD: My Lords, I should like to answer the noble Lord,
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but I think I can genuinely ask for notice of that question, because it goes rather wider than the Motion for debate. I want to stress that whilst we are earning what appears to be quite a sizeable sum overseas—certainly all the profits and dividends that we earn on our overseas investments help our balance of payments—it does not apply to our gold and dollar reserves and to our immediate liquidity to the full amount that the noble Lord mentioned. According to my figures, we are in fact earning at the rate of about £500 million on the direct investment of £6,000 million, but only half of that, about £250 million, is received across the exchanges. The Government have felt it necessary to curb, I hope temporarily, overseas investment. I am sure the noble Viscount, Lord Chandos, will agree that we have to recognise the tremendous need for new investment at home. Most noble Lords may have seen the report in the Financial Times of the "Neddy" Report to the effect that by 1970 we may he short of between 400,000 and 700,000 workers—that this is the demand that industry will make. I suppose it is questionable whether we could get that number of men and women. Therefore, we shall need to increase our efficiency, and anyone who has seen our industries and the complexity of them will recognise that considerable sums of money will be needed in investment.
A nation can produce only a limited amount of money. Therefore, we have at this stage, I suggest, to strike a balance as to how best to deploy the money to the advantage not only of this country but of our friends overseas. Unless you have a strong pound, unless you have a strong economy, you will in fact become a burden on your friends. I do not personally believe that we shall get this strong, sound economy that we so much need unless we get more investment and more efficiency at home. There is a limited sum available, and the Government take the view that we should now, for. I hope, a relatively short period, put a curb on the amount of money we invest overseas, not only on account of the balance-of-payments situation but to ensure that our own industries, which desperately need investment, shall have it, so that they can go ahead to give us that strong economy.
4.50 p.m.
LORD BOOTHBY: My Lords, I have to be particularly careful about making a declaration of any personal interest. I must, therefore, tell your Lordships that I own a few B.P. shares which, unfortunately, I have not sold. I have held them entirely owing to my great affection for, and unlimited confidence in, Sir Maurice Bridgeman. Indeed, I have only had one quarrel with him in all my life, and that is on his resolute refusal to appoint me a member of the Board of Directors of B.P. For the last fiften years I have received an envelope marked "B.P." on the outside, which has raised my hopes. Invariably, it has turned out to be the annual report. This has been a great disappointment, but otherwise I am still holding on with great hope. I am doing so because I believe the Government are going to be pushed a little bit on this, in the right direction.
My worst enemy will not accuse me of being a die-hard reactionary. In some respects this should have been a tougher Budget than it has been. I should have liked to see building licences restored; I should have liked to see import licences introduced for certain classes of goods—which could have been done without remonstrance either from EFTA or GATT; and I would have liked to see a far more extensive use of purchase tax, especially on luxury goods. If one goes around the shops of this country, and particularly in the West End of London, it is an absolute disgrace to see all the luxury stuff we are importing, especially foodstuffs, from all over the world. We could easily have put a far greater tax on that.
I think that, on the whole, it has been a pretty mild Budget, except in the one respect I am about to mention. The fact remains that in 1947, 1951, 1955, 1961 and 1964 we have had a major balance-of-payments crisis. That is not good enough, on any terms. We all know the basic cause. It is the lack of international liquidity. But there is no agreement at the present time. The Americans want to strengthen the I.M.F. and give it greater reserves. In fact, there are some great American friends of mine who would like to turn the I.M.F. into a central bank for central banks, with similar powers of credit creation and con-
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traction, which would be by far the best ultimate solution.
The French, and to a slightly lesser degree the Germans, will not look at it. They want to raise the price of gold, which would at least get us through the next decade. But in the meantime neither will look at the other's suggestion, and we are in a state of deadlock. We have therefore got to get through as best we can on the present terms. I agree, entirely with what the noble Lord, Lord Baillieu, said in a letter to The Times on the subject of international liquidity. The Prime Minister made a speech in New York which may go down in history. I think that he is dead right. But we cannot get a solution to this problem at the moment, so we must see how we are going to get through on the present terms as best we can.
The economy of the country at the moment is grossly over-stretched; it is over-heated, at home and abroad. One has only to take Government expenditure overseas, which brings in no return of any kind. Take Germany—it is no longer the flashpoint, and do we really require the troops whom we have in Germany at the present time? Would it not be of enormous benefit to the country if we brought half of them back, and demobilised them to go into industry, which is crying out for workers at the present time and not getting them? Then again, to take Malaysia, what is the cost of the defence of Malaysia? I estimate it to be about £400 million a year. It may be an exaggeration; but I do not think that it is much of an exaggeration. Then take the direct Government aid to our ex-colonies in Africa, and in the West Indies. I went to the West Indies a short while ago, and found that we were subsidising the sugar industry in the West Indies to the tune, not of thousands of pounds, but of millions of pounds, and getting absolutely no return from it at all. I say straight to the Government that they are spending too much money abroad everywhere, on which we get no return. They had better start thinking about cutting it down. I have some reason to believe that the Chancellor of the Exchequer is thinking pretty seriously about all this.

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What are the avowed objectives of the Government?—the modernisation of capital equipment in this country; the avoidance of restrictive practices; the efficient deployment of labour; and, above all, the stimulation of our exports. They have proclaimed these objectives again and again, yet the Economist was moved to say the other day that there has been in the Budget no shadow of an extra incentive of any kind for exports. I am not one who is very critical of this Budget. I think that this is the one major blemish. I do not think that it is doing any good, or is going to do any good for this country. To put it in a sentence, it is the double taxation of companies trading overseas. Now we have it on the record. We have Mr. Val Duncan, Mr. Stokes of Leylands, Mr. Griffiths, Sir Maurice Bridgeman, Mr. Barlow, Sir Louis Spears, Sir Christopher Chancellor, who I understand is a member of the Labour Party, and last but not least the noble Lord, Lord Baillieu—they are all unanimous. These boys are not "tycoons".
THE EARL OF LONGFORD: My Lords, may I interrupt on a small and interesting point? I was delighted to hear that Sir Christopher Chancellor is a member of the Labour Party. I have the highest regard for him. I did not know that he was.
LORD BOOTHBY: I rather think so—or perhaps he is a Liberal. If the noble Lord, Lord Byers, thinks he is a Liberal, I will let him be a Liberal. At any rate, he is not a Conservative, which is something. Most of these fellows are great friends of mine, they are not really tycoons and are not playing politics on this issue. The noble Earl, Lord Longford, and his noble friend Lord Shepherd know this perfectly well. Sir Maurice told me the other day that, if we went on with this taxation in its present form we could really be knocked out of the whole international development of oil for the rest of the century. He said that we are simply handing it over on a platter to the United States, to Gulf Oil, Standard Oil of New Jersey, and to France, who are taxed half what our oil companies are going to be taxed. He said, "We might as well give it up." Thank God! we have Kuwait and a few other
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things. But he said, "I cannot go on developing oil on these terms". That is a pity. The Prime Minister said in New York the other day that we would "knock hell out of them", if the necessity arose. I do not see how we are going to knock hell out of the United States on these terms when the oil companies of the United States are charged about half the rate of taxation that our own oil companies are charged—including B.P., which is 51 per cent. owned by Her Majesty's Government.
The point I want to put to your Lordships is that the Government ought to make a sharp distinction between British companies carrying on industry and trade in overseas countries, and portfolio investment in foreign countries. They have a complete control over the latter. If necessary, they can clamp down on the whole thing. I do not see why I should be allowed at this moment to invest in the New York market—for example, in I.B.M. Why should I? The Government have the power to stop it. If they stop it, I do not mind. Why not stop the whole thing for the time being? I agree that it is an asset to us when we build up a portfolio investment abroad which may stand one in good stead, especially if one owes £2,000 million to foreign bankers; but, for the time being, it may be necessary to stop it. But do not stop the money from going to companies which are earning money for this country and increasing the exports of this country by trading overseas.
The Times, in a very interesting article the other day, said:
"There is a world of difference between deciding not to invest so freely as before in new private investment projects overseas and in doing this in a way which is virtually bound to mean making less than the best possible use of existing holdings overseas, which have already reached the point where a relatively small amount of new money annually is needed to produce very large returns."
I believe that to be profoundly true. I agree absolutely with the noble Lord, Lord Byers. These companies that we have built up over the last forty or fifty years are bringing in a tremendous annual revenue for this country, and they are spending relatively nothing upon overseas investment. The effect on the balance of trade of this country, if the

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Government clamp down on them to this extent, could be absolutely lethal; and before I sit down I want to ask the Government what they are trying to do. The additional revenue under this proposed taxation will be negligible; the ultimate effect on our balance of payments might be disastrous; and the ultimate effect upon our exports could be fatal. The phrase "the English sickness" is in continuous use on the Continent of Europe to-day. Here is a good example.
It may be that the Government want to turn us into a second Sweden. The noble Lord, Lord Shepherd, said that that is not their ultimate aim. I would merely point out that it is very much easier to become a Sweden if you have a population of less than 10 million, than if you have a population of over 50 million inhabiting a small island, who have either to export goods which the rest of the world wants or die. That is the real point and issue of this argument. We talk a lot about helping the underdeveloped countries, especially in the Commonwealth. There is only one way to do it, my Lords—risk capital. That is the only way they want it done —not Government expenditure; not even OXFAM.
What will these proposals which the Government are making do to Malaysia, to India, to Pakistan, to Ghana, and even to Australia, all of whom are protesting? The economy of Ghana, let us face it, depends upon the Ashanti mine. Read the letter of Sir Louis Spears in The Times the other day. Read what they will have to pay. It is going to put them practically out of business. What is the use of spending hundreds of millions for the defence of Malaysia if in the process we are engaged in sabotaging the Malaysian economy? The Chinese in Malaya are now coming in to take over the tin and rubber companies at jolly good prices, because they think it is good business—they have written to say so. We shall be out of that place, at this rate, before very long. Is that what the Government want? Ts that going to improve our export trade?
I am afraid that I have been a little emphatic, as I usually am; but I feel very strongly about this issue. I urge the Government to get hack to Keynes, the only economist of any consequence produced by this country over the last fifty
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years. He really did know what he was talking about; even more than Dr. Balogh and Mr. Kaldor. He said that under a capitalist or mixed economy prosperity could be maintained only by the steady flow of capital into industry under the stimulus of confidence and anticipated profits. I beg the Government to remember those words. As Mr. Harold Wincott said in the Financial Times the other day:
"It will he a crowning irony if the country which produced Keynes will be unable to follow the policies he advocated because it has used up its anti-deflationary ammunition during the years when not even the most reactionary politician could have created deflation."
There is a lot of truth in this.
I have sometimes been right in the past. I am asking Her Majesty's Government for only one thing—for consideration; that they should think this thing through again. There is plenty of time. This tax is not going to operate for two years, and recently the Chancellor practically went almost all the way to saying that he would give it reconsideration. All I am asking is that the Chancellor of the Exchequer should give this matter renewed consideration, in the light of the flood of statistics which he is receiving at the present time, not just every day but every hour, from the companies who really do know what they are talking about.
My Lords, I have a deep and ingrained suspicion of the Treasury. They have done too much harm to this country, and I have seen them do it. They put us back on the gold standard in 1925, at the pre-war parity of exchange. The result was 2 million unemployed. They were responsible for Snowden's "Mad Budget" of 1931. The result was 3 million unemployed. They told Lord Dalton, when it was proposed to call 3 per cent. Local Loans in 1947 by issuing an undated stock at 2½per cent., that he should be resolute, and speak outside
"as if we were quite sure that the thing could be carried through."
It was carried through—with what result? Everybody who bought Daltons curses the day he was born, and curses the memory of the late Lord Dalton. Later that year they "gravely informed him"—to use his own words, from his own autobiography—that the convertibility of sterling was feasible. It lasted

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for five weeks, during which the whole of the remnant of the American Loan was washed away. And he himself wrote:
"I am surprised at the bad information and advice that I was given."
So I say to Her Majesty's Government: Watch the Treasury. They are really no good, you know.
I have said to this House before that, when I was Parliamentary Private Secretary to the Chancellor of the Exchequer, his principal private secretary, the late Sir James Grigg, once said to me:
"There is only one man who has ever lived who has made the Treasury do what it did not want to do, and that was Lloyd George. And there will never be another."
I shall conclude my speech simply by saying that, without undue confidence or undue pessimism, I want the Chancellor of the Exchequer to be a second Lloyd George; and to tell the Treasury to go to the place where it rightly belongs.
5.7 p.m.
VISCOUNT CHANDOS: My Lords, I must begin, like most noble Lords who have spoken this afternoon, by declaring my interest. I am a Director of I.C.I. and for many years I was Chairman of A.E.I., and these two corporations are very high up in the list of exporting companies. Their exports in 1964 amounted to little short of £200 million sterling. Both companies have large overseas investments. Both companies are heavily interested in Australia, India and South Africa. I.C.I. has massive interests in Canada and in the United States, to say nothing of its developing complex in Western Europe. So in presuming to address your Lordships this afternoon, I claim to have some practical knowledge of the subject.
It will no doubt be a relief to your Lordships to know that I do not propose to discuss such matters as overspill or expropriation of part of the dollar premium, neither of which topics appears to me particularly attractive on a nice spring afternoon. I should like to return, however, to the essentials of the subject under discussion this afternoon, which have clearly emerged from the speeches of noble Lords on this side of the House. I shall deal with
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the subject very briefly under three headings: first of all, overseas investments to secure raw materials: secondly, overseas investments to make a profit out of British skill in overseas markets: and, thirdly, overseas investments to conserve our share of overseas markets and as a stimulus to direct exports.
First of all, raw materials. We hear a great deal to-day—and I am sure that my noble friend Lord Boothby is occasionally guilty of this particular talk —about the need to modernise British industry. Nevertheless, British industry, which is so often described by those who have never been in an industrial plant as obsolescent or lagging behind, did succeed in 1964 in exporting about £4,500 million worth of manufactured goods to the markets of the world, in competition with those industries in other countries which are described as so much in advance of our own, and whose salesmen are supposed to be so much superior in selling abroad. There is, in parenthesis, another part of this kind of propaganda which particularly irritates me. From reading the newspapers one might think that the British workman was perpetually on strike. It is very difficult to understand where the production comes from, with obsolete plant and workmen who are always on strike—but neither of those contentions is in the least true. In fact, the percentage of work lost in this way by British workmen per annum is something like a quarter of the loss in the United States.
But perhaps the most striking part of this achievement in exports is that it is gained by a country with exiguous natural resources in raw materials. Apart from the 200 million tons of coal which we can mine, we have, of course, some iron ore—far below the requirements of our greedy furnaces—large quantities of salt, some china clay and not very much else. Two problems arise from these facts. The first is obvious, and it is that we should try to secure sources of raw material overseas which are linked with our industries and which feed them. The second is that, since the import of raw materials must, ex hypothesi, precede the export of finished goods, our imports must increase before our exports can increase. I am somewhat allergic to much of the jargon that surrounds the

