Lords Sitting of 26 May 1965

Preamble
The House met at two of the clock, The LORD CHANCELLOR On the Woolsack.
Prayers—Read by the Lord Bishop of Ripon.

LORD SIMEY
Thomas Spensley Simey, Esquire, having been created Baron Simey, of Toxteth in the County Palatine of Lancaster, for life—Was (in the usual manner) introduced.
LORD COHEN OF BRIGHTON
Lewis Coleman Cohen, Esquire, having been created Baron Cohen of Brighton, of Brighton in the County of Sussex, for life—Was (in the usual manner) introduced.

USE OF TRADING STAMPS FOR FRANKING MAIL
2.25 p.m.
LORD ERROLL OF HALE: My Lords, I beg leave to ask the Question which stands in my name on the Order Paper.
[The Question was as follows:
To ask Her Majesty's Government what steps are being taken to prevent the growing use by the public of trading stamps for the purpose of franking letters and postcards.]
LORD HOBSON: My Lords, inquiries have not brought to light any evidence to suggest that trading stamps are either being increasingly used, or indeed used on any significant scale at all, in the way the noble Lord mentions. The Post Office's usual practice is to surcharge with double the deficient postage a postal packet bearing an adhesive label instead of a postage stamp; and my right honourable friend thinks this provides all the safeguard that is needed.
LORD ERROLL OF HALE: My Lords, while thanking the noble Lord for his reply, would he not agree that
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the present shortage of postage stamps is an added inducement to use trading stamps instead of postage stamps? And, secondly, is it not the case that automatic cancelling machines are unable to distinguish between a postage stamp and a trading stamp?
LORD HOBSON: My Lords, the answer to the latter part of the question is obviously, Yes. The subject of the first part of the question hardly arises.

COMPOSITION OF INNER LONDON QUARTER SESSIONS
BARONESS WOOTTON OF ABINGER:My Lords, I beg leave to ask the Question which stands in my name on the Order Paper.
[The Question was as follows:
To ask Her Majesty's Government what steps have been taken to implement Section 7(5) of the Administration of Justice Act, 1964, under which the legally qualified chairman of a court of quarter sessions for a London commission area should sit alone only if no other members of the court are available.]
THE LORD CHANCELLOR (LORD GARDINER): My Lords, Her Majesty's Government are not aware that any difficulty has arisen in implementing Section 7(5) of the Administration of Justice Act, 1964, anywhere in the country save in the case of the Inner London area where many of the justices have indicated that, owing to the increase in their work which has occurred recently, they are unable to attend quarter sessions in addition to sitting in their pettly sessional courts. In order to deal with this problem I have just appointed an additional 40 justices to the Inner London Commission and I propose to appoint a further 50 as soon as suitable candidates can be obtained. I hope that this will ensure that the courts of quarter session in Inner London will normally be composed of lay justices in addition to the legally qualified chairmen. The Clerk of the Peace for Inner London is at present compiling a list of all those justices who are able and willing to sit at quarter sessions and arrangements will be made for these justices to attend the sessions as frequently as possible.
BARONESS WOOTTON OF ABINGER: My Lords, I am extremely obliged to the noble and learned Lord the Lord Chancellor for his reply, but particularly for the information that steps are being taken to bring the Inner London courts into line with those in the rest of the country. Is the noble and learned Lord aware that the opinions of existing justices, as to their ability to sit at quarter sessions, have been asked for only in the past week, and it is therefore hardly possible to say that the present members of the Justices Panel have indicated in large numbers their inability to sit?
THE LORD CHANCELLOR: My Lords, as the noble Baroness knows, Inner London has been, in a sense, in a state of reorganisation, and it has been necessary to find and appoint additional justices as indicated. When this has been done, and when we have ascertained which justices can sit at quarter sessions, I think the position will be as she desires it to be.
BARONESS WOOTTON OF ABINGER: My Lords, I am obliged to the noble and learned Lord.

FINANCIAL AID TO OVERSEAS TERRITORIES
2.29 p.m.
LORD BARNBY: My Lords, I beg leave to ask the Question which stands in my name on the Order Paper.
[The Question was as follows:
To ask Her Majesty's Government the total amount of commitments by way of subventions, loans, advances or any other disbursements for the current financial year to:—

(a) So-called emergent countries.

(b) Any other countries till recently under the administration of the Colonial Office.]

THE PARLIAMENTARY UNDER-SECRETARY OF STATE FOR FOREIGN AFFAIRS (LORD WALSTON: My Lords, I assume that by "emergent countries" the noble Lord means those countries, both Commonwealth and foreign, which are underdeveloped. The total amount of aid, both multilateral and bilateral, spent in the calendar year 1964 was £190
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million. Of this, £172·5 million was bilateral aid, of which £25·6 million was spent in the Dependencies, £126·7 million in the independent Commonwealth and £20·2 million in foreign countries. We expect that the total expenditure for the current financial year 1964–65 will be on at least this level. I cannot give noble Lords detailed estimates, because commitments of bilateral development aid are entered into in the course of negotiations with the recipient countries throughout the year, in accordance with their development plans and our own aid policies. It is not, therefore, possible to say in advance of any financial year exactly what new commitments will be entered into. The resulting disbursements frequently extend over several years.
LORD BARNBY: My Lords, it would appear from that reply that the total amount is something quite substantial, and it seems to coincide with an answer which was given in this House in the latter part of last year. Does the noble Lord not feel that, in view of the Government's aim to reduce the difficulties regarding balance of change from foreign investments, the priorities could be improved upon, and that, to alleviate pressure in other directions, some relief could be given on these amounts which have been announced this afternoon and other Government overseas expenditure as announced in a recent reply in this House?
LORD WALSTON: My Lords, the noble Lord is well aware that this is a very complicated and difficult question and perhaps is better answered in the course of a more lengthy debate than in reply to a Parliamentary Question. I would, however, remind the noble Lord that only 20 per cent. of British private investment abroad goes to the developing countries. I would also remind him, as was mentioned by my right honourable friend the Chancellor of the Exchequer in another place, that the whole problem of aid and foreign expenditure is under constant review. We are endeavouring to keep the appropriate balance between our moral obligations, our political interests, and our own economic needs at home.
LORD BARNBY: My Lords, can the noble Lord hold out any hope that Government expenditure of £270 million

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a year on "invisibles", referred to in an answer given to the House quite recently, may be reduced, and that these priorities may be changed?
LORD WALSTON: That, I think the noble Lord will agree, is a different question, which I shall be glad to answer if he puts it down.

THE CHANNEL TUNNEL
2.33 p.m.
LORD AMULREE: My Lords, I beg leave to ask the Question which stands in my name on the Order Paper.
[The Question was as follows:
To ask Her Majesty's Government what progress is being made with the arrangements for the construction of the Channel Tunnel and whether they have any further information to give about the methods to be adopted for financing this project.]
LORD BESWICK: My Lords, present arrangements on the Channel Tunnel project comprise a geological and geophysical survey of the Strait of Dover to prove the best route for a bored tunnel or an immersed tube, and joint official discussions on the financial and organisational problems involved in constructing and operating the tunnel. The geophysical part of the survey is virtually complete, with high-quality results, and the marine borings, after a bad winter, are now also making progress. It is hoped to finish them before the onset of next winter. It is too early yet to say what conclusions will be reached in the joint official talks on finance.
LORD AMULREE: My Lords, I should like to thank the noble Lord for his reply. I can take it from his reply that the troubles which were met with last winter have now been successfully coped with and are not therefore likely to recur.
LORD BESWICK: Yes, my Lords, we are learning quite a bit about the business of drilling holes in the sea-bed. Two new drilling platforms which are intended eventually for operation in the North Sea will be available during this summer, and a completely new, specially designed drilling ship is coming up from the Mediterranean and also will be available. It is hoped that during the summer a
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successful completion of the survey will be achieved.
LORD AMULREE: My Lords, I thank the noble Lord for that additional information. I do not want a detailed reply on the finances of the operation, but does he think it will be financed by private enterprise, or State enterprise or by a mixture of the two?
LORD BESWICK: The possibility of private participation in the financing of the project is one of the matters now under discussion in the joint talks to which I referred. No decision has been reached, and when one is reached it will be a matter for a joint declaration by the French and ourselves.