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subject of practical, and indeed of general, economics to-day, but if your Lordships can swallow "an in-built imbalance in the time scale", that, I think, will give the subject a modern, though a somewhat unpalatable, flavour.
I turn now to the first of these problems. We should use, as indeed we have, our overseas investments to secure, if possible for payment in sterling—and this is an important point—the raw materials which we require. Recently, the finance in London of the Western Australian iron ore field has been forbidden by the Capital Issues Committee. This may well have been a policy of necessity, at this moment, in the opinion of the Government, but it nevertheless gave me a shudder when I read of it. Your Lordships know the vast extent of this iron ore field which recent exploration in Western Australia has disclosed. It is quite true that the first market for this iron ore might well be Japan, but, from the huge increase of iron ore which the development of this field will bring with it, we, without sufficient domestic iron ore at home, will surely benefit, directly or indirectly. Of course, it will be financed by others, but any preferential position which we might have expected to enjoy by being the financers will fall into other hands.
Before I leave the subject of raw materials, there is one other thing which I must say. In many overseas countries which are the producers of primary products such as wheat, edible oils or timber, there is, of course, the natural impulse to establish local authorities and diversify the economy. If we are not to take part in these industries we shall merely lose our exports without any compensating balance.
Quite apart from securing raw materials which are to be used in our manufactures, there are also the profits which are derived from our overseas investments—the second of my three points—and they are very large. Your Lordships can imagine how gratified I was to hear the noble Lord, Lord Byers, talking about a certain Corporation in which he is an executive director, when I tell you that I was for many years associated with two of the component companies which make up that large group; and I suggest that a study of the activities of the Rio Tinto-Zinc Corporation over the last few years
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is a very fruitful exercise. The operations of this company alone have not only brought large quantities of raw materials which we did not possess for use and manufacture in this country, but greatly helped the balance of payments of the sterling area by the massive profits which they have made and remitted here.
The provisions regarding overseas investment would have made many of these enterprises impossible—and when I say "impossible" I mean just this, because there are many inherent risks in establishing industries or exploiting mines overseas, and if they are successful and the risks are surmounted there must be an adequate return on the capital employed if the balance of payments is to be underpinned. Conversely, if we invest overseas in enterprises which return, after payment of the local taxes, a rate which is under what it should be, then we are adversely affecting the balance of payments.
Let me take an example in India—and I am now dealing with the matter down to the shareholder. Let us imagine that the board of a company—it might be I.C.I.—which of course has a duty both to its shareholders and to the nation, is considering an industrial investment in India. Most of us have a great sympathy with India's economic plans and with her desire to harness some of the capital and skills of the West to improve the painfully low standards of life of her population. Now it is not an easy country in which to establish successful industrial plants. There are management difficulties, and the supply of trained Indian managers is at this moment very small. I think that is going to change over the next decade or two, but that is the fact now. There is also a cumbersome and elaborate system of import controls on raw materials which leads to long delays in getting industrial plant going.
Suppose that a project is being examined by a board. Any board determined to overcome these difficulties and to go ahead with the project must take account of the fact that, if it has regard to its own shareholders and calculates what they will ultimately receive, it will be faced by the stark fact that if this difficult enterprise makes £100 profit no less than £80 will be absorbed by tax in India or in this country. My Lords, £80 out of every £100! I am not saving

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this would be an absolute bar to industrial investment in India, but it is putting such investments under an enormous handicap. It is like running a horse with 12 stone 7 lbs. when it ought to have 7 stone 6 lbs. It is quite clear that many projects which would have been to the advantage of India and which might have returned an acceptable rate of profit on the capital will no longer be undertaken. We hear a lot about our bounden duty to help underdeveloped countries, and Government speakers are among those who proclaim this on every occasion. To-day we see how these noble sentiments are translated into action.
I have now dealt with overseas investment from two aspects—first, the securing of raw materials of which we are sadly short, and payment for them in sterling; and, secondly, the making of a profit by establishing an enterprise or a manufacture overseas. There remains a third aspect, which is the safeguarding of our exports, as well as the stimulus to our exports which comes from our investment overseas. I have the permission of I.C.I. to quote your Lordships some figures. During the last fifteen years I.C.I.'s direct remittances to their overseas companies and associates have amounted in all to some £37 million. During this period the overseas companies have spent about £32 million in the United Kingdom for capital goods and £75 million on intermediates, such as, for example, nylon polymer. The total figures over these fifteen years are: an outflow of £37 million by I.C.I., and an inflow of £120 million, or more than three times the outflow.
Moreover, these overseas investments have played their part in stimulating the total exports of I.C.I. which, during that period, amounted to about £930 million. I agree with the noble Lord, Lord Shepherd, that an exact calculation of the second part of what I have said is very difficult. It is very difficult to quantify, but it is certainly a very large sum. But there is nothing theoretical about the other part, my Lords: these are facts —£37 million outflow and £120 million inflow. Figures of this kind are not peculiar to I.C.I., but would apply to many companies which are carrying on international business—and, as I have said, particularly oil companies—and have large investments overseas. In many countries, unless these investments had
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been made, we should cease to have any part at all in manufacture and, quite apart from the supply of equipment from this country, our share of international trade would have fallen rapidly.
Having made this point, I should like to ask this question: Is there any one of your Lordships who believes that a mining company about to undertake the winning of minerals overseas would, of its own volition, establish its headquarters in London? If there is a noble Lord who says that he would do so, then I strongly suggest that he should see a psychiatrist. 1 will give him an address. There is one available within a short taxi drive from your Lordships' House. The present measures will inevitably drive the headquarters of businesses overseas into centres where more sensible arrangements exist. That will mean a loss, too, of important invisible exports, because the banking, insurance and, perhaps, even the shipping, will be undertaken outside the United Kingdom.
During the last week-end the Chancellor of the Exchequer made some remarks which I shall quote. I admired the speech of the noble Lord, Lord Aldington, but in connection with those remarks he was a little unfair to the Chancellor because he forgot to say that his pronouncement was made during a Labour rally just after Labour Day. I think we must all be prepared to forgive the Chancellor of the Exchequer if, on that occasion, he stretched the elastic a little further than is customary for Chancellors. If this statement (and it is unqualified) is applied to industrial investment, it is not correct. One might almost say it is not true I doubt, however, whether that is a Parliamentary expression. The Chancellor of the Exchequer said:
"The problem that we have had to face is that over the past years the previous Government gave tax concessions to oversea investment which exceeded those given by almost any other country in the world. These concessions increased the attractiveness of overseas investment relative to investment in the home economy to a point where our balance of payments suffered and so did our own economy."
The noble Lord, Lord Boothby, made a great distinction between portfolio investment and industrial investment. If the statement that I have just quoted is intended to apply to industrial investment, it just is not true. However, I forgive the Chancellor.

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In many countries—and this point I make in reference to the other part of his statement—the concessions to overseas investment were rather less attractive than those which could be made at home. They were made, however, for the reasons I have already discussed: the supply of raw materials, help to direct exports, safeguards to existing exports and local profits remitted to this country. The Prime Minister, talking to the Economic Club of New York, drew attention to the amount of our overseas investments and claimed, rightly, I think, that they were the bulwark of our national economy. He did not mention that present Government policy is directed to slow down overseas investments and, not only that, but to discriminate against those who have made them in the past.
Finally, we are, admittedly, in a difficult balance-of-payments posture. The last thing I want to be is polemical; but what has happened is that the Government have inherited a difficulty—and it is going to be part of our economy over the years; or, I fear so—but they have succeeded in making it into a crisis. If they wanted to restrict private investment overseas they should have done it by temporary measures: for example, by using solely the Capital Issues Committee, much as I deplore the existence of such a Committee; but there was the instrument. But even if it becomes imperative to stop the outflow of capital, it is unpardonable to discriminate against those who have made the investments of which the Prime Minister is so proud. I am afraid we must all come to the conclusion that the Chancellor of the Exchequer has been badly advised upon the matter of oversea investment, and although there may be some transitory alleviation of the balance-of-payments position, these measures are going to do immeasurable damage to our export trade and to our economic position in the future. I was immensely exhilarated when I heard the noble Lord, Lord Shepherd, say that the intention of the Government was to help overseas investment. Everything that has so far been said and written on the subject would lead one to suppose that their intention was to hamper. I hope that the OFFICIAL REPORT has got this particular pledge in writing.
5.25 p.m.
LORD FRANCIS-WILLIAMS: My Lords, I felt at first, when I looked at the terms of this Motion, that part of the problem of dealing with it was that it looked like a Motion in general terms in favour of virtue—because everybody obviously, is aware of the national importance of private foreign investment overseas. But one has to look at this subject, as at so many other things, in the context of the times, in the circumstances of the day, and consider what is the necessary and rightful policy, having regard to those.
The noble Lord, Lord Boothby, who I like to think is an old friend of mine, has told your Lordships with what dislike and distrust he regards the Treasury. I am bound to say that on the whole I share his views; but, over the course of a fairly long period of observing the economic and financial policies of this country, I have to say also (and I think he might agree with me) that on a great number of occasions, when the most dangerous and monstrous decisions have been taken, they have been taken in an unholy alliance between the Treasury and the City. Therefore, although 1 recognise the force and value of the views of many bankers on matters of this kind, I hope your Lordships will forgive me if I regard their attitude in these matters as so many bricks among other bricks which may help to build the temple of truth and not necessarily as the only supporting pillars of it.
I suggest to your Lordships that, as I think you are all well aware, in considering this question of the policy in relation to foreign investments, we have to take very careful note of the fact already emphasised by the noble Lord, Lord Shepherd: that our average earned surplus over the last ten years has been £25 million, while we invested net abroad £170 million a year; and that situation could not be allowed to continue. I appreciate that many of the noble Lords opposite have said they agree that that situation could not be allowed to continue, and that certain measures had to be taken. They disagree, as they are entitled to disagree, and as one would perhaps expect them to disagree, with the actual measures that have been taken. They detect, I think wrongly, an attitude of mind on the part of the

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present Government and its supporters which they believe does not give sufficient force to the value of overseas investment as part of the permanent economic structure of this country. I do not believe that to be the case. I believe that overseas investment, like other matters, does have to be looked at carefully and that its advantages in relation to investment at home must be taken into account.
If the noble Lord, Lord Aldington, will forgive me, I should like here to make a reference to Professor Dunning, to whom he has already referred. It is easy to take elaborate papers by academic people and to pick out phrases from them and to present them as a subject rather for derision. Professor Dunning is generally regarded and accepted as an authority on the examination of the flow of investment about the world. He contributed the article referred to, "Does foreign investment pay?" in the quarterly review, Moorgate & Wall Street, published by a very eminent firm of City bankers, Philip Hill Higginson Erlangers Ltd. Neither Professor Dunning nor the journal in which his examination of foreign investment appeared can, I think, be regarded by anybody as likely to be antagonistic to foreign investment in principle.
What Professor Dunning set out to examine, among several other things, in the course of a wide-ranging examination of overseas investment, which I recommend to those of your Lordships who have not seen it, was whether, not only from a private point of view but from a social point of view, foreign investment was in all conditions to be regarded as being as profitable in social terms as overseas investment. In trying to determine the social value he laid down, as I am sure your Lordships will agree, that what had to be considered was, first, the income—that is to say, the profits, interest, fees, and so on, which were earned and remitted on such an investment. It was also necessary to consider the effect on the terms of trade, particularly the extent to which there is a feedback of technical or managerial knowledge; and, further, what effect overseas investment is likely to have on the balance of payments of the investing country.
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There are, of course, other social factors, such as the effect of employment within the country itself, which have to be taken into account; but taking these, and admitting that it was difficult to make any absolutely final judgments—and, indeed, not claiming any final judgments—Professor Dunning came to the conclusion, from the statistics which he carefully examined and broke down, that the social rate of return on home investments for the period under review, which was 1958 to 1962, was consistently higher than that on overseas investment, by, on average, about 45 per cent. In other words, looked at socially it might well be the case that investment at home in domestic industry produced a social return at least 45 per cent. more than that on investment overseas. I do not suggest—and certainly Professor Dunning would not suggest—that this in any way destroys the case for overseas investment. There are many other factors which have to be taken into account, as we all admit; but this is one factor that has to be considered.
Professor Dunning went on further to claim that, in the light of the figures which he had examined—and I repeat to your Lordships that he had examined from the standpoint of one who is certainly not opposed in any way to overseas investment, and who was writing in a banking quarterly which is certainly, if anything, highly in favour of foreign investment—his figures would seem to imply that, from a social viewpoint, there had been some misallocation of resources as between home and overseas investment and also, on occasion, as between investment in individual countries. What was clear, in this context at least, is that the interests of the businessman and that of the community do not always coincide.
My Lords, I should be the last to suggest that the interests of the community and the businessman necessarily conflict. Of course they do not: often they run exactly along the same lines. But it is also the case, as Professor Dunning pointed out in that particular regard, that they do not always necessarily coincide: and it is, of course, the business of a Government which is elected to try to represent, in so far as it is able to, the interests of the community as a whole, including, I agree, the interests of the businessmen in the community but also

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the interests of those who are not businessmen—the ordinary people of all kinds and categories of service.
It is the responsibility of a Government to look at the problems, particularly the economic problems, which face them, not from the standpoint that the interests of the businessman and the community conflict, or that they are always necessarily the same, but to try to ascertain the interests of the whole in the context of a particular situation. On this aspect I agree with some of the noble Lords opposite, and I suggest that some of the Government's measures in this matter are open to criticism in detail. I am glad to hear that the Chancellor of the Exchequer has made it clear, as I should expect, that he is open to ideas and, if necessary, and if the right arguments are produced, to some persuasion on those matters of detail.
On the general principle, that we must regard not only the present differential between the rate on our overseas investment and our balances, but also the whole position of overseas investment in relation to our present, and still more our future, needs for domestic investment, the Government are right to look at that situation from as objective a standpoint as any Government can hope to achieve, which I admit is never 100 per cent. In the course of a number of interesting letters which have recently appeared in The Times, and elsewhere, I see that it has been suggested, I think by the noble Lord, Lord Baillieu, among others, that, in our policies both in this country and in the United States of America, we were in some danger of repeating some of the mistakes that were made in the 'thirties. And I agree that possibly there is some danger of that, certainly in regard to some monetary matters.
Of course it has to be appreciated that one of the great problems of the 'thirties, one of the prime factors in creating the great crisis of 1931, was the immense over-investment overseas which was taking place in this country at that time. I think it was claimed by the noble Lord, Lord Aldington (although he did not lay any great stress on it), that on the whole private investment was likely to prove safer and wiser than public investment. That did not seem to be the case in the 'thirties. I remember that at that time
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for my sins, I was operating as a financial editor, and the number of private overseas investment which came to a sticky end was nobody's business. Recently I was looking back to an economic examination of that period by the noble Lord, Lord Salter (Sir Arthur Salter, as he then was), in which he pointed out, as typical of the methods of private overseas investment, that between 1924 and 1928 Columbia had received over £30 million, which was to be devoted to the construction of a railway to connect two valleys separated by a range of mountains 9,000 feet high, there being no commercial justification for such a railway, as each valley had its own outlet to the sea. That was a typical example of the overemphasis on the virtues of foreign investment which existed in those years.
I am not trying to say that overseas investment does not possess virtues, but I suggest to your Lordships that in the 'twenties and 'thirties we allowed ourselves to be hypnotised into the belief that all overseas investment was somehow remarkable, and in the British tradition, and must be helped on whatever it meant in terms of unemployment and lack of capital. Although to-day it is in danger of happening to only a much less degree, fortunately, we must not allow ourselves to be hynotised into thinking that overseas investments, its rate, its expansion and the level of taxation that should be regarded as right and proper in relation to it, must not be looked at.
I was a little surprised, I must say, since I usually have a great admiration for the sense and sensibility of his remarks, to find the noble Lord, Lord Carrington, seeming to claim that the reason why the British people were very much liked and highly regarded in Australia was that the ordinary Australian had some great knowledge of the amount of British money invested in Australia. Those Australians whom I know certainly do not seem to be particularly influenced by that. Nor do I think that the noble Lord chose a particularly good example when he said that United States influence in South America had superseded ours because of the flow of American capital there. When we consider the South American reaction and what they call "dollar Imperialism" brings, and is bringing, I think unfortunately, at the present time, again we must not claim too much for foreign

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investment. We must put it in a reasonable perspective.
As I have suggested before in your Lordships' House, I believe that we have reached a state in world affairs when it is necessary that we should consider closely the whole basis of the pound and the dollar as an international reserve currency; when we need to do substantial re-thinking about the whole basis of international exchange dealing, and have to consider whether this country can afford, in financial and currency matters, to go on conducting itself as if it were still in the middle of the nineteenth century, any more than it can do so in terms of defence, power overseas and so on.
I believe that one of the great things that this Government and the Prime Minister may do is to set moving—as the Prime Minister endeavoured to do in his speech in New York—thoughts of the most serious kind towards a re-examination and rebuilding of a more viable international currency system, which will not place the internal economy of any country too much at the mercy of its responsibilities, inherited from the past, of retaining international exchange, responsibilities which weigh heavily not only on this country but also on America, with all its immense power and resources, and which are, indeed, beyond the resources and capacity of any country.
I also believe that our attempt to get policies moving along those lines is likely to be viable, to have any conviction to others, only if we are arguing from a position of restored strength in our exchange condition and cannot be represented as simply making a desperate try out of weakness. Therefore, I believe that the restoration of our international exchange position on a strong and solid basis is the main priority of this country. And if, as may well be the case, longterm investment has to take some temporary knock in order to help to build up our short-term position, then this must be accepted as a necessity which, in the long term, will prove of advantage to all.
Just as many other measures which are being pressed, which weigh heavily on individual sections of the community, and which those sections can argue will do not only them but everybody damage,
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have to be considered in relation to this essential, long-term necessity; just as I believe the Government's policy in relation to overseas investment (though I readily admit that it is open to reexamination in detail) is related to that overwhelming priority; just as I believe that not only oar economic survival, but also the future economic wellbeing of the whole world, depends on policy, so I believe that the Government should be supported in this matter.
5.49 p.m.
VISCOUNT AMORY: My Lords, I should like to add my warm-hearted, cordial and entire support for the critical case so brilliantly and lucidly deployed by my noble friend Lord Aldington. And who better qualified than the noble Lord to undertake that task, experienced as he is in the work of the Board of Trade, in industry, in banking and in commerce? I should like also to associate myself with every word of the speech of my noble friend Lord Carrington, even including that picturesque example of the Buckinghamshire dialect, "barmy", which I believe has a critical connotation.
The critical case has indeed been so effectively deployed that noble Lords will feel immensely relieved to hear that I have been scrapping pages and pages of my notes. I simply want to add my modicum of support for the criticism which has been so cogently expressed. Even for the few comments that I propose to make, I ought to declare my interest as a director and shareholder in several companies whose operations look like being adversely affected by the proposals in this Finance Bill. To-day taxation is so all-pervading that it is not easy to find any sector of the field in which one has not an interest to declare, with the possible exception, for an elderly bachelor like myself, of the marriage and children's allowances and perhaps the impact of purchase tax on babies' nappies.
With regard to one observation made by the noble Lord, Lord Francis-Williams, I rather doubt, with respect, the utility of the comparison of the social advantages of overseas and home investment. It is not as if we were deciding between wholly home investment or wholly overseas investment. What we need, of course, is as much of each as we can afford within the economic limitations applicable to

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each. I agree with the noble Lord about one thing, and that is that, in the long term, if eventually we could achieve one world currency it would be an advantageous development for the world as a whole.
But, as a general principle, surely a high level of sound overseas investment is a benefit to this country that simply cannot be disputed. I should have thought that there was no country in the world to which a high level of overseas investment was more beneficial than it is to Britain. Nevertheless, to say that overseas investment is a good thing is not just the end of the matter. There may be solid reasons why it is not possible at any moment to afford as high a level of a good thing as one would like. I therefore want to make it clear that I am not criticising the Chancellor of the Exchequer for carrying out an examination of the current rate of new investment across the exchanges that can be afforded at this particular moment, because that is hound to be influenced by the level that can be financed by us at that moment from non-sterling currency.
What I do criticise the Chancellor of the Exchequer for is because these provisions in the Finance Bill seem to me to show, either that such an appreciation has not in fact been carried out, or that the traditional attractions to the Labour Party of a restrictive siege economy have triumphed over an objective assessment; or, maybe, as my noble friend Lord Aldington seemed to imply, these proposals simply reflect a movement in a Hungarian rhapsody. The provisions of the Finance Bill to which I am referring seem to me to be singularly ill-conceived to achieve a useful purpose. They seem to bear the same signs that so many of the actions of the present Government have shown in the economic field, of a decision taken hastily for rather doctrinaire reasons, without its practical implications being examined and thought out until too late.
Whatever the case may be (here I am merely repeating what several noble Lords have already said) for imposing for short-term reasons stricter limitations on the outflow of new investment, surely there can be no reason for inflicting frustrating and damaging effects on existing investment which has proved beneficial to our national economy. Existing long-
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term investment cannot suddenly be re-orientated or even repatriated in response to a new fiscal imposition: indeed, in some countries repatriation of capital is not permitted. The effects on existing investment, therefore, seem to me to be bound to be wholly damaging and bound to lead to less efficient operations and less productive results to our national economy. My noble friend Lord Chandos reminded us that the noble Lord, Lord Shepherd (I apologise for having missed his speech) said that the object of the Government was to help overseas investment. If that is the object, then I am reminded of the headmaster who said: "I am determined to instil a spirit of cheerfulness in this school, if I have to thrash every boy to within an inch of his life."
There are two cases that I had chosen to illustrate the disadvantages and damage that I believe is going to be inflicted. They have been chosen because the circumstances are familiar to me and because they are two quite different cases. The first has been described by my noble friend Lord Chandos. It is a case where an outflow of capital of £35 million produced, within a short term of years, an inflow from various sources of four times as much, or very nearly so—I think £120 million net. That illustrates, I think, that in modern conditions sound overseas industrial development is important, and of increasing importance in the part it has to play in the maintenance and expansion of our export trade. I will not press that further, because my noble friend Lord Aldington dealt with it very efficiently indeed.
The other case I propose to quote as an illustration is rather different. It affects an old-established company with a high international standing which earns 95 per cent., or thereabouts, of its profits from assets permanently invested in Canada. During the present century in this case, the total outflow of capital did not exceed £9 million; and against this, within the last eight years, I think, there has been an inflow to the United Kingdom of an aggregate sum in excess of that whole investment. An average of 40 per cent. of its profits, after payment of Canadian taxation, has been remitted to this country, and the rest has been ploughed back to maintain its assets, which are invested in highly competitive

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industries in a state of modernised efficiency. One other point I should like to make here is that such additional capital as this company has needed has been raised in Canada and, therefore, has imposed no burden on the United Kingdom balance of payments. That company has a record of achievement which has up to now been considered highly beneficial to the British economy.
How is a company like that to be treated under the terms of the present Finance Bill? The Chancellor of the Exchequer is on record as saying that his object is to remove some of the fiscal advantages that overseas companies have had compared with companies operating in the home market. So far as can be understood at present, the provisions of the Finance Bill are going to involve for this company of which I am thinking an additional tax burden of over £1 million. Even what the Chancellor has referred to as temporary concessions in relief seem specifically designed to afford the absolute minimum of relief in the particular circumstances in which this company is placed. The damage to which I am referring is not by any means due solely to the removal of the overseas trading status. This company is, it seems, going to have imposed on it a burden of taxation grievously higher than would be the case if it had earned its income from operations within the United Kingdom that brought no benefit to the balance of payment.
I have quoted this case, and I do not want to apologise for having done so because I happen to have a connection with it, because I think this is an instance —and many others could be adduced—of a rather savage and damaging treatment imposed on a company with a record of productive and remunerative investment in a Commonwealth country. I hope the Chancellor of the Exchequer will explain better than he has yet succeeded in doing what precisely is the object of inflicting such harm on an existing investment by imposing a measure of double taxation which is bound to put the concerns involved to a disadvantage in relation to their competitors, in the contest for maximum efficiency.
I repeat, finally, that I am not quarreling with the view that some limits have
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to be set in the short-term to the volume of new overseas capital remittances that can be afforded in particular circumstances. But I beg the Government to give full weight to the benefits that can accrue to our exports, and so to our balance of payments, over a short period of years from sound investment overseas; and, secondly, to draw a practical distinction between any restrictions that may have to be imposed on new investment and penalising, in a discriminatory manner, existing investment with a record of proved value to the national economy, because I believe that such action can have no conceivable economic justification.
One of Her Majesty's present Ministers said to me recently in this context of overseas investment, "Something must be done." I am reminded of something that Lord Melbourne once said. I think I have his words right. He said:
"When someone comes to me and says. 'Prime Minister, something must be done', I generally find that he is about to propose something extremely stupid."
I urge the Chancellor of the Exchequer, most respectfully, to remember this wise saying, and make haste to check his objectives and the methods of attaining them.
6.4 p.m.
LORD CASEY: My Lords, anyone coming into a debate of this sort fairly late in the day inevitably finds that many of the points he had proposed to cover have been well covered already. I find myself in that position, so I will deal briefly with only two or three points. My first point is to tell the noble Viscount, Lord Amory, that I had always understood the quotation he gave us from Lord Melbourne was:
"The time is ripe for something to be done. The question is, what is it?"
That may be another quotation.
VISCOUNT AMORY: I will quote both versions in future, but the second version with due credit to the noble Lord.
LORD CASEY: My Lords, I will devote myself quite simply to a few points, if I may. The first is that there is, of course, a balance-of-payments problem in this country which has resulted in the Government's having to borrow short in order to enable investors overseas to invest long. That, clearly, is a situation

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which cannot be allowed to continue. But presumably (and one must assume it) the balance-of-payments problem is only a temporary feature. It cannot be otherwise than that, otherwise what happens to the pound sterling?
The extent to which investment overseas is responsible for at least part of the adverse balance of payments necessarily brings one to the logical position that investment overseas must, at least temporarily, while the balance of payments is adverse, bear its share of the burden. But, as I understand it, the financial provisions we have been discussing this afternoon are designed to be permanent provisions. So, if I am right in that, this temporary situation, in which investment overseas is responsible for a part at least of the adverse balance-of-payments position, is designed to be corrected by a permanent impost which will, presumably for the rest of time, have to be suffered. That seems to me the first illogical situation that one encounters in attempting to consider this situation.
The United States have been, or are still, going through the same situation as this country, but they are meeting the overseas investment problem by other measures, not legislative measures—largely, as I understand, by persuasive measures. In New York only ten days ago, I was told that in Wall Street these measures have every promise of success. They are meeting a temporary situation with a temporary palliative. I am not arguing the details of it, because that has been so well argued by other noble Lords to-day.
The corporation tax, and all that goes with it, seems clearly to have in the future an adverse effect on the £10,000 million worth of overseas investment, at book values—probably at current values a great deal more than that. That is spread presumably over, first of all, the sterling area and then, I suppose, a number of other countries outside the sterling area. It will have a depreciating effect on British investment in overseas countries and, perhaps one may guess, particularly in the sterling area. People who in the past—investors, individuals and companies in this country—have invested overseas in good faith, are going to lose a certain proportion of their investment.
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In other words, the financial measures we are discussing will have, to that extent, a retrospective effect. They will affect existing investments, and Treasuries in civilised countries throughout the world have always set their faces against retrospective measures. I speak in this sense, having been the equivalent of the Chancellor of the Exchequer in my own country for a number of years, and I know that that is the first criticism you get, if anything is suggested that has even the beginnings of retrospective effect. These financial provisions seem to me to have an appreciable degree of retrospective effect as well as effect in futuro. In particular, companies registered in London and trading overseas will be adversely affected, and they trade very largely inside the sterling area, inside the Commonwealth and, of course, in some other countries.
Another aspect is that a number of the Commonwealth countries to-day—and particularly the newer Commonwealth countries and some of the not quite so new—have what might be called a built-in balance-of-payments problem. Newly developing countries tend to have problems out of balance if they are trying to expand and develop as fast as they reasonably can. My own country, Australia, I think can he so described. That is by no means the only one of the Commonwealth countries that has current and recurring balance-of-payments problems. We in Australia and other Commonwealth countries have relied on investment from this country and the United State to an appreciable extent to offset our balance-of-payments problems. There is no doubt that my own country and a number of other Commonwealth countries are going to be adversely affected by these financial provisions if they become actuality.
So I believe that at the forthcoming Prime Ministers' Conference, in a little over a month's time, the whole of the matters we have been discussing this afternoon—what I think is the very unfortunate effect on other Commonwealth countries—must be a subject of fairly considerable discussion. I am not quite sure of the time element of the matters we are discussing, whether or not they will become actuality before the Prime Ministers' Conference—I think probably not—but if the Government have not