THE ECONOMIC SITUATION
2.36 p.m.
THE EARL OF DUNDEE THE EARL OF DUNDEE rose to call attention to the Economic Situation; and to move for Papers. The noble Earl said: My Lords, we in your Lordships' House usually have a debate on Economic Affairs in April, soon after the Budget, in which the Chancellor of the Exchequer always used to combine his statement with a general review of the economic situation. This year there was an exceptionally long Budget, introduced by an exceptionally long speech which took over two hours. It was a very good speech but it did not contain any economic review. In the evening, on television, Mr. Callaghan explained that, instead of the usual general review of the economic situation, we were going to get Mr. George Brown's national economic plan which was expected to be published very soon. He used what I thought was rather an odd metaphor. He referred to the national plan of Mr. George Brown's as, "Our steering-wheel in which my Budget is only a cog." I do not think I have ever seen a steering-wheel with a cog in it.
I thought that I had better postpone this Motion for a little until we could see what this curious specimen of Socialist planning was going to be like; but that seemed to be a game that two could play at. Whenever I postponed my Motion Mr. George Brown postponed his plan—a plan whose elusiveness seems

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to be almost equal to its mechanical ingenuity. I have now finally given up because I was afraid that, if we did not discuss this Motion to-day we might never be able to discuss it at all.
We have in the White Paper on Prices and Incomes one slight fragment of what will be contained in Mr. Brown's national economic plan, for the Paper says this:
"The figure for the growth of the economy between 1964 and 1970 which is being assumed in the preparation of the Government's plan for economic development is 25 per cent. This gives an annual average rate of growth of rather less than 4 per cent."
I was a little disappointed when I read this, because the year before last, when we set the 4 per cent. annual growth target, some members of the Labour Party, including Mr. Callaghan, told us that it was too low and ought to be a bit more. And, secretly, I rather sympathised with him. I am sorry to see that it has now been reduced to less than 4 per cent. I should like to help the Labour Party to put it back again to 4 per cent.
It seems to me that if we do not achieve a rate of growth of that magnitude, we shall not be able to pay for our vast programme of university and secondary education; or for our great programme of hospital building; or for our programme of 400,000 houses a year; or for the expansion of our social services; or for defence, not only of this country but also in relation to the part we play in the defence of Continental Europe and of South-East Asia—and the whole of this defence cost is, of course, in the nature of unrequited exports. It is pure debit so far as our balance of payments is concerned. Another obligation which we want to see carried out, although we have heard very little of it so far in this Parliament, is our desire to give aid to the underdeveloped countries, which was referred to in a Question a moment ago.
To get this 4 per cent. growth, what we must chiefly try to achieve is, first of all, the abolition of restrictive practices—we are producing only about one-third per man of what is produced in the United States—and the urgency of doing this is, I think, recognised on all sides of the House. Next, I think we want to get a great deal more competition in
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industry, because that is the best way of preventing price-cost inflation. I think, also, that we want much greater international liquidity, which means reserves of international currency which can be used to finance a temporary trading deficit in any one country. And I think we want a larger economic base, which for us means Europe.
Until two or three years ago the United States was doing neither very much better nor very much worse, proportionately, than we were doing. Of course their economy is on a vastly greater scale, but in percentages there annual rate of growth averaged, like ours, between 2 and 3 per cent., and the rate of inflation since the war was fairly comparable to ours. But within the last two or three years this has changed. I have not the official figures, but the annual growth in the United States since 1962 has certainly been a good deal more than 3 per cent.—I believe it is as high as 6 per cent.—and at the same time the rise in the cost of living, the price index, has only gone up by about 1 per cent. I am not going to try to argue what are the causes of that. The fact is that they seem to have achieved a solution of the problem—and I hope that they really have done so, although one never knows in these matters how long it will last—of how to get a high wage society without rising costs.
Possibly the reasons may be, first, that compared with us they have hardly any restrictive practices, and far more efficient organisation in the trade unions and in production—every man is producing three times as much as a man in Britain. The other possible reason is that they have a huge economic base of 180 million people, a vast semi-continent, and, although that economic base is surrounded by a considerable tariff wall, within that tariff wall competition is a great deal keener than it is here. Therefore an incomes policy is very much easier to carry out.
I think, my Lords, that our own incomes policy since 1963, since the National Incomes Commission was set up under the late Government, was not entirely ineffective, although of course it suffered a great deal from the fact that the trade unions would not support it. But we estimated that it had exercised a small but appreciable effect in checking rises

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in incomes and in costs. As for the present Government's incomes policy, some of my friends think that it will probably not succeed; others think that we must in any case keep on trying. My own view is that this incomes policy could succeed on two conditions; one, that restrictive practices were to go; and, two, that competition should be keen enough to make the employers realise that if they give in to an inflationary wage demand they will not make a profit out of it.
At present, competition is not quite keen enough. Very often, the employer does give in because he thinks that he can easily get back his outlay by raising prices. I think that that is the most important condition for the success of an incomes policy. These objectives—greater competition and putting an end to restrictive practices—may not be entirely in the control of the Government, or indeed of Parliament, but they are at least in the control of our own people. They are things which can be decided and carried out by the Government and Parliament, in co-operation with employers, the trade unions and the people in general.
But the next desideratum, more international liquidity, does not depend entirely, or perhaps even mainly, upon what we do here, although we can of course exert some influence upon international arrangements. I have a profound admiration for the late President Kennedy; I think he was one of the great statesmen of history. But on this point I have always thought that he was badly advised, when he announced that in no circumstances would the United States agree to a rise in the world price of gold. Gold has been under-valued for a very long time, and this is one means by which international monetary reserves, the circulating medium of the world, could be very quickly and beneficially increased to the advantage of all trading countries.
But, my Lords, we must try to achieve a greater increase of credit money, too. It is in principle the same thing. Under our present monetary arrangements some credit money is based on gold, and some is not. You cannot have a steady economic expansion, either in any single country, or in the world, if everybody has to balance his trading accounts every twelve months, or even every two or three
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years, and it would be an almost impossible mathematical miracle if this were to happen by chance.
It is very interesting to compare present international liquidity, when trading is so much more voluminous than it used to be, with what existed before the war. I do not know if your Lordships have seen the book by Sir Roy Harrod which was published a day or two ago. He gives some interesting figures which I have not checked, but which I have no doubt are right, saying that in 1937 the amount of gold and currency reserves in the world was 108 per cent. of the total volume of world trade, and that in 1963—the latest figure—it was only 45 per cent. When you look at that figure, it is perhaps small wonder that there are so many troubles, continual troubles, concerning the imbalance of payments among all trading countries, each of them, whenever it happens to be in deficit, having to take measures to protect its currency which have the effect of reducing production and diminishing the growth of the world economy. It is particularly absurd, I think, that a country like Great Britain, which does so much trade, should be as dependent as we are on the state of international reserves.
As the Prime Minister and Mr. Callaghan have both stated with great pride, we have no less than £11,000 million worth of foreign investments. These have been built up mostly since the war, because in the war we had to sell out and expend most of our foreign investments. But now we have this huge, non-liquid reserve of £11,000 million; and it really is a stupid state of affairs that a country which has this vast credit reserve abroad should have to alter its economic policy in any way because, in one year, it has a trading deficit of only £740 million, hardly any of which is due to extravagant living or improvidence and nearly all of which is due either to increasing foreign investments—nearly half of it is due to that, greatly to the benefit, both of ourselves, in the long run, and of the countries in which we invest—or (as a great deal more of it was due) to imports brought in for investment in this country, so increasing, again, our productive capacity. Another large proportion of it was due to restocking of goods in preparation for a greater production drive; and some, of course, was due to what is

839
called our unrequited exports—expenditure on defence services abroad, or on aid to foreign countries.
That we should feel that we are unable to carry on what we want to do is rather like a farmer who is worth £15,000 or £20,000 having to alter the whole of his farming plans because he owes the bank £700 or £800. In a long-term business like farming, that would have a very great adverse effect upon production; and, to any trading country, whether it is ourselves or other people who have suffered the same trouble, it is a great defect in the system of international trading, international monetary control, that a deficit of this kind, which is such a small amount in relation to our foreign assets, should cause so much trouble.
In fact, we did what we could—and it was a considerable amount—two years ago and one year ago in order to increase our own reserves with the International Monetary Fund, with European bankers and with the United States of America. I need not go over the various items again, because I told them to your Lordships in our debate last December, and they were fully explained by Mr. Maudling in his 1964 Budget. The extra defences, as he called them—defences against the trade deficit—which he accepted in 1964, amounted to several thousands of millions of dollars, which he expected would be ample to tide us over the period during which we would be in deficit. That was recognised by the Party opposite, too, for the present Prime Minister stated in the debate in November that there were ample reserves to cover the whole of our trading deficit; and the White Paper which was issued in October stated that there was no cause to think that any crisis was going to ensue.
This is a subject which, especially in your Lordships' House, ought to be discussed (if one can do so) in an objective, non-Party manner; but this was made extraordinarily difficult, if not impossible, at the very beginning of this Parliament by the audacious fiction of the Prime Minister to the effect that, for electoral purposes, we had deceived the country and had pretended that this deficit never existed. That was one of the most extraordinary statements that have ever been made in politics. I was both concerned
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and surprised to see reported a statement by Mr. George Brown at a Labour Party meeting only a week or two ago, in which he told the meeting—and this was relayed, I remember, on TV—that the Labour Party must now devote their whole efforts to pointing out that all their troubles were due to the mess which they had inherited from the Tories.
I am afraid that even the Chancellor of the Exchequer, Mr. Callaghan (I hope I am not doing him an injustice) if I heard and remember his broadcast on April 6 in the evening, after the Budget, rightly, said that he had expected, when the Government came into office, that our trading account would roughly balance. My Lords, had he not ever read the half-yearly reports? That issued in July last year showed that, for the half-year, there was an adverse balance of £341 million. And had he not listened again and again to Mr. Maudling's statements explaining how he was making provision against the large deficit which was expected last year; and also heard the disappointment which Mr. Maudling frankly expressed because, during the summer, exports were not rising as fast as our anticipations had led us to expect?
THE LORD PRIVY SEAL (THE EARL OF LONGFORD): My Lords, the noble Earl has attributed to the Prime Minister what he has called one of the most extraordinary statements ever made in politics. I should like to ask him whether he has the terms of that statement with him. In the second place, the noble Earl said he hoped he heard the Chancellor of the Exchequer correctly on TV. Do I gather that he has not got the terms of that, and that he is relying merely on his memory? Because it must have been published.
THE EARL OF DUNDEE: I have seen published, my Lords, Mr. Callaghan's statement to the effect that they were expecting trade to be roughly balanced. I shall certainly be glad to be corrected if I am wrong, but that is what I think he said on April 6 in his broadcast.
THE EARL OF LONGFORD: Speaking offhand—the noble Earl will realise that I have not the quotation here—I am quite sure that he is wrong.
THE EARL OF DUNDEE: I shall be glad to correspond with the noble Earl, Lord Longford, about it. I am sure he

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knows that I do not want to misrepresent anyone, and I know that he is equally anxious not to do so. With regard to; the Prime Minister, this was a statement in the House of Commons which has been repeatedly quoted before, and which I myself quoted (and nobody challenged it) in a debate on November 5 last year.
THE EARL OF LONGFORD: What was it?
THE EARL OF DUNDEE: I am doing no more than repeating my reference to the statements I made then.
THE EARL OF LONGFORD: My Lords, may I interrupt once more? It is a grave thing to accuse the Prime Minister of having made one of the most astonishing statements in history. Can the noble Earl tell us now what the Prime Minister said—and not what he himself said last November.
THE EARL OF DUNDEE: My Lords, I will look through my papers here; I think I might find it. But I had not expected that this could be questioned. But this is what I said (though not what the Prime Minister said) on November 5:
"I must confess that my own previous disposition to help the Government in this matter has been very nearly eliminated altogether by the outrageously fictitious and unfair accusation the day before yesterday by the Prime Minister,"—
that is, on November 3 in the House of Commons—
"repeated again yesterday by Mr. George Brown "—
in the debate on the Address—
"that the late Government, and particularly Mr. Maudling, had deliberately concealed the facts of our economic situation from the country for electoral reasons."
I went on to say:
"If there is any statesman,…who has leaned over backwards to put the whole of the economic facts plainly and repeatedly before the country, it is Mr. Maudling."—[OFFICIAL REPORT, Vol. 261, col. 143, November, 1964].
Perhaps the noble Earl will look at the House of Commons Report, which I have not with me, for the two previous days and will compare those with mine. If he thinks I am guilty of unfairness I shall be very glad to discuss it with him.
THE EARL OF LONGFORD: My Lords, I must not keep on interrupting; but the noble Earl has put a point to
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me. I must say that if he looks back he will see what I said and also what I said about his own speech of last July. All these things are threshed out in this House and we cannot accept the noble Earl's account of things at all.
THE EARL OF DUNDEE: My Lords, I can only repeat that surely these three leaders of the Labour Party, Mr. Wilson, Mr. Brown and Mr. Callaghan, must have been aware in July of last year of the fact that we already had a trading deficit for the half-year of£341 million, which is not very short of half the resulting deficit of£740 million; and there was no reason, as the Government said in their own White Paper in October, to think that we had not ample reserves to deal with this. We might have had to take long-term measures; but if you try to create an artificial crisis, to denigrate the position of the country, to go around telling everybody what a mess you found and in what a bad state our economy was, what do you expect to happen? You will destroy confidence abroad, you will create a real crisis. That is precisely what happened.
The result is that, in order to save the pound, the Government have had to take the same kind of measures—only on a much more severe and protracted scale—as we had to take in 1957 and 1961 when our currency was in danger; and these measures are the kind of measures which would be perfectly all right to deal with demand inflation, perfectly beneficial if applied to demand inflation; but if, as usually happens here, they are used to correct certain incidental effects of cost inflation—although that may be the only way open to you of dealing with the danger to your currency arising out of cost inflation—they will not cure cost inflation itself. In some ways they may even aggravate the situation, and they will also prevent a great deal of investment from being undertaken and a great deal of useful economic progress.
As the noble Lord has pointed out himself over and over again in the last seven years, these measures hold back our economic progress. The word which he always used was "stagnation". Of course, the cause and effect in these matters are always separated by some period of time. If you plan investment now in a big industry, the investment may not be carried