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taken into account the effect of these provisions on other Commonwealth countries, to their quite appreciable detriment, perhaps I might suggest that that matter might be considered in a Commonwealth context before the Prime Ministers' Conference.
6.13 p.m.
THE EARL OF KILMUIR: My Lords, let me also begin by declaring my interest. I am chairman of a company which has substantial overseas investments. It is also an exporter on a large scale. It is therefore likely to be affected by the proposals in the Finance Bill, particularly by those dealing with corporation tax, with their impact on direct investment overseas. But, while I hope that I may be allowed to draw on my personal knowledge, I shall try to do this for the purpose of illustrating the general issues.
I should like to say one other thing. I share the universal pleasure in speaking in a debate so well initiated by my noble friend Lord Aldington, whose past work as Minister of State at the Board of Trade, and in business, would give him a special claim to our attention even if his speech had not won it on its own outstanding merit. If, in following him, I traverse again some of the ground he has trodden, I hope that your Lordships will accept it in part at least as a tribute to the noble Lord.
Your Lordships will have observed, and the noble Lord, Lord Shepherd, reminded us, that the Chancellor of the Exchequer, speaking at Manchester, invited those affected by his proposals to make representations to him. I am doing so now. He is further reported as saying that his object in introducing the corporation tax is to "mitigate a bias in the tax system," a bias, in his view, in favour of overseas investment and against investment in our own economy. My noble friend Lord Aldington has dealt fully and affectively with the question of bias.
But even if one assumed that there may be such a bias, and that, if so, it may be big enough to deserve, in the circumstances of to-day, some attention from the Chancellor this might logically lead to action of some kind designed to discourage for the time being direct overseas investment. But how are the Chancellor's proposals relevant to a
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situation in which overseas investments have already been made and are yielding profits to this country? Surely they cannot now stop the outflow of money which has already occurred. I listened with particular care to every word the noble Lord, Lord Shepherd, said. I heard no answer to that point, which is one of those that worry us most on this side of the House.
The Chancellor's proposals will mean in practice that, instead of strengthening our overseas manufacturing and selling organisations, and so drawing from their success a continuing stream of currency with which to buttress the nation's reserves, we shall be under strong pressure to sell them, in whole or in part, with the result that the monetary return which this country is currently enjoying from these direct overseas investments (I think it is about £600 million annually; say two-thirds of the level of our reserves) will become over the years less and less. On the test suggested by the noble Lord, Lord Francis-Williams, concerning the interest of the community, I would ask: how will the community be benefited by action with such results?
Let me turn to another facet of the problem. I hope that it will not be thought that overseas investment has been a way of dodging direct taxes in the United Kingdom. Overseas investment has never produced that result. What one saved in direct taxes overseas one had to pay in this country. If overseas Peter was indulgent to his local subsidiary, then United Kingdom Paul took whatever he required to make up the full amount of the tax due from the United Kingdom parent. Put another way, whatever relief from United Kingdom tax a company operating abroad might have got in respect of foreign taxation, it could never pay less in foreign and United Kingdom taxation combined than was paid in United Kingdom taxation by the company operating entirely at home. I think this is very important; and although the point has been made before, I believe that it is worth making once again.
The real significance of the changes now proposed is that—as was recently said—they make the United Kingdom a bad place from which to conduct an international company; that is, a company which, as well as being a British

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exporter, is at the same time a customer for British exports. There are, I suggest, two factors which in their different ways affect large scale international trade today. These are, on the one side, the nationalism which, while purporting to encourage local investment, is essentially restrictive, and, on the other, these so called "economies of scale" which, in the ultimate, demand the whole world for a market if their theoretical advantages are to be realised.
I would say to the noble Lord, Lord Francis-Williams, that, whether we like it or not, sterling is one of the two currencies in which the World's trade is conducted. Does it really make sense to place these new, and, I must emphasise, as my noble friend Lord Casey emphasised, permanent—I repeat permanent—fetters on such an important part of that trade? Ought we to be contemplating a measure which is likely over the years to diminish our earnings from "invisibles" and, by discouraging the sterling investor, to impair our historic position as a source of international capital?
I want for one moment to put to your Lordships what is the classic pattern of overseas investment. This is how it happens. It usually happens that one begins with a few exports, seen perhaps as a means of disposing of a factory surplus which cannot be conveniently sold at home. This develops into a sustained export trade to a number of countries. The company with which I am associated exports over one-fifth of what it makes in the United Kingdom. Then, when sales through a particular market reach a substantial level, one comes under pressure—it may be from the Government of the country concerned, or it may be from one's customers—to start manufacturing locally. As many of us here know, this is not an empty threat; it is one of the harsh realities of business life.
I would ask the noble Lord, Lord Shepherd, and the noble Earl, Lord Longford, to reconsider this point. How are we to meet such pressure? If we ignore it, we put our trade in jeopardy. The overseas Government or customer will turn to one of our competitors, to somebody in Germany, the United States, in Sweden or Japan, it may be, and we shall lose a market which we have built up by years of hard work. On the other
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hand, if we invest in and put up a local factory, we go a long way to assuring ourselves of our market in that overseas country and, quite probably we are able to maintain for some years a flow of components, intermediate products, and so on, into that factory.
On the other side, we shall, for our part, have developed in the overseas country an attitude of mind in its bright young men that causes them to look to this country for new ideas, new techniques and new devices; and so there will be visits to this country from overseas engineers and technicians in search of training, expertise and the like. These visitors, who I am always so pleased to see in my own works, will not limit themselves to the original field of our investment, but, because they are intelligent and enthusiastic, will probe widely into what this country's industry has to offer. It is this system and this relationship which is now threatened by the Chancellor of the Exchequer's proposals.
I want to underline at this stage the fact that wise overseas investment by United Kingdom companies is not merely profitable: it is also a continuing source of trade. I noticed recently an American report relating to 1963, which showed that sales by American companies to their foreign subsidiaries represented one-quarter of that country's total exports. That compares with the figure that my noble friend Lord Chandos gave for I.C.I.'s own balance of payments over the last fifteen years, of £37 million outflow and £120 million inflow. That could be paralleled by many other companies.
So far I have been attempting to describe the effects which the Chancellor's proposals are likely to have upon the strength of British industries overseas. I should like now to turn to another consequence of the proposals in the field of Government policy itself. I mean the effect which those proposals are likely to have upon the demands for aid of the so-called developing countries. My noble friend Lord Boothby described the position with his usual strength and rhetorical effectiveness. But there are, I suggest, three ways in which an underdeveloped country can bring its economy up to date. These are, first, by exploiting with its own means its own natural resources; second, by interesting foreign capital; and third, by attracting gifts

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or loans at uncommercial rates of interest. To the extent to which the use of any one of these methods is discouraged, there will be an increased demand upon the other two.
We may take it, I hope, that in the circumstances of to-day, with the wide interest which is being displayed on all sides in the development of the hitherto unused resources of the Free World—I have in mind such institutions as the United Nations Committee for Trade and Development, the Aid India Consortium and the like—that the pressure, both domestic and international, for the development of local resources by local means is already being exerted as effectively as practicable. But, as I have attempted to show to your Lordships, one effect of the Chancellor's proposals is going to be to discourage our manufacturers—not just for this year, but permanently—from bringing new industries to developing countries. It is true that industrialists in other countries may step into the gap which the Chancellor is proposing to create. But, pending their supplanting us, the pressure for industrialisation will be building up overseas.
It seems to me inevitable, in these circumstances, that the Government will find themselves required to relieve this pressure by increasing still further the grants and low interest loans which constitute their contribution to the international aid programme. It is difficult to see how either of these courses—foreign supplantation or such aid—will help the solution of our balance-of-payments problem. I do not, of course, mean that the Government will take over the commercial projects which various British companies may have had in contemplation. This I regard as unlikely. But what will happen will be that the pattern will be altered. Instead of direct private investments, which, if successful, would over the next five or ten years be returning to this country, the kind of reward that can reasonably be expected for opening up a successful enterprise, there will be a call for increased taxation here to make good the costs of financing these gifts and low interest loans. If our exports of capital goods and the like are needed for the development schemes they will be virtually unrequited, and—this might well happen—if there are some
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attempts to ensure that the money allotted is wisely spent and properly accounted for, they may be rebuffed as "political interference" or what is now called neocolonialism".
I have almost done, but before I sit down I should like to make one more point, which arises from what I have just been saying. Like others, I have attempted to calculate the effect of the Chancellor of the Exchequer's proposals upon direct investments in various parts of the world. I do not wish to trouble the House by numerous examples, but I confess that I find it odd—in regard to this I shall be most interested in the reply of the noble Earl, Lord Longford—that the Chancellor should have devised his proposals in a form which, as the Economist tells us, discriminates against India but in favour of South Africa. That I had not expected from Her Majesty's present advisers. As I say, I await the explanation with great interest. We are considering to-day very serious issues, which will affect our own industry, making it less willing to accept the risks involved in making direct investments overseas. They will affect the value of the returns which we shall receive from these investments and they may even, before long, diminish our exports themselves. They can also be expected to increase the demand for aid. The imposition of measures having such effects, as a permanent factor of economic life, demands—and I hope the noble Earl will not consider that word unreasonable—a more detailed and closely reasoned justification than it has hitherto received. I hope that the debate which we are conducting this afternoon will afford the Government and the noble Earl the opportunity for doing this very thing.
6.31 p.m.
LORD POLWARTH: My Lords, there is one aspect of this subject which has been no more than mentioned this afternoon and on which I am certain more is required to be said—that is, the contribution which is made by the overseas investments of the financial institutions, in particular those in which I have personal experience, the insurance industry and the investment trust and unit trust movement. I am very glad the noble Earl is going to reply, for in his recent previous incarnation he was a banker and, I might almost say, an overseas banker, albeit within the sterling area.

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I must monotonously repeat my own interest in the subject, but it is those of us with an interest in it who understand what it is all about and what the effects are likely to be. I am a director of companies with such overseas investments, but it is not just a personal interest which is involved. It is, after all, the interest of thousands of share-holders who have provided the means for these enterprises to grow and flourish, and who, incidentally, by saving rather than spending, have contributed to the fight against inflation and therefore to the national interest.
There is a popular notion that investment overseas by the financial sector is somehow less important and less valuable than investment in manufacturing or development of natural resources. Perhaps this has something to do with the absence of bricks and mortar and of plant and of machinery. The very name "invisible exports" suggests something a little shady and unreal. I submit that the very opposite is the case. Very often investment of this kind brings a quicker and greater return than investment of the other greater kind.
First, may I take the field of what is called portfolio investment, primarily by the investment and unit trusts and other institutions? Since the early days of those movements at the end of the last century, they have channelled enormous sums of British funds into the development of countries like the Americas to help with their growth. These investments have grown and have earned a good return, a great deal of it in much-needed dollars. With the Second World War those investments were there for the Government to take over to support our diminishing currency reserves. After the war the investment trusts started from scratch and again built up their investments, until, by the end of 1963, they amounted, outside the sterling area, to no less than £872 million—a very considerable contribution to our foreign currency reserves. All this had been built up without any cost to those reserves, as they could only be acquired from other United Kingdom residents through the dollar pool. The currency received in the income from those investments and surrendered to the Treasury in the year
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1963 amounted to over £20 million, and is rising steadily year by year.
To take the case of one trust company with which I am connected, starting from scratch at the end of the war we have invested 9½ million dollars outside the sterling area. That investment has fructified and increased, until to-day it is worth 40 million dollars—a four-fold increase. This is due, I should like to think, not only to good luck but to a little good management. The cost has been entirely covered by the income received on the investments over that period. All this, while of course benefiting stockholders, has strengthened the country's reserves and its balance of payments. I can fairly say that it must be hard to find a better practical application of the parable of the talents than that presented by these institutions.
May I now turn to the British insurance industry and its operations overseas? Insurance has been one of our most important and successful invisible exports. Despite intense competition by foreign companies, we transact more international insurance than any other country in the world. In 1963 British insurance wrote over £1,000 million of premiums overseas and brought net earnings from these operations of over £50 million to this country. This is very big business indeed, and to support it and to provide the reserves so necessary for it British insurers have built up over the years substantial holdings of securities and other assets abroad. For example, in the United States it represents the largest stake of any British industry, operating there with investments of £400 million. As with the investment trusts, these investments have been almost entirely self-generated in the countries where the business is done.
To take the example of the insurance company with which I am familiar as a director, we started in business in the United States 65 years ago, and all we have sent out there to mount the operation is 5¼ million dollars in 65 years. On that we have built up an organisation in the United States with assets to-day worth 400 million dollars at market value, and we have remitted back to this country 55 million dollars out of profits. Since 1950 alone—and that includes some bad years with the good