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out for another six or twelve months and the increased production resulting from that investment may not materialise for another eighteen months or even longer. So, when you get a period of expansion you do not get the results of this new investment for perhaps a year or a little more; and, conversely, when you are compelled to undertake disinflationary measures, the resulting recession in your economy may not be for another year or more. This is one of the difficulties of our economic planners, our short-term planners—the kind of planning which always has to be done by the Treasury and the Board of Trade. Nothing we do now will bite next month or in six months; the effect may not be apparent for perhaps a year.
I am afraid that the measures that the Government are now taking are likely to prevent a lot of productive investment from being made, not perhaps this year but certainly in 1966. They have already, I think, achieved a record for the length of time that a 7 per cent. bank rate has endured. The previous record was 182 days in the time of my right honourable friend Mr. Peter Thorneycroft and the noble Viscount, Lord Amory. Between them they kept it going for 182 days. I think I am right in saying that the Government have kept it so for 184 days. To-morrow happens to be Thursday, so perhaps we may hope that the record will not be exceeded much more; but it is very harmful to our economy to go on with a bank rate of this order. It is preventing far more useful expenditure than excessive expenditure on consumer goods, which is what we really want to control. Nobody ever pretended that it is the ideal way of dealing with a trading deficit or a condition in which you have to try to restrain the consumption of expenditure.
The measures which the Government have taken have been accompanied by very heavy taxation. I shall not discuss that now, because it is being discussed in the Finance Bill in another place; and we hope perhaps that in some ways these measures may be modified and made less injurious to our economy. But the credit squeeze and high taxation together are likely, I am afraid, to hold up our economic growth and to prevent us in the next year from maintaining a growth
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rate of 4 per cent. which, in spite of the temporary flatness last summer, was achieved in the year 1964 as a whole.
LORD ROYLE: My Lords, would the noble Earl be good enough to indicate briefly what steps the Tory Government would have taken in the circumstances which the Labour Government found in October, 1964?
THE EARL OF DUNDEE: My Lords, I think that is easy. We would not have created the crisis by going about saying that our trade conditions were so bad. If the noble Lord, instead of asking me, will be good enough to read everything that was said by the then Chancellor of the Exchequer at the time in the Budget speech of 1964 and all through the summer, I think he will realise that we had anticipated a trading deficit of that order and had provided for it by our increased drawing power from the International Monetary Fund. The Labour Party were perfectly aware of this, and that is why I am saying that it is a fictitious accusation that they have brought against us, and continually repeated. It really makes it difficult for me to believe in the intellectual honesty of political leaders when they keep on repeating statements of this kind.
LORD ROYLE: But is all this not disproved by the fact that Mr. Maudling's steps, which we have heard about this afternoon, failed so deplorably, when the balance-of-payments situation was so very much worse in October than it was in July?
THE EARL OF DUNDEE: Mr. Maudling was not in office in October. He was in office in July of last year. I just tried to explain to the noble Lord that Mr. Maudling expected a very large deficit, something of this order, for 1964 and I have tried to explain the reasons why that deficit ought to have been expected. It was because of his expectation that he took the special steps to provide larger reserves on which we could draw from the International Monetary Fund, from the United States of America and from the bankers of Europe, and these were acknowledged by the Labour Government in a White Paper which was issued in October, 1964. It was not until November 23 that the

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Prime Minister admitted that a new situation had arisen, a crisis of confidence, which had not existed before; and my accusation is that this crisis of confidence was caused by the action of the present Government in exaggerating the gravity of the problem presented to us by this temporary balance-of-payments problem. This is really a digression from my main argument, which is that one of our objectives must be to increase international liquidity not only for our own sake but for the sake of international trade as a whole.
LORD SHACKLETON: My Lords, the noble Earl is being very patient, but three times he has said that the previous Government anticipated a deficit of that order, and he said of what order. I wonder whether he could tell me specifically when, where and in what terms, and what amount. He has specifically said that they anticipated a deficit of "that order", namely the order we encountered. If he could give us that information it would be helpful.
THE EARL OF DUNDEE: My Lords, I do not know that it is possible for me to give every quotation from every speech which Mr. Maudling made last year.
LORD SHACKLETON: Just the amount.
THE EARL OF DUNDEE: I am looking to see if I can find the quotation from Mr. Maudling's Budget speech. If I cannot find it I shall not take up your Lordships' time in looking for it. Since the noble Lord has asked me this question, in order to satisfy him, this is what I said the last time I was asked about it. When the Budget was introduced in April of last year Mr. Maudling said that he expected that the adverse balance of payments would continue to grow throughout the year. His reasons were, first, the abnormal amount of stockbuilding which he expected would take place; secondly, the rise in the world price of primary products—which may in itself be a good thing in the volume of world trade; third, the exceptionally large outflow which he anticipated of British investment abroad and also the rapidly growing volume of investment at home, which meant the importing of more raw materials. Mr. Maudling said that for these reasons the large adverse balance of payments for the year 1964 would be
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neither surprising nor necessarily undesirable because the increased stock building would lead to more exports later on and the increased outflow of investment abroad would mean that our income from abroad would become greater.
He then enumerated what he called "our strong defences" against this expected adverse balance, besides our ordinary gold reserves and dollar portfolio of 1,000 million dollars: there were our drawing rights of 2,500 million dollars from the International Monetary Fund, the special 500 million dollar swap arrangement with the United States and the new arrangement, called the Basle Agreement, with the European Central banks—all these are fairly recent and were welcomed by all Parties in this country, including the Labour Party, who had advocated them for a long time, both before and after the Radcliffe Report, and I went on to say that the Labour Opposition had demanded these and even greater measures of international liquidity.
LORD BLYTON: Would the noble Earl give way?
THE EARL OF DUNDEE: I would ask the noble Lord to let me finish this point. Of course in a Budget speech one cannot anticipate, in so many million pounds, the exact adverse trade balance to be expected for the year. He did say that it would be very large. In July the half-yearly amount was published at£341 million.
I put down a Question, which was answered by the noble Lord, Lord Rhodes, showing that a very large proportion of that was due to our investments abroad. It was to be expected that the figure at the end of the year would be not far short of what it was. But Mr. Maudling also said, right in the middle of the Election, that he had been disappointed during the summer by the fact that the monthly export returns, which were sometimes misleading, had not risen as he had hoped they would do. As it was, when we got the figures for the whole year, we found that in the year as a whole there had been an increase of 4 or 5 per cent. in exports for the year, and of 6 or 7 per cent. in industrial production; and I think I am right in saying that when one takes our gross national product for that year, a 4 per cent. increase was achieved.
LORD BLYTON: My Lords, would the noble Lord allow me to interrupt him? While it is true that there was this "sunshine" talk in March of last year about the Election, is he further aware that Reginald Maudling said that the measures we put into effect last October were the measures he would have adopted if he had been in power?
THE EARL OF DUNDEE: He did not say that, my Lords. What he did say was that the Treasury and the Board of Trade, as they always must do, have a whole lot of alternative plans for putting into operation if we had to correct either an adverse balance of payments or excessive purchasing power at home. But I am not going to take up your Lordships' time now by discussing whether it was better to have the import surcharges or whether, as I think, that was the wrong method of doing it, and it would have been far better to use the economic regulator.
I want now to conclude by asking the noble Earl, Lord Longford, who is going to speak in a few minutes, about the fourth matter which I mentioned; that is, our need for an extended economic base, which we all agree is a desirable thing. Only two or three weeks ago we had a debate, initiated by the noble Lord, Lord Gladwyn, on the Common Market, and during that debate the noble Earl, Lord Longford, told us that the Prime Minister was going to Vienna, together with other EFTA Prime Ministers, in order to see whether anything could be done to make a joint approach by EFTA to the Common Market. I should like to hear any information which the noble Earl may have as to what has transpired at the EFTA meeting which concluded yesterday. I have nothing but the newspaper accounts, which may not be in all respects accurate, and it so happens that the first two newspapers I saw this morning had the following headlines: The Times headline was "EFTA partners suspicious of Britain", and the Daily Telegraph headline was "Britain and Scandinavia in EFTA battle". I hope that perhaps the noble Earl may be able to assure me that the proceedings were neither so pugnacious nor so suspicious as might be implied from these headlines.
I think it is clear that in this connection there is a short-term problem and a long-term problem. On the assumption,
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with which I think the noble Earl will agree, that we are unlikely to be asked very soon to join the Common Market, we must consider what practical steps we can take in the meantime to bring us nearer to Europe and to improve our mutual trade. I would ask the noble Earl what is the present position, so far as he knows, about the Kennedy Round negotiations. They are the best practical hope of getting something done, but they are not likely to progress very sensibly until after the German elections, which will not be until the end of this year. But there is one question which I think the noble Earl can answer—and I have given him notice. I should like him to confirm whether it is the fact that, after the end of this year on December 31, the Common Market countries will be able to decide by a bare majority, no single country having a liberum veto, whether they will take part in a general agreement to reduce tariffs of this kind. At the present time, any Common Market country can veto any proposal to reduce tariffs, but I think that next year a reduction can be agreed by a majority. That will not help us to get into the Common Market, but it may be a very significant factor in the possibility of getting something done under the Kennedy Round.
I would also put one other question to the noble Earl. He was asked in our last debate on the Common Market whether the five conditions which Mr. Harold Wilson had prescribed when he was Leader of the Opposition as the only conditions on which we could join the Common Market had been dropped; and the noble Earl said that they had not been. I think we all hoped that, although they have not been formally dropped, they would perhaps be tacitly abandoned. But, according to the Press reports this morning, these five conditions were reiterated by the Prime Minister in Vienna. If that is so, I am bound to say that it was a pity. It was not a very helpful thing to do.
Although all the five conditions can be interpreted in such a way as to be perfectly all right, on the other hand, they are largely redundant statements which are apt to cause misunderstanding among the Six. For example,
"Strong and binding safeguards for the trade and other interests of our friends and partners in the Commonwealth."