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—we have succeeded in remitting 31 million dollars home and have ploughed back as much profit again to help our business grow. All this, I venture to think, is a not insignificant contribution to the country's ncial strength.
All these great assets, all this great earning power, has been built up by the skill, intelligence and pioneering spirit of those engaged in the enterprises and by the readiness of their shareholders to provide the funds. Now they are faced with fundamental changes in their treatment for tax—changes which, without going into details, for they are very technical, it is abundantly clear will place a greatly increased burden of tax on their operations and so frustrate their continued expansion and growth.
Nor is it true, as I understood, perhaps mistakenly, the noble Lord, Lord Shepherd to say, that the new system will merely reduce the ability of the companies to increase dividends. In most cases it will greatly reduce their ability even to maintain them, and in some cases will definitely oblige them to reduce them. There is also a highly anomalous position in a cyclical industry like insurance, where one can have bad years following good ones. In good years profits are put away to reserve after paying tax on them; now, if they are drawn on to maintain dividends in poor years, they will be subjected to taxation a second time. It is all very well to say that investors overseas have enjoyed more favourable treatment than in any other country in the world. Frankly, the evidence for that has not been adduced.
THE EARL OF LONGFORD: My Lords, if we are being pedantically accurate, that has not been said by any member of the Government in the form in which the noble Lord has used the expression.
LORD POLWARTH: It has certainly been said in very nearly similar form. Besides, would this investment have reached its present size and profitability without a measure of favourable treatment?
The noble Lord, Lord Shepherd, made much of our present economic state and the need to place temporary restrictions
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on the outflow of capital. With that I would entirely agree. But it is a totally different thing, and I submit entirely unjustifiable, to impose a permanent penalty on the future operations of established investors overseas—operations which are helping and not harming our balance of trade.
I should like to quote two statements which I have seen this week and which I think sum up the situation succinctly and very well. One is from the chairman of the British insurance company with, I think, the largest overseas operations of all. He said:
"It seems paradoxtc—,indeed well nigh incredible, that because a restriction is desired in the current outflow of capital from this country, fiscal measures should be imposed which will seriously affect those like us who have established businesses overseas earning much needed currency (mainly dollars) for the country."
The second one, from the opposite end of the scale, a letter in The Times from a small investor, I am glad to see, in Glasgow, says:
"Sir, Small investors like myself have money into companies which help this put by earning dollars. Through the agency country investment trusts we have also Placed capital at the disposal of those companies in this country which are well managed. Was this wrong? Why are we to be punished on each count?"
What will happen if these proposals go through unchecked? There will be no immediate upheaval, because we have learned to to live with difficulties, and in the insurance industry we have suffered disasters before. The difference has been that they have been natural disasters—fire, flood, earthquake and whirlwind—but they have been passing ones. Now we have what is an unnatural and more permanent disaster. The investment trusts may well find that overseas investment is now less attractive, and they will repatriate some of their funds—agreed, to the benefit of domestic industry, but with a loss of overseas currency earned.
Insurance companies, who are facing intense competition overseas, will find it less easy to maintain the necessary reserves. They will find it less easy to give a return to their stockholders and, therefore, to raise more money. Their remittances will be reduced, and I shall not be surprised if we see a further trend, which has already started, towards

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British insurance companies disposing of their overseas operations to indigenous companies in the countries concerned, probably at values well below their true worth and with a consequent loss of currency earning power.
The investments of these great concerns are the seed corn which have brought us increasing yields, year by year, in cash and in currency, and in increasing still further their own earning power. You cannot raid the seed corn and go on as if everything was the same as before. We all know that the yield will go down, the harvest will decrease and, in the end, there will be a famine in the land. It will not just be in the land where the money is invested; it will be in our land, too.
The nature of these tax proposals shows that they must stem from one of three things. It may be from an inflexible belief that what is good for one is good for all, and that therefore all kinds of enterprise must be forced into the same fiscal mould. It may be from a deliberate determination to penalise those who have built up their businesses by their enterprise, by their skill and with their resources. It may be from an abysmal ignorance on the part of those conceiving and advocating these measures of the way in which business, and, in particular, international business works. I shall be charitable and assume that the last is the case. But it is never too late to learn, and I earnestly entreat those responsible to do so before it is too late.
6.44 p.m.
VISCOUNT BRIDGEMAN: My Lords, I must apologise to the House for not having been here at the start of the debate, but I was unavoidably detained elsewhere. Like other noble Lords, I have to declare an interest, in that I am connected with a number of businesses about which I hope to say a word in a moment or two. But, like my noble friend Lord Polwarth, I feel that one should not apologise too much for that, because it is by working in businesses of this sort that one learns what is likely to happen if proposals like this are going to be made. Beyond that I shall not follow my noble friend very much, because I am going to try to direct attention to another part of this very wide field.
My first experience of this sort of thing was before the war, when I was
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working for one of the lesser known Brazilian railways. In those days all profits, wherever they were made and whether they could be remitted or not, attracted United Kingdom tax, but in the case of this railway only a very small proportion of the profits could ever be brought home, owing to difficulties with the Brazilian exchange control. So whenever profits were available and sterling was available, too, it all had to be used up—or nearly all—in tax. Therefore the directors of the Company had the task of being slaves to the tax gatherer rather than servants to their shareholders. That was not a very popular position for the English directors to be in. It was even less popular for their Brazilian colleagues in Rio.
The Inland Revenue deeply sympathised, like the Walrus did, but said that they had to administer the law as it stood. It was not on record that anybody ever attempted to alter the law as it stood, until the day came in 1957 when at last the penny dropped and the arrangements were made for the overseas trading corporations. Those arrangements, I am sure, were sound and wise, not merely from the point of view of shareholders at home but also from the point of view of the responsibilities of those companies which traded overseas—the responsibilities which they had to the countries in which they worked and where they employed labour.
Now we are told that the Government think that there is a need to restrict overseas investment. If they were to restrict their views to the proposition that this is not the time to invest new money abroad, then I would entirely agree with them, although with one strong reservation, and that is that I would not agree that the Finance Bill is the proper sort of Bill to deal with this matter. Noble Lords opposite, at the time of the last Labour Government, brought in the Exchange Control Act, 1948, which I remember quite well; and that, if it erred on any side, erred on the side of giving the Government too wide, rather than too narrow, powers. I should have thought that any restriction of foreign investment that was necessary now could quite easily have been achieved through the medium of the present Exchange Control Act.

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If these things are put into the Finance Bill, the control of investment becomes a hostage to Parliamentary time and to Parliamentary draftsmen's time, whereas it should be possible for the Chancellor of the Exchequer of the day, or the President of the Board of Trade, or whoever, it is, to make exchange control orders restricting or removing restrictions on foreign investment as and when necessary. So whereas, to my mind, it is perfectly right to say that we want to control foreign investment now, to deal with it in the way that the Government have done is suspect, to say the least of it, and, I think, wrong in principle.
I remember very well my father—whom few people now remember in this House—talking about the old days of Free Trade and Protection, and saying then that Free Trade and Protection were not two different creeds like two different religions, but, within the general proposition that trade ought to be as free as possible, were expedients to be adopted from time to time as the situation demanded. And so, my Lords, is this expedient. But to apply this doctrine, not to money which might be invested in the future but to money which has been invested overseas in the past, is, to my mind, quite another matter and not in any way justifiable on the same arguments.
In recent years I have had quite a bit to do with companies operating in Commonwealth countries, both British companies and Swedish companies. It occurred to me when I was thinking of this that the Swedish-owned company have by no means taken the same line about their investments in the Commonwealth as the present Government seem to be taking with ours. I am going to take, if I may, the tea industry as an example of the argument I want to make, and I am going to take it because I know it best. I think everything I say about that industry will go pretty well for all the commodity industries and the plantation companies. I do not understand mining, and I am not going to talk about it; and, as for oil, I have a relative who is qualified to say what is necessary.
Since the overseas trading corporations began in 1957 a great many of the countries to which they apply, and in particular all the African countries, have become independent; and, therefore, the
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day is passed when their economic policies can in any way be controlled by people like the Colonial Office. That has had two effects, among others. First of all, we are there getting, in a way which did not happen in the past, constant wage claims, and those wage claims are bound to reduce the profit margins of the companies operating there. They are bound to do that because the world prices of commodities will not rise correspondingly to the cost of production in any given country, even if it were right that they should do so.
The other thing, which I think is even more important, is that there is an increasing demand to plough back into the business locally a higher and higher proportion of the profits made. There has been, to my knowledge, a very definite expression of this in Tanzania. Two years ago I discussed this very point with a most important personage in Dar-es-Salaam, and one of the questions he asked me was how much of its profits the company concerned intended to plough back into the business. I gave him the figure which I hoped was the right one, and said that we were going to do it, not merely because we thought we owed a duty to the country where the profits came from, but because it was the sort of thing that sensible companies always did. Now that these countries are independent, their Governments are able to impose their policies on the companies resident there, whoever owns them, and I think it follows equally that, if the policies of the United Kingdom Government turn out to run counter to their own policy or to what they think is for the good of their own country, they will not hesitate to take measures to frustrate them. They can limit dividends; they can impose internal taxes; and so one goes on.
My Lords, I have been talking up to now about Africa. India is in a slightly different position. There have been heavy wage increases and greatly increased taxation, but the Indian Tea Association has quite recently concluded some very successful negotiations with the Central Government of India for lightening the tax burden out there. I put it to noble Lords whether the Indian Government would in fact have done so if they had known what the United Kingdom Government's proposals were going to be so shortly afterwards, because they would

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hardly have done it if they had known that any taxation which was saved to the Indian companies for the benefit of India was now going to be "creamed off" by the proposals which are coming forward in another place.
In the Press it has been represented fairly widely that these measures are being taken with the overseas trading corporations in order to induce them, by fair means or foul, to sell some of their overseas assets. May I spend one moment just looking at that? To go back to India, the sale of plantations in India has been going on quite steadily for a number of years. In many circumstances it is much to the interest of the United Kingdom company to do that, but the pace at which it can go, assuming you can find buyers at the right price, which I think one can assume, depends upon the rate at which the proceeds can be remitted to London and sterling bought, and that is very closely restricted by the Indian balance of payments. Therefore, if the inducement was to do what I have suggested, the only immediate result would be to depress the price of the plantations and to produce the proceeds of the sale, not in sterling in London but in rupees in Calcutta, and there they would have to wait until the Indian clearing made it possible to bring them home. In other words, the sale of plantations in India cannot, I suggest, go faster than it is going now, and no Finance Act here can make it.
In Africa, where I was as recently as six weeks ago, the only possible buyer for plantations would be one of the African States. I cannot imagine that any European country would be interested—or, for that matter, the United States. But at the moment, I think, no African State would be a buyer—and I have been told this to my face in those countries. Countries like Kenya and Tanzania—for the present, at any rate—want to keep the overseas companies owned as they are. They want to use their know-bow, and they want to conserve their own funds, not to buy out the Europeans, at any rate at this stage, but to develop a native industry side by side with the Europeans. I believe that the Indian position is, by and large, much the same. But in both places, to the extent that any sale may be possible, the present proposals by the
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Government will only encourage buyers to sit round like the vultures you find in those countries, hoping they have not got long to wait before they can get the assets at sacrifice prices. In other words, do we want to repeat the tragedy of agricultural land in Kenya?
So then, my Lords, what? Assets which are there now, and can be kept productive if they are not taxed out of existence, will be wasted by these proposals, if not destroyed; and their direct yield will not be there for anyone—either the Government as collectors of taxes or the shareholders as collectors of dividends. Furthermore, something else will be gone (and this has been spoken about by other noble Lords), and that is the buying potential in the United Kingdom, the remittances home from European staff employed overseas, and the foreign exchange earnings which go on the whole time when there is trade between this country and overseas companies. The case I am trying to put is not merely that from the point of view of the stockholders or commercial interests at home, or people of that sort, but is also that from the point of view of our declared intention in this country—and this, I think, is genuinely a bipartisan policy—to assist the newly-independent countries, and to support Commonwealth trade and not destroy it. I cannot see how the present action, as applied to the existing companies, can possibly be so regarded, because I cannot see what you will get in return for what is going to be, in my opinion, as I have said, thrown away.
It may be said that you must treat everybody in the same way—and, of course, that is not the same thing as giving equal treatment to everybody, because the results of treating one company in one way are not the same as the results you get by applying the same measures to another company. So in regard to the overseas interests that I have tried to talk about to-day I cannot see that any good is going to come of these proposals. To try to apply the same rules to companies in England and companies in tropical Africa seems to me to make no sense. It is not good government or good administration; it is merely, I think, the refuge of the moral coward who has not the gumption to give different treatment to different people when he is convinced that that is in

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the interests of the people concerned and of the country as a whole. I ask for no answer to-night to the points I have made; but I hope that noble Lords opposite will see that they are brought to the notice of those concerned; and if it is thought not right to believe what has been said by a noble Lord from these Benches, then I can assure noble Lords opposite that I can produce many other people who will tell them the same thing, if necessary in greater detail.
7.2 p.m.
LORD HAWKE: My Lords, at this stage in this debate, naturally, most of the points have been made; but there is no harm in reiterating one or two of them, because I believe that this is one of the most important debates that has taken place in this House for a great many years. I have sat in this House, fairly regularly, for nearly twenty years, and seldom during that time has an issue come up on which the future of this country has so much depended. I can only hope that this debate will prove to be the classic example of this House, although having little power, being able to influence the course of events in the direction in which so many people appear to think that it should be influenced. I am taking part in this debate only because of my great anxiety for the future of the overseas trade of this country should the present financial proposals be passed in another place. The interest I have to declare is that I am, like many other investors in this country, a holder of interests in foreign trading companies and a director of a company which has a few small subsidiaries overseas.
Who are the investors? Nobody has defined them precisely. They are largely the insurance companies, the investment trusts, the unit trusts, charities, the family trusts, and, lastly, and least in quantity, the individuals in this country. Why, in the first place, do they invest in companies trading abroad? If anybody in England wants to produce a balanced portfolio of investments—and for a long-term investment a balanced portfolio is a right and proper objective—it is almost impossible to include investment in raw materials unless one goes abroad. There are in economic activities four main categories: the producers, the people who manufacture, the people who distribute
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and, finally, the people who finance. A balanced portfolio must contain an element of all those four categories; and there are practically no home companies that can provide investment in the first of these.
That is the first and greatest reason why investors invest in companies trading abroad. At the same time, many of them have subsidiary reasons for increasing the yield by small elements of extremely risky investments in places like Africa, Malaysia, and so on, where the return on the invested money, on the prices of the shares purchased, can be extremely high—as indeed is the political risk. Then, of course, there is the portfolio investment with which my noble friend, Lord Polwarth, as an investment trust man, rightly dealt. He did not say why people go into that kind of investment. The reason tends to be to obtain a geographical spread or to provide a hedge against inflation. The favourite place for that is the United States and, of course, the largest investors are the insurance companies, although many of their investments are tied investments which they have to keep there to fulfil legal requirements.
My noble friend gave instances of where, under his particular stewardship, particular investment trusts had done very well in the United States. But anybody, even without the advantage of his stewardship, who had merely bought index investments in the United States in the last five or six years would have done considerably better than in this country. For instance, taking the month of May, the Dow Jones index of the United States, which was 645 five years ago, is to-day round about 920—an increase of over 40 per cent.; whereas the Financial Times index in this country has gone up merely from 296 to 343, which is a rise of about 15 per cent. Moreover, the money left in the United States has improved in purchasing power more than the money in this country, because over the last ten years or so the dollar has been depreciating at an average of 1·3 per cent., compound, per annum whereas the pound has been depreciating at an average of about 2·6 per cent., compound. So the people who since the war have made their portfolio investments in the United States have done well for themselves and well for this country because the annual