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I do not know exactly what is meant by "strong and binding", but it may be assumed that if you proclaim this in a challenging way, not having been asked to join, you may mean the kind of conditions which the Six could not possibly accept under the Treaty of Rome. Then:
"Freedom to pursue our own foreign policy; the right to plan our own economy"
Well, it is not likely we should want a more independent foreign policy than General de Gaulle, and I do not know that our national planning has more dirigisme than that of France. I do not think that these are very relevant conditions. Another condition is—
"Fulfilment of the Government's pledge to associate in the European Free Trade Area."
But our EFTA partners know perfectly well that we would not let them down and go into the E.E.C. without them. That is perfectly well understood. What they are much more concerned about at the moment is that we should take off the surcharges which have done so much to destroy their confidence in us. As for the reference to
"guarantees to safeguard the position of British agriculture,"
the point about British agriculture surely is that if we entered the Common Market, the British farmers would receive so high a price for their wheat that we might have four million acres of wheat grown in this country instead of two million. That, and not failure to safeguard agriculture, would be the real problem.
I would suggest to the noble Earl that it is much better to put these things positively and not in the form of objections. Let us say that it is in the interests, as I believe it is, of the Commonwealth that we should join the Common Market; let us say that it is in the interests of EFTA that we should join it, and let us say, in general, that it is a condition for the freedom and the progress and the economic prosperity of the whole Free World that Europe should be united and that Britain should be part of that union. My Lords, I beg to move for Papers.
3.26 p.m.
LORD BYERS: My Lords, I hope that the House will not object to a Liberal taking part in this debate, which seems to have developed into a squabble be-
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tween the two Front Benches. I should, like to say two things to the noble Earl, Lord Dundee. I do not believe it conceivable that the Chancellor of the Exchequer could have said that he expected to find our trade in balance when the Labour Party came into office. I cannot see that that is possible, because there was no secret about the deficit. Perhaps the trouble was the timing. The deficit became known, if my memory serves me right, very late on, but I remember even on October 2 calling upon the then Government to do something immediately about this deficit, which seemed to be running away.
Secondly, the noble Earl referred to this "huge sum" of £11,000 million represented by our overseas assets. I do not honestly believe that we ought to regard this as a huge sum. I believe that, because it is the substratum of sterling, it is essential that it should be recognised as something which should be increased and not diminished. In a world of abundant credit, it may very soon be insufficient for the needs of the country. I think that we should be careful to get this in the right balance and prospective.
It would be foolish to lay all the responsibility for the present economic situation on the Government, although it is always tempting to do so. But they have now been in office for some months, and certain trends and attitudes which are affecting the economy are becoming apparent. In the past two weeks we have heard that there has been the biggest single increase in the cost of living for ten years, that the index of retail prices has risen in April by over two points, that the index of industrial production has fallen between February and March by two points, and that the index of manufacturing industries has in the same period fallen by three points. And the Chancellor of the Exchequer, speaking on television on May 20, said that the credit squeeze had hardly started. All I can say is: heaven knows what is going to happen when it really gets going!
Fortunately, at the moment—and I hope the Government will confirm this—it looks as if the import-export balance has been held for the first quarter of this year. I think that the disturbing nature of the situation is emphasised when one

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sees that not only is the Government's policy apparently failing to cure the economic difficulties at home but in many respects the policy which the Government is pursuing is exaggerating the difficulties. For instance, I do not think that there can be any doubt that the recent rise in the cost of living was triggered off by the Budget, whatever one feels about individual measures, many of them very good. There is no doubt about it, because well over half the increase—1·4 out of 2·1—is attributed to the Budget increases on cigarettes, alcohol and motor vehicle licences. I think that it is still too early for the retail prices index to reflect the full impact of recent Government actions, but the Financial Times estimated the other day that a young executive in his mid-thirties, earning £3,500 a year, with a wife and two children, living 45 miles from London, would be £200 worse off in a year than he was at the beginning of 1964.
It is true that a brave effort is being made to control certain prices, and we on these Benches very much welcome this initiative. I hope it will have real success. But, whatever success the system achieves, it is in danger of being neutralised by the immense increase in Government expenditure. Some of it, of course, is very worth while; but, nevertheless, that is a danger. In this financial year I believe the current expenditure is estimated at about £8,500 million, against last year's actual expenditure of £7,700 million. This is a 10 per cent. increase, and is something quite remarkable.
For instance, the decision to concentrate British resources East of Suez, which is a controversial problem, has meant a major increase in the Defence budget and in Defence expenditure. Although the Government are protesting that we must avoid inflation, they must recognise that so far they have probably been the biggest contributor to the continuation of inflation. The Prime Minister, quite rightly, at the Election made a number of statements about the necessity of seeing that waste was eliminated from Government expenditure, and seeing that we get real value for money. I know it is not an easy thing to do, and I know that savings are relatively small. But it would be useful to the House to know whether anything has been done along these lines.
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I would ask whether the Government are considering reducing expenditure by trying to make certain aspects of our economy self-financing. In the year 1929 or 1930 the proposition was put forward that the Road Corporation, if it had the power to levy tolls on the motorways, could perhaps be self-financing and raise its own money. The same sort of thing might be done in the new ports that now take 100,000-ton ships. Provisions of this sort might help the Government to bring down the rate of current expenditure.
I do not believe the Government recognise that they are being saved from the consequences of their own overseas expenditure of a net £431 million a year only because we are fortunate enough to have overseas investments made by private enterprise which are bringing in a net figure of £610 million. I would ask the Government to remember this, because, while they cannot escape from a lot of their expenditure overseas, they must be careful what they do to the overseas companies which are providing income for this country at a time when the Government themselves are committed to such a high overseas expenditure.
With prices rising, production lagging and the credit squeeze just beginning—and, if I may say so, the morbid preoccupation with nationalisation of iron and steel—one is entitled to ask whether or not the Government have a coherent policy. I think the answer to this can probably be found partly in the fact that no member of the Government, so far as I can see, has had top management responsibility in British business. In saying this, I do not want to be misunderstood. I am not suggesting that there should be a Government of businessmen. But I want to suggest that the responsibility for this position lies very largely with British business, and with the City, in particular, because for years, future and former Conservative Members of Parliament and Ministers have been accommodated on the boards of leading companies, banks and insurance companies. They have been given the opportunity of seeing business at work; and this has never been done for Socialists or Liberals. I think it is a scandal, but it is nevertheless true. The result is that the Labour Party at the moment are deprived of

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having had the opportunity of being in when the management decisions are made. It is true that they have had union experience, and they have had experience of being consultants; but because British business has not taken the trouble to give people on the other side the opportunity, I believe we have not sufficient people in politics and in the Government to-day who understand the delicacy of the British industrial system and the mechanisms by which it works.
LORD CARRINGTON: My Lords, I hope the noble Lord will not go on insulting the noble Earl the Leader of the House, who was Chairman of one of our most respectable banks.
LORD BYERS: I have a great respect for the noble Earl. I remember that he did not teach me economics; he taught me history.
I think that in this Government there are two factions, and perhaps this will be of some comfort to those on these Benches. The first are those who are genuinely sympathetic to private enterprise and to a mixed economy—and there are many of them in the Labour Party. But there are the others, who are the true, old-fashioned Socialists who have, for good reasons perhaps, a strong streak of anti-capitalism and anti-private enterprise in them and tend to look inwards and not outwards. I should like to know which side is directing the policy of the Government at the present time. I want to return to this in a moment.
I think that what is lacking in the Administration at the moment is two or three people who have the background and the international business experience, such as the late Richard Stokes had. This was, I believe, a great contribution to the Labour Government of 1945 to 1950. There must be people in the Labour Party with this experience, and the sooner they are found and promoted to suitable posts the better it will be for the country as a whole.
I suggest that the Government should make it crystal clear that they are not only willing but anxious to work with private enterprise in a mixed economy. I believe that this is the genuine view of the First Secretary and of the Chancellor of the Exchequer. In what I have said, I do not in any way want to be
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associated with the views which have been expressed by Right-Wing organisations, such as the Institute of Directors and some others. I say this quite genuinely. I am anxious that business and the Government should get on and have good relationships with one another. I would hope that the Chancellor of the Exchequer might take the occasion of the Finance Bill to make some dramatic gesture to show that there is no idea of penalising British industry, and that the Government wish to work hand-in-hand with them. I believe that they would get good results and a good response.
May I say, frankly, that there are many of us who do not want the Tories back to carry out their much publicised non-modernisation policies. Thirteen years was a long time. We want progress along radical lines. But this Government may forfeit the confidence of business, and perhaps of the nation, if they try to do too much too quickly and get industry off balance. I believe that a sound industrial policy now would concentrate on important things. First of all, it would concentrate on getting much more competition, as the noble Earl said, into the industrial arena. I believe the Government would do better not to try to do too much in the Finance Bill. I think it is too late now, but, looking back on it, it would probably have been better to bring in capital gains this year and the corporation tax next year, having had time to iron out the anomalies and difficulties.
Secondly, I believe that the Government should now turn their attention to giving a real boost to increased productivity, which will help to reduce costs. In particular, I should like to see the Government do their utmost to encourage detailed bargaining to remove restrictive practices, in return for substantial increases in earnings. And I mean substantial, because this is probably the most important single tool for raising productivity and for raising real wealth. I am delighted to see the success of the Fawley experiment, and I am also delighted to see that British Oxygen are following that lead. But these are mere drops in the ocean. There is tremendous scope for the Ministry of Science and Technology, in particular, to explain and encourage more scientific management techniques,

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the use of operational research, work study and the acceptance of new ideas. But, to be effective, productivity bargaining requires a willingness on the part of management to grant really substantial increases in earnings in exchange for acceptance by the unions of new methods. It requires tremendous imagination. It is no use being stingy about it. You have to take a risk. You have to put up earnings; and productivity will increase if you can get rid of restrictive practices. The First Secretary of State ought, in my view, to be sending round the country teams of high-powered people to both management and unions, to teach them how to put earnings up in return for greater efficiency, rather than trying to keep earnings down by an incomes policy. I am not saying this against an incomes policy, but I believe the emphasis on productivity is very important indeed, because it is by getting the productivity up that we shall have greater national wealth to share, not only among the producers, but among those who cannot directly contribute, such as nurses and teachers, who, indirectly, are equally important. I believe that emphasis on productivity and efficiency is absolutely vital.
I think we have to improve our competitive performance abroad. There is still scope in the Commonwealth, but our biggest potential growing market must be in Western Europe and North America. Imports of British goods into France and Germany amount to less than £3 per head of their population, and in the United States they are only about 30s. per head. To Australia, on the other hand, we export £19 a head. In these circumstances, I think it is depressing that apparently our exports to the Common Market in the first quarter of this year have gone down. When we hear of this late conversion in the Conservative Party to the necessity for getting into the Common Market, all I can say is that I wish they had been anxious in 1957 and 1958 to go in at the beginning as founder members, and not trying to crawl in now, through the good graces, perhaps, of General de Gaulle and some of his friends. It is going to take years to get in. We missed a tremendous opportunity when the Treaty of Rome was signed, and we are paying for it now,
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I am delighted to see that the Ministry of Civil Aviation who, fortunately, have a very internationally-minded Minister, are having better political and commercial collaboration with Europe in the aircraft industry and in other directions. I am told that the same sort of collaboration might be applied in the field of computers. All this is tremendously welcome. The only thing I want to say to the Government now is that I do not believe that these recriminations about what happened in 1964 matter a damn. What really matters is the future of this country, and I implore the Government to look forward, but in looking forward, to get the priorities right. What we have to do is to increase national wealth, and then to share it properly.
3.43 p.m
THE EARL OF LONGFORD: My Lords, I should like to echo very strongly the final words, although not all the words, of the noble Lord, Lord Byers, that what matters now is to look forward. I could not agree with him more. We are all very grateful to the noble Earl, Lord Dundee, for initiating this debate in such a graceful way. I was pleased to hear that the noble Lord, Lord Byers, remembered that I taught him what he calls history. I thought it was politics.
LORD BYERS: I think it was both.
THE EARL OF LONGFORD: Well, I seem to have been more successful on the historical side. I cannot claim to have been a pupil of the noble Earl, Lord Dundee, but I was his protégé when I first went to Oxford, and then, as always, including to-day, I greatly enjoyed his speeches.
Before I come to what may prove the main issues, I should say one or two words on the subject of these EFTA discussions. The noble Earl was kind enough to give me notice last night of some of the points, at least, and perhaps all the points, that he was going to raise to-day, but he will realise that I have not had the opportunity of seeing the Prime Minister since his return and that my report, therefore, will not be very comprehensive. It is possible, though not, I think, very likely, that the noble Lord, Lord Shackleton, who will wind up to-night, may have something further to say. My strong impression from what I have been able to glean is that the