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return of dollars towards the balance of payments has been commensurate with the increase in the capital values there.
It can be claimed, by great over-simplification, that this investment has been financed entirely by our short-term borrowings from the Continent and elsewhere. Undoubtedly there may have been an element of this in it; but the whole position of the balance of payments is so complicated that nobody can really say what is the source of any particular form of foreign exchange. In fact, every year the statistical department of the Government produce further explanations, in their endeavours to try to get their statistics more water-tight, and it is a great mistake to take the figures too seriously. If they are right to the nearest £100 million, they are not doing too badly; but I am afraid the statistics are not sufficiently accurate to try to deduce arguments by quoting eight figures of pounds. If the Government think that it is time to repatriate some of these dollar investments, to take the profit and so on, I am certain that if the Bank of England approached the institutions concerned, these things could be done by arrangement. I am also equally satisfied that using a bludgeon of taxation is much more likely to make the owners keep them overseas, because they feel that by so doing they are fulfilling one of their objects, which is to provide a hedge against possible further inflation in this country.
However it is in the trading companies field where I agree with nearly every speaker that the results of the Government measures might be the most unfortunate. I can confirm what the noble Viscount, Lord Bridgeman, said about lowering the prices of the underlying shares so that it would be much easier for foreigners to buy us out, and we shall certainly lose exports. I do not think that it has been sufficiently brought out in this debate to what extent we are indebted to British engineers and executives, working in British firms overseas, for British exports. I have seen that in connection with the South American railways. For a great many years they were a very fine investment, but after the slump in 1930 they ceased to pay any dividends to their unfortunate shareholders. However, the stores—the rails, locomotives, and so on—continued to be ordered in this country,
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merely because they were still in British ownership, and we had British engineers. Eventually we sold them; and once we had done that, the bias in favour of British stores vanished, and business tended to go to America, Germany and other places. It is British engineers, who pin their faith on British engineering stores who have helped so much to maintain our export trade. The same applies to mills, plantations, and everything else.
The present Government are great believers in planning, and I understand that one of the planning departments has informed us precisely how much labour we shall be short of a number of years hence. Has that same Department made a survey of the raw materials, and decided how many raw materials we shall want in those years ahead; and whether we are going to have to buy them in the open international market, or whether we shall be able to obtain them through our own companies operating overseas?
Listening to this debate, I think that the Government of the day have had a greater lambasting than I have ever heard any Government of the day receive before. Only one Back Bencher came to their rescue—and I might add, I hope not too unkindly, that his speech rather reminded me of those unhappy days in my youth when I was placed in front of a pile of blank paper and told to write a five-page essay, though I had only half a page of facts in my head.
THE EARL OF LONGFORD: My Lords, I may exchange memories with the noble Lord, I think he has been in this House rather longer than I have, but he must recall the debate on university policy a year or two ago when everyone, including the noble Lord, Lord Boothby, and all the Independents joined in denouncing the Government, and they had only one Minister and no Back Benchers to defend them.
LORD HAWKE: My Lords, I am delighted, for the noble Lord's sake, to find that he is not making a record to-day; still my heart bleeds for him, and the noble Lord, Lord Shepherd, whom I am sorry to have missed.
Why have the Government done this? The trouble is that they have a latent Achilles heel in their great penchant for listening to the witch doctors. The witch doctors of the modern world are the

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economists who sit in their ivory towers brooding over the measures which they would take to put the world right. They are frantic for power to put these measures to the test, and a Labour Government, I am afraid, has given them too much opportunity to try out their pet theories on us.
King's College, Cambridge, is renowned for its school of economists. The greatest economist I think we have ever had, the late Lord Keynes, came from there. It is my old college. For three years I lived in the basement of these ivory towers, and I discovered that, however profound was the knowledge of economics and economic history of these great men, it was rarely matched by their perception of the actions and reactions of the more ordinary citizens. Yet it is these actions and reactions which, in the long term, determine economic practice. In the debate on the Address I suggested that the majority of the country was anxious to give the Labour Government a run for their money, as I expressed it. I suggested that they should not take their economists too seriously; but that, I am afraid, is precisely what they have done, and that is why I think they have put things in such a awful pickle.
7.17 p.m.
LORD ERROLL OF HALE: My Lords, I am sure your Lordships will agree with what I am about to say—namely, that we have had a most interesting and well-informed debate. Whether it is fair to say, as the noble Lord, Lord Hawke, has said, that this is the worst time the Government have had for many years, I do not know, since my experience in your Lordships' House has been limited to a matter of only a few months; but certainly for me it has been an education to discover the breadth of informed knowledge and opinion which can be brought to your Lordships' House on an occasion such as this. I am sure that we are all, including the noble Lords on the Benches opposite, who may not like what they have had to listen to, desirous of congratulating the noble Lord, Lord Aldington, for the initiative which he has taken and also for giving us such a first-class speech in opening the debate this afternoon.
In listening to the debate I felt that a number of noble Lords tended—not
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that it matters very much—to mix up the arguments about two different Government announcements which have been made, one concerning exchange control and the other concerning the creation of the new corporation tax. I think it might he worth while separating those two matters, because we have never spoken against exchange control. It is more a question of the severity with which exchange control is operated, particularly on existing private investment. The Chancellor of the Exchequer announced that he was going to initiate measures under the existing control legislation to encourage firms to bring back dividends to this country of a rather higher percentage than before, and they were going to be encouraged to repatriate funds which might be lying with overseas subsidiaries abroad, so as to afford a temporary relief to our balance of payments and to help our gold and dollar reserves. This is, I hope, essentially a series of short-term measures. In this connection, I would only say that I hope any firms which respond to this appeal and bring back idle funds from abroad will be allowed to export them again, without any difficulty and with the minimum of formalities, when they are once more required overseas.
Also in the field of exchange control the Chancellor of the Exchequer announced that there would be very stringent tests applied to ascertain that the investments would be profitable in the short term, much more profitable than many such investments have been in the past. Over all this old and new investment the Chancellor of the Exchequer has now imposed the device of the corporation tax, which will create a permanent bias against investment abroad in the future, both existing and new, and many of the noble Lords who have spoken in this debate have given factual detail in support of the case against the Chancellor's measures. A number of noble Lords have referred to the Chancellor's statement about bias, and the noble Earl who is going to reply, in an intervention, indicated that he would explain exactly what the Chancellor meant, even if it was not exactly what he said, although, as my noble friend Lord Chandos pointed out, the occasion was a Labour Party rally, when, of course, the elastic is somewhat stretched.
THE EARL OF LONGFORD: My Lords, I leave the other point for a moment or two, but the noble Lord said that I said that I was going to explain that the Chancellor meant something different from what he said. I was not trying to say that. If I said that, I must have said something different from what I meant.
LORD ERROLL OF HALE: My Lords, all my noble friends and I will look forward to hearing exactly what the noble Earl is going to say when he replies. But, of course, the Chancellor did say (and here I am using the indirect form of speech) that he was only bringing this country into line with others. I do not know what other countries—certainly not Hungary, because Hungary is not a notable overseas investor. Maybe there has been a bias in favour of overseas investment, but as regards portfolio investment as distinct from direct investment. Perhaps the noble Earl will deal with that point when he comes to reply.
Has there, indeed, been a bias in favour up to now? It certainly is arguable. I would recommend noble Lords, if they have not already read it, to read the excellent article by Mr. Davies in the Investor's Chronicle of April 15, where he comes down clearly against the concept of a bias in favour of overseas investment and sets out a series of examples showing that there is no such bias at present. But, whether there is or is not, I believe that there ought to be a bias in favour of overseas investment because of Britain's unique position in the world of trade and commerce. Most certainly we are not like other countries in this matter. My noble friend Lord Aldington, in the course of his speech, referred to the vital need for us to secure supplies of raw material from countries abroad, and my noble friend Lord Chandos also referred to this point. As he remarked, we have virtually no industrial raw materials, apart from a little iron ore of low ore content and some china clay.
During the course of the debate this afternoon, I have been wondering to myself why the Government have so acted. In the face of all the evidence produced by noble Lords this afternoon, what can have induced the Government to have behaved in this way? My noble friend Lord Polwarth suggested that it
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was probably ignorance, and said that he was prepared to give them the benefit of the doubt. I, myself, think that it is a combination of ignorance and distrust of British overseas investment. By distrust, I am thinking particularly of the unhappy experiences of the previous Labour Government in the field of overseas investment. They had the groundnuts scheme, the Gambia poultry scheme and then the devastating experience of that well known loss-making organisation called the Colonial Development Corporation, which we managed to put on a satisfactory basis after a number of years.
LORD SHEPHERD: My Lords, the noble Lord may permit me to give another loss-making experience, one of the previous Administration—the Malta Dockyards.
LORD ERROLL OF HALE: My Lords, I am glad to look at that, and to see that the noble Lord has apparently been doing his homework. Malta is an entirely different case, of course, because public money was not involved.
LORD SHEPHERD: My Lords, I suggest that the noble Lord should look at the circumstances, and he will find that it was public money that was entirely involved.
LORD ERROLL OF HALE: I must not take up your Lordships' time on this red herring. We must also face the fact that there is an element of distrust on purely doctrinal grounds—distrust of shareholders; but we must remember that it is they who provide the risk capital and, after all, it is they who ultimately provide the money, whether it be corporate risk capital or individual subscription, for future investment overseas.
As regards ignorance, I think that time can change that. Every Government, after it comes into power, learns many things which it did not know before. I am glad to learn from the noble Lord, Lord Shepherd—I am delighted to see that I am amusing him so much—that he will bring to the notice of the Chancellor the contents of this debate. I very much hope that the Chancellor himself will have time to read the debate and see the strong and weighty case which has been brought out this afternoon. I hope the Government will learn from it.

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I hope, too, since so many Ministers are travelling abroad—we did too, and I am glad that they are doing so—that they may manage, in the course of their visits, to spare a little time to see examples of British private enterprise operating in the countries they visit. I have in mind particularly the Minister for Overseas Development, Mrs. Castle. I would ask the noble Earl if he could tell your Lordships whether she has visited any example of British private enterprise in the countries which she has toured. We have seen some charming photographs of her in the newspapers holding a native baby—I beg your Lordships' pardon, a juvenile indigenous citizen—in one case, and looking at a native calabash in another, but I should like to be sure that she was also seeing what British private enterprise in the newly developing countries is doing to help those countries with the very aspect of development which are her concern—the apprentice schools, which are set up to train young men and women in a variety of skills which are very much needed in those countries, in the experience of office routine and the maintenance and operation of workshops. All these are skills and arts which these developing countries are heavily in need of, and British private enterprise operating abroad is often able to provide them in a way in which they could not be provided by State agencies.
The noble Lords, Lord Byers and Lord Boothby, both referred to the letter of Major General Spears in The Times of April 26, but I think it such a striking example that it is worth while taking up the time of your Lordships' House by quoting one or two sentences from it. He writes:
"Since before the war, we have raised no new capital in the United Kingdom, either from the market or from shareholders. Nor have we borrowed,...We have, therefore, made no demands on United Kingdom Capital resources…
"In the past five years we have produced gold bullion realising over £26 million,…
"We have promoted British exports by buying mining machinery and stores costing over £4 million.
"We have contributed nearly £15 million to Ghana's resources, in wages, locally purchased stores and tax revenue. Not only have we given employment to many thousands of Ghanaians but we have trained them in skills which no technical aid programme could accomplish at five times the cost."
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I now turn to the question of private investment overseas helping exports. My noble friend Lord Chandos referred to what the I.C.I. is doing in this matter. The noble Lord, Lord Shepherd, suggested that what is being done cannot be quantified, but I should like to put it to him that, though it perhaps cannot be quantified, that does not mean that it is unimportant or insignificant, and I am sure that the officials serving the Government could get an approximate estimate if it was at all desirable to do so. The fact is that many developing countries impose strict import controls to conserve their scarce foreign exchange. What they have they use to encourage local manufacturing investment. For a British employer setting up in one of these countries it is not a question of getting a money dividend from the investment, though he would naturally try to do that if he could it is a way of maintaining and increasing direct exports from Britain.
In my own travels in different parts of the world as one of Her Majesty's Ministers, I came across many examples of this in different countries, and particularly in Latin America, where my noble friend Lord Carrington referred to the decline of our influence. There are some examples where we have done particularly well; and if we have not done as well as others have, it is because the Germans, the French and Italians, and now the Japanese, have been going in for a far higher level of investment in Latin American countries than we have been doing.
Perhaps I may give your Lordships one example: it is in the field of consumer goods. A well-known English record-player (that is the modern jargon for a gramophone) manufacturing company used to export record players to this Latin American country. They decided to set up a firm to manufacture the machines locally, and after a couple of years they found that they were exporting from their English factory a far greater volume of components to the factory in the country concerned than they had ever succeeded in exporting by way of complete units before they began local manufacture.
There was no question of sending a cash dividend back from Mexico. They were securing an ever-increasing volume in their exports direct from this country.