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meeting was a real success. The noble Earl seemed to rely entirely on The Times and the Daily Telegraph which, while they are world famous papers, of course, are papers of a Conservative temper.
THE EARL OF DUNDEE: My Lords, I did not rely on them. I merely quoted them to give the noble Earl a peg.
THE EARL OF LONGFORD: I never thought the noble Earl would quote an unreliable paper, and I thought he regarded them as reliable sources. If he had read the Guardian he might have found something different, but I cannot pretend I know what the Guardian said about it. I am under the strong impression that this Conference went well. The Ministers, at the end, announced that steps could, and should, be taken to bring about closer and more continuous contact between the two groups, between EFTA and the Six, in order to facilitate the removal of trade barriers and the promotion of closer economic co-operation in Europe, which are the fundamental objectives of EFTA. They agreed that it would be desirable to seek to arrange meetings at Ministerial level between the two groups at the earliest opportunity. So I think in broad outline—I have not had an inside report from someone who was present—the Conference was successful.
May I turn to two particular points the noble Earl raised? Ministers again stressed the paramount importance that they attached to a successful outcome to the Kennedy Round as the principal means for lowering barriers to trade. That possibly answers one point the noble Earl raised. Finally he asked me about the voting, when the E.E.C. make the move to the third stage. I am advised that qualified majority voting, instead of a unanimous decision, will be sufficient to agree to changes in the common external tariff in negotiations with other countries—
THE EARL OF DUNDEE: When?
THE EARL OF LONGFORD:—provided that the E.E.C. makes the move to the third stage, on January 1, 1966. Therefore, although a formal decision is in fact still necessary to move to the third stage, I am advised that the noble Earl's point can be broadly confirmed. So I think we may take it that the
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answer to the noble Earl, if I understood his question correctly, is in the affirmative. The noble Earl dealt with some controversial events last year and arguments resulting. I shall follow what I think is the mood of the noble Lord, Lord Byers, in not following him over that ground, if only because I spoke about all those matters in reply to some of the same points before Christmas. The noble Lord, Lord Shackleton, will be available at the end of the debate to take part in any controversies that then remain.
I should like to look rather further back, in one sense, and then forward. I would venture, with great respect, to differ from what seems to be quite a fundamental in the noble Earl's point of view; his conviction that this balance-of-payments deficit at the end of last year was in some sense a temporary affair. I do not want to pick up any particular words, but he said something to that effect. I want to place before the House the thought that, for many years now, this country has been afflicted with great difficulties, and that we must therefore see any short-term measures taken and any short-term events that are occurring against the background of these long-term problems. If I deal with events since 1952, the events of the 'fifties, I must not be thought to be simply selecting a period in which noble Lords opposite happened to be in power. I think most experts would consider that the world and British economy reached something like normalcy only after the end of the Korean War. Therefore, if we are talking about Britain since the war in the objective spirit recommended by the noble Earl, Lord Dundee, perhaps it is more relevant to look at what happened in the 'fifties.
Certainly there were some very depressing features in the economic life of the country during those years. There was our slow economic growth compared with other countries, and more particularly the erratic growth—periods of quite rapid expansion followed by periods of stagnation. There were steadily rising prices. I do not want to suggest that our prices on the whole—in relation to some countries it may be true—rose faster than in any other country, but they rose too fast for comfort. Finally, as we all know, there have

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been these recurrent balance-of-payments crises. That is the picture over a period of years, and therefore, whatever we may say about any particular crisis, this is not a temporary affair to be put right by temporary action.
I am concerned with these long-term facts. But I do say—and noble Lords opposite will feel, I hope, that I am trying to live up to this spirit of objectivity—that these was during this period a sustained rise in the standard of living which comes out well in any comparison with the past. I must not be thought to be ungenerous if I say that this, in the views of the experts—who may be biased, of course, in their own way—is to be attributed primarily to the new economic thinking which can be associated with the name of Lord Keynes. In this respect, I think that historians may look upon the 1944 White Paper on Full Employment—for which some noble Lords, such as the noble Marquess, Lord Salisbury, and the noble Earl, Lord Kilmuir, who were in the Government, and noble colleagues of mine here, shared responsibility—as the watershed. Because in that White Paper of 1944 all Parties recognised for the first time that the Government had both the responsibility and the ability to regulate the level of employment and to secure at any rate more or less full employment. However one may like to distribute the praise or responsibility, we have had very much lower levels of unemployment since the war, whoever happened to be in power, than was expected before the war or expected by Lord Beveridge, for example, when I had the great honour of working with him for quite a long time. That is, therefore, to be put on the credit side, however that particular credit is to be distributed.
My Lords, I promised not to labour the comparison between the post-war years of Labour Government, 1946 to 1951 and the Conservative years, 1951 to 1964. The conditions, in fact, on an objective view, were so different that a close comparison is impossible. But perhaps I may say one little thing, in all meekness and mildness—as I think St. Paul said: the noble Marquess quoted St. Paul yesterday and he will know whether St. Paul used this expression. During our Labour period of rule con-
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sumption expenditure—the consumption of the ordinary person—rose, on the average, by a little more than 1 per cent. a year, and during the Tory period the rate of expansion was about 3 per cent. So far so good. But before unwary noble Lords start rejoicing, let me remind them that during our period production rose by just over 5 per cent.; that was five times as much as consumption. During the Tory period it rose by 3 per cent., or about the same rate as consumption. I am, I hope, talking objectively.
Part of the explanation lies in the much more favourable terms of overseas trade which were enjoyed in the Conservative years of the 'fifties; but in terms of policy I think the real difference arose from the much more rapid increase of exports during our time, and also the much more rapid increase of home investments. In short, we prepared the foundations for subsequent enjoyment, and if I may say so, in all friendliness, we laid the golden eggs and the noble Lords opposite ate them. That is, I hope, an objective account of what occurred.
VISCOUNT MASSEREENE AND FERRARD: You had a sellers' market.
THE EARL OF LONGFORD: A large difficulty at the root of all our troubles has certainly been the slow rate of growth of output per man, and the rise of prices which has come, of course, from money incomes increasing faster than output. The House knows that, for that and other reasons, we have this weak external position which has prevented us from building up our international reserves. We have thus always found, whenever we have expanded demand in the economy—and I am bound to say that we have expanded it in each Election year, 1955, 1959, 1964 (these are facts; there is no argument about this)—we have run into difficulties at home and, even more seriously, abroad. Each "go" produced a shuddering "stop", and each crisis was more difficult than the last. That is history.
Now let us look at the immediate measures in coping with the crisis we actually found. I would hope, whatever the argument between the noble Earl and anybody else about the part played last year, we shall all agree that there was a crisis when the Labour Government came in last year. At any rate, there was a record balance-of-payments deficit. That