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This will continue, because as the product becomes more sophisticated, more new components will flow to the Mexican factory, and new channels will thereby be set up. If they had not done this, an American firm would have come in and, import controls being what they are in Mexico, no British record players at all would have gained admission into that country. I give that case just by way of example; and there are many other examples to be found all over the world that direct investment does lead to a substantial increase in British exports, or prevents the shutters being put up against British firms.
I listened carefully to what the noble Lord, Lord Shepherd, had to say about our share of world exports. He suggested that the £4,000 million of investment over a long period—I am not sure what it was—
LORD SHEPHERD LORD SHEPHERD: Ten years.
LORD ERROLL OF HALE: I am obliged. He suggested that the £4,000 million of investment over a period of ten years had only had the effect of reducing our share of world trade from 20 to 13½ per cent. That is a most unfair way of putting it; and I am sure that if, after the debate is over, the noble Lord will consult with the appropriate officials he will see that the picture is very different. During the five years from 1959 to 1964 our exports went up in value by an annual rate of £800 million. During the period of ten years I should imagine that the increase in our exports has totalled a far greater sum than £4,000 million of overseas investment.
LORD SHEPHERD: I did not wish to be unfair about this. What I was trying to argue—and perhaps the noble Lord can explain—was why, when we had invested this large sum of money (and I think the noble Lord will agree that it represents a far higher rate of investment than has been achieved by many other industrial countries in Europe) other countries have been able to increase their exports to a greater extent than we have.
LORD ERROLL OF HALE: I was coming to that, quite briefly. Of course, the other countries started practically from zero. We were already exporting
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in 1955 at a much higher rate. Immediately after the war the Germans and the Japanese were spending their time rebuilding their economies. On a percentage basis, it was understandable that they would appear to leap forward once they could start exporting again. But we were already exporting at a high rate, without the reserves of labour of the Japanese nation and without the reserves of labour crossing from East Germany to West Germany. As I say, it was understandable that their percentage rates of world trade should increase, while ours should appear to decline. But it is necessary for the noble Lord to appreciate that world trade was expanding, and that we were getting more in total value of exports, although the percentage may have been declining. If it had not been for investment on this scale, I am sure that our percentage would have declined still further.
I was glad to hear my noble friend Lord Polwarth refer to the British insurance industry; and examples have been given from the field of mining, particularly in the vivid speech of the noble Lord, Lord Byers. I want to say a word or two about the British-controlled oil industry. Why is it that Britain should have a world-wide oil industry, whereas Germany, for example, another great industrial country, has not? It all started with the shale oil industry in Scotland, and because of the Scots' experience in refining shale oil their friends and neighbours who went over to develop trade in Burma realised that something could be done with the primitive oil deposits in Burma. Hence the Burmah Oil Company, which to this day is registered in Glasgow. But it was the Burmah Oil Company, in expanding its interests, that explored deposits in Persia (as it was then called), and that is why we have the great British Petroleum Company.
This was entirely a matter of British initiative and British private investment overseas. More crude oil and refined products enter into world trade under British control than under that of any other nation. We have practically no indigenous oil deposits, and this position has arisen because we have encouraged overseas investment all along the line. Other nations are rightly jealous of our good fortune and foresight. They wish that they could have the same advantages

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that accrue to us for their own economies; and it is easy to see why.
In 1964 British Petroleum's overseas trading in oil contributed £42 million in foreign exchange to the British balance of payments, after allowing for all the group's new investment abroad. Moreover, the oil that British Petroleum imported into Britain cost only £36 million in foreign exchange, against the £60 million, or more, that it would have cost if purchased from a foreign company. The other great British oil organisation, though partly Dutch-owned, is Shell. For the ten years 1954 to 1963, inclusive, the world-wide operations of Royal Dutch/Shell resulted in currency gains which were sufficient to meet in their entirety the group's requirements for overseas expenditure, including new investment. In addition, these operations supplied the United Kingdom with over 30 per cent. of its oil requirements, valued at about £1,000 million, at a cost of only £40 million in foreign exchange.
Moreover, both these companies have to meet and successfully overcome fierce international competition from all over the world, and particularly from American companies. The effect of the corporation tax—and this is the point that I want to make in connection with the oil industry—over a period of years will be to make it more expensive to raise new capital and more difficult to re-invest retained earnings, or a combination of the two. Alternatively, they will have to slow down their operations or divert new schemes, particularly in the developing countries, such as Nigeria, and in the Middle East.
The severity of the tax burden was brought out in a table in the Economist on April 24 last. It showed that British Petroleum in 1964 suffered total taxes on income of 61 per cent. Corporation tax at 40 per cent. of the same retention will mean total taxes of 66 per cent. And if the Company pays the same dividend to the shareholders, taxes will amount to no less than 70 per cent. A comparable United States company, on the other hand, with profits before tax of 100, would pay total taxes on income of only 41 per cent. There was already a tax disadvantage for a British-controlled oil company. The effect of the corporation tax will be to
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make the difference all the greater, and to the disadvantage of the British companies, who will find it much harder than in the past to maintain the great benefits for the British economy which I have just mentioned.
I do not wish to detain your Lordships long. I notice that The Times has been particularly favourable towards the Government, indeed I think most of the Press has been, since the Election. I was interested to see that The Times, never much on our side, had a cold, hard look at the Finance Bill when it appeared on April 27. In a powerful leader on April 28, it concluded a well-argued and well-reasoned leader with the following sentence:
"It is the sheer technical, administrative incompetence of the Government that worries most."
Perhaps the noble Earl who is to reply for the Government will be able to show that The Times in this case, as in so many other cases, is wrong.
7.41 p.m.
THE EARL OF LONGFORD: My Lords, we are all very grateful to the noble Lord, Lord Aldington. It does not fall to my lot in my temporary office to distribute prizes or allot marks, but I think we all recognise that he is one of the best speakers here and that he has a great contribution to make, as to-day, on these matters. May I thank the noble Lord, who spoke so delightfully just now, for one or two things, including giving me time to look up the record for the Minister of Overseas Development. I am sure that he will join with me in hoping that she is restored to health, because I saw that she was not well.
The noble Lord seemed, rightly, to attach a lot of importance to what The Times says. He may also have read the report in The Times of the debate when the Chancellor of the Exchequer wound up on the Finance Bill. He may recall that, after the House of Commons had thoroughly discussed this matter, and all the arguments had been deployed in one way or another, the Chancellor wound up with what The Times described as a "personal tour de force". They went on to say that the Chancellor dominated the debate. So we can all quote The Times to prove that our side is in the right.

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The debate has been long and interesting. I realise that not agreat many of my colleagues have stayed behind—but not, I believe, applying the principles applied earlier to the ancestor of the noble Lord, Lord Carrington, who was a banker and, apparently, for that reason that dispersed the House. As one noble Lord was kind enough to say, I have been a banker, and if the House has not exactly fled at my approach, they have not exactly come back to hear me, so traditions in this House die fairly hard. But it is a pleasure to reply to this debate, and if it is argued that we might have had more speakers I can only take it as a personal if temporary vote of confidence in myself and my noble friends Lord Shepherd and Lord Francis-Williams, that we are able to look after the Government without further assistance.
We have listened to a number of noble Lords who, in counting houses, count for a great deal, if I may put it that way. We have listened to some of the leaders of industry for whose presence I pleaded the other day in the course of the debate on House of Lords Procedure. Now they are here, I am not sure that from every point of view one has reason to be grateful, because they are rather critical. We can regard them as very knowledgeable, but I am afraid we do not regard them as very dispassionate. I need not begin imputing motives as an old banker. I know there is such a thing as the atmosphere of finance, and the atmosphere of industry, and those who live in it see things a little differently from those who do not. If in addition to that they are Conservative politicians we do not expect a very judicial appraisal of the policy of the Labour Government.
LORD BOOTHBY: My Lords, the noble Earl is not describing me as a leader of industry is he? I only wish I were.
THE EARL OF LONGFORD: I would describe the noble Lord as a potential leader of industry. I think if foreigners were brought to this House and asked to pick out a noble Lord who looked like a leader of industry, they would certainly pick out Lord Boothby.
LORD HAWKE: Does that mean that the noble Earl has him in line for head of the Steel Board?
THE EARL OF LONGFORD: I have not got any control over these stratospheric positions, but I can think of many worse. I say that, of course, without commitment, but if the noble Lord chooses to draw encouragement he is entitled to.
We have listened to leaders of industry, including those who have held high office; a past Lord Chancellor, and a past Chancellor of the Exchequer. I must say straight away that my own Chancellor of the Exchequer will pay great attention to what has been said. To suggest that he is going to be influenced by it is perhaps beyond my province, but he will study what has been said. This House is aware that the Finance Bill is receiving its Second Reading in another place on Monday, so that apart from anything else, old Ministers opposite, and others, will not expect me to say anything very striking, ahead of what the Chancellor will say on the Second Reading and other stages of the Finance Bill.
I think I must add one more point, and I hope I can do it in an amicable spirit as one who has served in business. The noble Lord, Lord Polwarth, and the noble Viscount, Lord Bridgeman, said that one must make no apology if one speaks on behalf of an interest. Of course, this debate has been very striking for the number of noble Lords who have quite rightly said at the beginning that they are speaking with a strong business interest.
VISCOUNT BRIDGEMAN: My Lords, may I say this to the noble Earl? I did not say I apologised for speaking on behalf of an interest. I said I did not apologise for declaring an interest, which is not quite the same thing.
THE EARL OF LONGFORD: I apologise for misrepresenting the noble Viscount, but I understood him to say that he was not apologising. I think I got that right, but I should not have used the expression "on behalf of an interest," because I realise he did not import that phrase. We all know each other very well here, and we may as well put our cards on the table. The noble Lord, Lord Polwarth, said that if one knows about a business one has a valuable contribution, but one may well be biased in favour of the business that

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gives one a livelihood. That is true of somebody who is already a millionaire and is about to retire. I am not suggesting one is trying to make money out of one's occupation, but it is the atmosphere in which one lives and the views of one's colleagues and one's general desires. These factors are bound to affect one's outlook, just as those of us who lived in Christ Church as dons in the old days, including very old friends like Lord Cherwell, were agonised, and still are, at the thought of driving a road through Christ Church Meadows. This comes into many of the discussions here, but it has been very striking; I must say that clearly to-day.
I will not look in a general way to the remarks of noble Lords, except to say that for the most part they were technical and learned within their fields, but every now and then they suddenly became very violent. Words like "barmy" were coming into technical briefs. I am not objecting, because in a sense the debate might have become rather dull without a few epithets being thrown into it. But there was a striking contrast between the epithets and the technical reasoning. I am not going to return these compliments, but I will say this. We on our side must repeat that the noble Lords opposite—they are not alone—left this country in a terrible economic mess, and we are trying to clean it up. There was this record deficit. Noble Lords did not make reference to that; they will no doubt be leaving that to me. There was this tremendous deficit of £750 million last year, and half of that arose from investment overseas.
The question that must have confronted any Government in that situation, and must have confronted the last Government if they had continued, was whether they could go on or whether one had to take drastic steps to stop this overseas investment. It would be unfair to say that noble Lords have denounced all attempts to curb overseas investment in the short run. I think some of the arguments were rather inconsistent with any drastic curbs. but the noble Viscount, Lord Amory, and the noble and learned Earl, Lord Kilmuir, and others, have recognised that there was a need.
LORD CARRINGTON: My Lords, if I may interrupt the noble Earl, he is
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misrepresenting what has been said in this debate. I think every noble Lord who has spoken has said that he recognised that the Government must in the end be in control of our overseas investments. Really, the noble Earl is putting up ninepins and knocking them down for his own amusement.
THE EARL OF LONGFORD: Between us we seem to be amusing the House. We must at any rate try to clear up this point, because noble Lords have waxed lyrical at different times about the virtues of overseas investments. If the virtues were so obvious and universal it would always be wrong to interfere. I am saying it is clearly a matter of judgment. There is a lot of shaking of heads and wagging of beards.
LORD BOOTHBY: There are no beards.
THE EARL OF LONGFORD: I was talking of spiritual beards. But this must be faced. Our overseas investment was described by many noble Lords in terms that would make it seem positively evil to cut it down, whereas in other parts of their speeches they said it must be reduced. We share with noble Lords what I think is their prevailing view, that this must be looked at in perspective.
LORD BYERS: My Lords, may I interrupt, because this is unfair? I think practically everybody drew a distinction between temporary control and permanent penalty, and unless one can get that difference absolutely clear we are not going to get anywhere.
THE EARL OF LONGFORD: I shall be coming to that. I hope the noble Lord will allow me to try to clarify the issue.
LORD BYERS: That is one of the issues.
THE EARL OF LONGFORD: Yes, and I am trying to clarify it in dealing with the long-term question. There was this problem which had to be tackled in various ways, short-term and long-term. We agree that something had to be done. If overseas investment was always valuable and the more the better, so to speak, one would not cut it down even in the short run; but the noble Lords agree it

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has to be cut down in the short run in this case, so they agree it is a matter of judgment whether in a particular situation you ought to have more or less overseas investment. In other words, it is not an absolute good.
Perhaps I may pass on to one or two points made by noble Lords. I can reassure the noble Lord, Lord Boothby, on one point. He said he hoped that the Chancellor of the Exchequer would begin looking very clearly and very urgently at our Government overseas expenditure; I think he particularly had in mind military expenditure. I think he was probably away when we had the Defence debate recently, when, if we said nothing else, we kept emphasising the fact that a full-scale review of overseas military expenditure is going on, the results of which we hope will become manifest before the end of the summer. I think he can take it the Treasury will not be the only Department in control of that review, although they will be playing a vital part in it.
The noble Lord, Lord Byers, if I may say so, was good enough to support the corporation tax, and for that I am deeply grateful. Re raised, as did other noble Lords, some fairly technical points that can perhaps hardly be handled this evening. Can I say clearly to noble Lords that, amidst the general give and take of what might be called broad political debate, there were some highly technical points raised which I do not feel I could reply to to-night, and which should be replied to either by the Chancellor of the Exchequer in these debates or elsewhere or, if the noble Lords wish, by letter. I do not want to talk to noble Lords who are perhaps as well versed in these matters as anyone alive, as though all these issues could be brushed aside immediately by a few moderately lighthearted remarks at the Dispatch Box.
May I come to one or two points of which the noble Lord, Lord Erroll of Hale, was good enough to give me notice? He asked whether the Minister of Overseas Development visited any examples of private enterprise on a visit to India. I can assure him the Minister visited the largely British A.V.B. (Associated Cement Company of India), in Durgapur, which makes cement-making and steam-raising machinery, such as boilers. In Tanzania she met representa-
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tives of British businessmen, and in Calcutta she met representatives of the Associated Chambers of Commerce. I do not think she exhibited any bias, to use the fashionable word, against British business overseas.
Noble Lords will forgive me for saying that, naturally, there were certain issues which were laboured, quite properly and obviously, by more than one noble Lord. The noble Lord, Lord Erroll of Hale, for example, raised the question of factories in foreign countries, and the noble and learned Earl, Lord Kilmuir, raised the same question. Here again, I hope I shall give a balanced answer. Clearly, such a factory can be of the utmost assistance to our export trade, and it would he childish not to say that, and we must be grateful to those who have set up these factories. We recognise, therefore, that the point made by the noble Earl, Lord Kilmuir, and the noble Lord, Lord Erroll of Hale, is an important one.
We point out that the exchange control policy on direct investment outside the sterling area, under the new rules, as under the old, is explicitly designed to favour the good export case. But the impact of corporation tax is not, and could not be, selective in a way that exchange control policy is made selective, and some overseas investment will he deterred. That is, frankly, the object: that some overseas investment will be deterred. But noble Lords are naturally entitled to ask whether the right overseas investment will be deterred, and as to that one cannot be absolutely sure.
I was interested in the suggestion implicit in more than one speech from noble Lords opposite, and put quite clearly and sharply by the noble Viscount, Lord Chandos, that it would have been better to use the capital issues machinery, to have had a selective machinery. I think that is a matter of argument, whether that would be a better way of restricting overseas investment than the tax. It is not a point on which one could or should he dogmatic. This method has been adopted, and I think the noble Lord, Lord Erroll of Hale, and others will do me the credit of saying that the method of using the tax for this purpose is not a particularly Socialist one. If anything, you would say that a method of selection, choosing, some official deciding—if we were going

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in for dogma—would be closer to what is supposed to be our dogma. But we certainly have not adopted a method which might be thought to be the most obvious in view of our Party reputation.
The noble Lord, Lord Erroll of Hale, the noble Earl, Lord Kilmuir, the noble Viscount, Lord Amory, the noble Lord, Lord Hawke, and, in one way and another, I think perhaps almost all noble Lords, came back to this criticism that even if we were going to restrict new investment it was wrong to take any steps which affected existing investments. Perhaps there are two things that should be said there, and one takes me on to the point raised just now in an intervention by the noble Lord, Lord Byers. We are, of course, as we all know, reforming our company tax system. We are doing so on lines which the noble Lord, Lord Byers, at any rate approves, though I think most other noble Lords who have spoken are not particularly favourable to it. But that is not a Party doctrine.
I do not think anybody has come forward and said that the corporation tax is obviously associated with the Labour Party. I do not see any Party link between the corporation tax and the Labour Party. I do not think anybody would argue that. It does, in fact, bring us much closer into line with most other industrialised countries, and it would be quite inequitable—I submit this seriously; it was a point touched on by more than one noble Lord—as well as impracticable, to have two tax assessments, one for new investments and one for old. The noble Lord, Lord Hawke, and the noble Viscount, Lord Bridgeman, will perhaps agree with that. So if we are to have a new kind of tax, it has to be a tax which falls on old and new alike.
But I should like to try to put this in further perspective, in dealing with the point that has been brought up by those noble Lords I have mentioned—perhaps the noble Viscount, Lord Amory, and the noble Earl, Lord Kilmuir, stressed it most. We are not concerned only with the immediate future. It is not just a question of getting the balance right in the next year or two, although that was left us as a most urgent task. We have heard more than once what the Chancellor of the Exchequer said earlier: that
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during the last ten years, while we have on the average earned about £25 million a year on our current account, we have invested, net, abroad, in all forms, private and official, an average of £170 million a year. I do not think that will be put right by what are called purely temporary measures; there is a long-term adjustment to be made there. Coincident with that there is the introduction of this corporation tax, which we regard as desirable on other grounds; and we have, quite frankly, found it convenient to use this method of taxation to assist with getting the long-term problem right.
I hope that I am now answering the point of the noble Lord, Lord Byers. In his intervention he asked about the long-term use of the corporation tax. If you look at the long-term nature, I must repeat what I said to the noble Lord, Lord Carrington, when he spoke of the transitional arrangements being negligible. My information, which I rely upon, is that out of the extra £100 million which will be paid when the corporation tax begins to work, there will be £65 million coming back for the first two years, and then it drops gradually, until, after five years, it has disappeared altogether. But that is, frankly, a long-term method of coping with the situation.
LORD BYERS: My Lords, may I intervene just to get that absolutely clear? It is the Government's policy to penalise companies with overseas interests as a long-term measure. That is what the noble Earl is saying—that it is a matter of Government policy that there must be discrimination against a company which is operating overseas, as a long-term measure.
THE EARL OF LONGFORD: My Lords, I do not know what words one might use. I have not imported the word "penalisation". The noble Lord said, working himself up as he proceeded with his intervention, that they would be penalised. I never said any such word.
LORD CARRINGTON: My Lords, may I interrupt? If it is necessary, because of the hardship, to have some transitional arrangements, and then, after the transitional arrangements are over, the hardship still exists, surely that is penal. How can one get over that?
THE EARL OF LONGFORD: Well, the noble Lord uses the word "penal". If one likes that word, that is a completely legitimate word. But in my view of the future, the balance of advantage will not necessarily be in favour of home investment as compared with overseas investment.
Do not let us get too violent too quickly, because the noble Lord, Lord Erroll of Hale, actually said (I was going to put this to him in a way that I hope will not be awkward) that he thought that overseas investments ought to be given an advantage as compared with home investments. That is penal treatment of home investments—I give way.
LORD ERROLL OF HALE: My Lords, I am much obliged to the noble Earl. In the sense in which the word "penal" was used by the noble Lord, it is a penal treatment of home investment over overseas investment. But I think the bias should be in favour of overseas investment.
LORD BOOTHBY: My Lords, what benefit does the noble Earl think that it is going to do this country to penalise overseas investment? It is madness.
THE EARL OF LONGFORD: My Lords, I hope I can speak freely, now that words like "madness" are flying about. I hope I can say that to use that word in this connection is, in my opinion, fatuous. However, perhaps we can move on.
LORD POLWARTH: My Lords, may I just ask the noble Earl this question? Leaving out the word "penal", would he agree that, where a British company are operating in close competition with their foreign competitors, say in the United States of America, and are faced with a permanently increased tax burden, they will then be at a disadvantage compared with those competitors?
THE EARL OF LONGFORD: My Lords, I am assured that they will not be. It is a different question. May I proceed a little, because at the moment I am doing about 25 per cent. of the talking. May I develop the argument a little further?
There has been a general agreement that something had to be done about
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overseas investment. I am not sure whether there has been a general agreement that something had to be done in the long term. Perhaps the noble Lord, Lord Aldington, will deal with it in his final remarks. I am not sure whether there is recognition that there is a long-term problem here to be dealt with. But at any rate there has been a feeling in the House, expressed by many noble Lords, that if any steps had to be taken, some kind of exchange control was tolerable but that the corporation tax was a bad way of tackling this problem.
May I point out one thing?—perhaps it was too much to expect that it would be raised by members of the Opposition to-day, although the noble Lord, Lord Boothby, who is a kind of umpire, leaning occasionally a little to the Left, might have thought it worthy of his notice. In fact, there is a fundamental change being introduced in our system. It is not being introduced for Party reasons. As I suggested just now, it is not being introduced in such a way as to impose a harsh burden on companies as a whole. Some companies will gain and some will lose. To-day, we have heard from some of those who may be unlucky; we have heard only from companies who are going to lose.
LORD BOOTHBY: It is the overseas companies.
THE EARL OF LONGFORD: There are other noble Lords who might have come down and told the House that this was an excellent thing and that their companies would gain. In fact, some companies will gain while some will lose. Some who have become accustomed to distributing big dividends, if they continue in the same way, will lose, as compared with those who have distributed smaller dividends. But if we are talking about £100 million, in the long term, being lost by one group of companies, £100 million is being gained by another group of companies. So the Labour Party are not setting out to mulct or destroy British industry. Some gain, some lose. After all, that is true of the way—
LORD BOOTHBY: No; it is a shame.
THE EARL OF LONGFORD: My Lords, in spite of his physical movement, I think that the noble Lord is now on

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one of his temporary Right-Wing metamorphoses. But if we take the tax system, we are aware that almost every Budget involves gains to some and losses to someone else. At this time smokers are losing as compared with non-smokers. That is an excellent thing. I have never smoked, and I am happy to think that they are losing. We can sustain ourselves with the thought that it is actually good for them to lose. That is a case of one class in the community losing and another gaining. Even in the narrower field that we are more concerned with to-day, one recollects that, in 1957, the O.T.C. legislation relieved a certain group of companies of a burden which then had to be assumed by the taxpayers as a whole. Some gained a little and others had to pay for it, although that was on a smaller scale. Nevertheless, I realise that this is a major shift, and hence we have seen the recognition by the Government that help must be given during a considerable transitional period.
As I draw towards a close, I would repeat what the Chancellor of the Exchequer said at the week-end. I thought that his speech would have encouraged some—but no, that has not turned out to be the case. He said:
"I take no exception to the present campaign by various large companies and industrial organisations who have invested overseas and are affected by the new corporation tax. If they have representations to make I shall listen to them, and there will be plenty of opportunity to debate them in Parliament in the coming weeks."
So I do not want to imply that his mind is shut against all further argument. But, standing here as I do, four days before the Second Reading of the Finance Bill in the other place, I do not think the House will expect me to announce any new concessions.
The question of bias in its various forms has been running through our discussions. I myself distinguished several senses in which the word has been used, and I do not intend to become dogmatic for these last few minutes. In certain respects, at the present time overseas investments receive a bonus compared with home investments, even if one takes the point of view of the individual investor. In wider respects, if one is thinking of the country as a whole and if one accepts the argument that in the case
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of home investment we profit from the tax while in the case of overseas investment the tax goes to another Government, one would say that from the social point of view, as distinct from the point of view of the individual, our system is noticeably biased in favour of overseas investment.
It is difficult to generalise or dogmatise because, if one begins to talk about comparing this country with others, one is talking about countries with all sorts of scales of tax. I am advised that, on the whole, we have been very generous in the past. I do not think we have said that we were more generous than everybody, but far more generous than many countries, and more generous than most countries, to overseas investment in the past. In the future I am advised we shall be roughly in line with other countries.
LORD BYERS: Nothing like.
THE EARL OF LONGFORD: Noble Lords have their opinions, but I am speaking on the advice of experts. With the greatest deference, I do not think there is any Member of the House whose advice on this point would be more convincing to me than the advice which I have received—I must say that. And to noble Lords who think they know better than the experts who have advised me, all I can say is that they have more self-confidence than would come my way in such a situation.
LORD BYERS: My Lords, is the noble Earl really saying that we are moving closer to the tax system of the Common Market countries?
THE EARL OF LONGFORD: We are moving closer to the tax system of almost all the industrial countries of the world. I am talking not of rates, but of the system. The noble Lord, Lord Byers, shakes his head. I must leave it there.
LORD BOOTHBY: My Lords, when the noble Earl refers to experts, is he talking about the Treasury? They are a major disaster. If he is talking of the Treasury as experts, well, you can wash them out altogether.
THE EARL OF LONGFORD: If the noble Lord asks me whether I am

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referring to the Treasury, may I say I have the greatest confidence in the Treasury.
LORD BOOTHBY: Oh!
THE EARL OF LONGFORD: If he wants me to particularise, I hope I shall have him with me if I say that in what I have said I am referring to the Inland Revenue.
LORD BOOTHBY: Worse!
THE EARL OF LONGFORD: At any rate there is the situation, and I do not think further assertions by noble Lords, whose information, in my eyes, is inferior to mine, is likely to convince me. We are moving to a system of rates which is general elsewhere and I am advised that overseas investors in future will be about as well off as in other countries, speaking generally. It is not a matter on which it is easy or wise to dogmatise or to speak in general terms, but in a debate of this kind one is bound to do so to a certain extent. That is the advice which I have received.
The time has now come to conclude. May I repeat that, in my opinion—I am not now speaking of the views of experts but am speaking as a result of such study as I have given to this matter in the last few months—this Government had to take drastic action: not action confined simply to getting things put right in a year or two, but action which would alter the kind of relative advantage which we were giving to these two kinds of investors. I hope that the noble Lord, Lord Aldington, will not go away thinking that for some obscure and unexplained reason we are against overseas investment. We attach importance to it, but even good things must be limited; and in this situation, in the interests of the country as a whole, we had to set limitations on the lines which I have described.
8.17 p.m.
LORD ALDINGTON: My Lords, the noble Earl has so much affection from us all, and indeed respect for the quality of his mind, that when he has to make speeches like the one he has just made to us we feel very sorry and unhappy. Though he had a good reason for not giving us new news about Government policy because the Second Reading of the
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Finance Bill in another place is very near at hand, he seemed to me not to tackle, with that sharp cutting-edge which we know his mind possesses, the real arguments which had been put so forcibly this afternoon and this evening. When at last he came to recognise that there was a difference between the short-term problem and the long-term problem, he seemed to me to put before your Lordships a tremendous fallacy. He said that the longterm problem (and this is simplifying it, as he did) was that our current surplus has been low and our investment has been high, and higher than the surplus.
There are two ways of dealing with that. One is to cut your investment; the other is to increase your surplus. He did not mention the increase of the surplus, which surely is a matter of great importance. What has been said by so many noble Lords this evening is that if the Government pursue the corporation tax as it is now proposed, with its effect on overseas investments, they will affect the future surplus because they will reduce the future earnings. One noble Lord thought I was guilty of some asperity earlier this evening. I did not mean to be guilty of that, and I really have an affection and respect for the noble Earl, as I have just declared. But I beseech him to examine the problem again in the context of what has been a really great debate this afternoon and this evening.
THE EARL OF LONGFORD: My Lords, may I ask one question of the noble Lord? Does he recognise that there is a long-term problem which involves some shift of emphasis to home as corn-pared with overseas investment?
LORD ALDINGTON: Frankly, my Lords, I do not. I recognise that there is a long-term problem. We have all been struggling to improve the efficiency of the country and to get a bigger surplus on revenue account. Of course I recognise that. I thought that I had made quite clear in the course of my speech that I did not accept either that there was a bias in the tax system in favour of overseas investments, or that there was anything wrong or disadvantageous to the economy in having the kind of balance that we have had over the last ten years of overseas investments and home investments. So I am afraid I do not agree with the noble Earl there.

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There is one other point that I wanted to make about bias. The noble Earl spoke about the number of noble Lords who have declared an interest in this debate. I have heard the noble Earl himself declare his interest as a banker—and I think it is quite proper that he should. But I do not think we ever accused him of letting that interest befuddle his mind, or of taking his mind away from an objective approach to a problem. I am quite certain that I am speaking for all of my noble friends here, whom I should like to thank for having made this such a great debate. I am quite certain that we have all tried to be objective and to give our views of what is right in the national interest.
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Having said those things about the noble Earl, I should like to close by thanking both him and the noble Lord, Lord Shepherd, for coming to take part in the debate. I thank also my noble friends on the Front Bench on this side who have taken part, as well as my other noble friends, with their great experience. This has been a debate which I believe will influence Government policy. With those remarks I should like to ask the permission of the House to withdraw my Motion.
Motion for Papers, by leave, withdrawn.
House adjourned at twenty-two minutes past eight o'clock.