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was an extraordinarily difficult situation to deal with. We must, therefore, whoever is to be praised or blamed, be regarded as having encountered an acute phase of the chronic difficulties of the economy.
The measures we took then were designed to make an immediate attack on the symptoms. I am talking now of the immediate measures—I do not need to run over them again; we have discussed them more than once in this House: the import surcharge, the increase in petrol tax. These were temporary restrictions. We also introduced a permanent measure, in the form of various encouragements of exports. We raised the standard rate of income tax which would come into effect at about the same time as the increase in social security benefits and contributions. Some of these measures could be regarded as emergency measures, and in other cases, of course, we were taking long-overdue steps to remedy injustices and we had to find the means of paying for that. The noble Earl—I am grateful to him for this, and, of course, for other things—did not wish to involve me in an argument about capital gains tax and corporation tax, so I will just refer to the fact that they were introduced. They have, of course, not operated in any way that affects the immediate situation directly.
The recent April Budget was necessary to reinforce the shorter-term measures. The increase in drink and tobacco tax, and in motor vehicle licence duties, must be seen in the context of this effort to restrain the growth of consumption in the interest of the balance of payments. The right honourable gentleman—and the noble Earl, Lord Dundee, paid most generous tribute to his speech—the Chancellor of the Exchequer made it plain that this attack on the balance-of-payments problem was the keynote of the whole Budget; and clearly these measures must be seen in the light, as should other measures on which I have touched and which are well known.
There was also the call for special deposits, followed by the recent requests to the banks and other financial institutions to restrain the increase in their lending. The objective should be clear enough by now—certainly if it is not
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clear enough it is not for want of stating it: it is, to achieve a state of balance on combined current and long-term capital account. We aim to get most of the way towards this in 1965 and to complete the process during 1966. I am taking into account the need to reduce, and later abolish, the temporary import charge, which I am sure all must want to see abolished as soon as that can be done without danger. In simple terms, the achievement of balance in our external payments requires a shift of resources from home use to overseas.
There are many topics which I must pass over, in the interests of time, and I will come to the progress that has been made against the background of our difficulties and of the measures that have been taken to deal with them. In some ways the economy has been making a much better showing recently, though some of the latest indicators are a sharp reminder that we still have a long way to go to secure our objectives. Industrial production was making up during the winter months for its laggard performance, or what appears to have been its laggard performance—it is always difficult to be quite sure that every figure is correct—in the spring and summer of last year. In the first quarter of this year the index was nearly 4 per cent. higher than a year earlier. It was also one per cent. higher than in the fourth quarter of last year. The noble Earl pointed out—at least I was expecting him to, and I think he did—that the March figure was down.
THE EARL OF DUNDEE: My Lords, I had that in mind, but I refrained from saying so, for reasons which I will not go into now.
THE EARL OF LONGFORD: My Lords, I am afraid I suffered from a kind of mental injustice towards the noble Earl. I felt that this point was bound to be raised; therefore I apologise to him for that injustice.
THE EARL OF DUNDEE: My Lords, in order to get it straight, may I say that all I said about March was that when the March figures were published we then found that, in spite of our fears last year, we had in fact achieved the 4 per cent. growth increase.
THE EARL OF LONGFORD: I am most grateful for the noble Earl's restraint. Rightly, as someone who has spoken for the Treasury for many years, he does not attribute undue importance to one month, and the general view is that the slight decline in March is not particularly significant. The pressure on resources continues. Labour is scarce everywhere, though more scarce in some parts of the country than in others, and the unemployment rate of 1·3 per cent. is well below the average of the last decade. Those are facts from which some encouragement can be drawn.
There has been little change in the underlying level of unemployment after allowing for purely seasonal factors in the last few months. Of course one is always looking at these things from two points of view. One wants to see unemployment as low as possible, and then one is haunted by the thought that demand may be too great. From that point of view, the evidence is still incomplete, but there are indications that within this industrial expansion the most buoyant sectors recently have been exports and fixed investment, and this is undoubtedly the right sort of priority. So that we can say in that field "So far, so good".
The strong increase in exports that began last autumn, following the slight decline in the autumn of 1964, has continued into 1965. In the three months finishing with April exports were nearly 3 per cent. higher than in the previous three months, and they were 7 per cent. higher than in the third quarter of last year. Noble Lords who are going to speak are closely in touch with industry, and they may or may not give us their views, but from my information industry seems to be confident about the export progress. Certainly I know that every one of us here, whatever our views of the Government, hope that this export advance is the beginning of a real success story. I am quite ready myself to see it in that light. The noble Lord, Lord Byers, is much concerned with exports, and I hope that he is reasonably optimistic about the figures I have given.
Fixed investment has been on a strongly rising trend, and all the indications are that this will continue for some time. At the same time, imports have fallen. In the three months to April they were 3 per cent. less than in the previous three
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months, and the same amount below the average of the third quarter of 1964. There have been some unusual factors in this fall. Food imports have been unusually low, and we have also been seeing the impact of the import surcharge. One may or may not like the import surcharge, but certainly it has been having an effect in helping the balance of payments.
In the three months February to April imports of finished manufactures were nearly 10 per cent. less than in the third quarter of last year, before the charge was imposed. With production rising it seems reasonable to suppose that, but for the charge, these imports would have risen. In short, there has been a quick and noticeable improvement in the trade balance, with rising exports and falling imports. This means that for the first quarter of this year we may have been close to being balanced in the current account of the balance of payments. If that is so, it is indeed a dramatic change from last year, when the current account was in deficit by over £90 million on average each quarter. That is, of course, apart from capital account. So the change to balance from an adverse figure of £90 million is most encouraging.
I do not want to over-emphasise this achievement. There were temporary factors operating in the last few months, such as the low level of food imports, and I do not want to suggest that we have achieved a lasting balance on the current account in one stride. If I have the honour to speak to your Lordships again on this kind of topic in times to come, I might find myself looking rather foolish if I now lay too much stress on these figures. Nevertheless, let us deal with them as we find them and draw from them encouragement as well as satisfaction.
It is perhaps just worth turning to one issue which can hardly be called a Party issue, although it is one which may lead the Government into a certain amount of criticism; and we have heard a certain amount of careful commentary on the subject from the noble Earl, Lord Dundee, to-day. We are told in certain quarters and by certain newspapers, whose repute and sincerity I do not question—though there is no unanimity in criticism—that we may be in danger of carrying the measures of restraint too far. This is certainly not a matter on

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which a Party issue would be involved, and no Government in their senses would set out to carry measures of restraint too far for any sinister political motives. Clearly, it is a most unpopular thing one can do. But at any rate it is an intellectual argument, and of great importance for the life of the nation, whether we have got it about right, or whether we have gone too far or have not gone far enough.
Certainly, it is inevitably disappointing for any Government, coming in after thirteen years in Opposition, to be compelled by a sense of duty to impose restraints of this kind and this degree of restraint. As Mr. Wilfred King, the learned editor of The Banker points out in an important article in the Financial Times this week, this measure of restraint was certainly not what most people would have expected about now from a Labour Government, or perhaps from any Government. But I must remind the House of this—I do not want to rub this in, or to provoke interference; the last time I spoke here there were nineteen interventions, and although I contributed quite a few to the speech of the noble Lord, I do not want to see that record beaten, so I will pass over this as quickly as possible. Of course, if people say that this credit squeeze is one of great severity, we must remember that we were confronted last November with a record deficiency, and the whole of our economic policy, whatever the Party in power, must at this moment more than ever be related to our balance-of-payments position. That would be the duty which I think would be perceived by any Government.
We have accepted the aim, which I think is unquestioned in this House—I mentioned it just now—of breaking even by the end of 1966. That aim is going to be one that is hard to achieve. Some people think that we cannot do it. I feel that we can do it; but it is going to be extremely difficult. If I am asked why there are all these restraints, whether you call them a credit squeeze or whatever form they take, I hope I am not belittling the factor of international confidence if I say that the balance of payments, the objective position of the balance of payments, and the dangers of excess demand, are responsible for the present restrictions. That is the reasoning
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of the Government, with a good deal of expert help of course.
Obviously, fine decisions are involved in the application of principles. It certainly is not a matter on which a wise person, politician or otherwise, would dogmatise with extreme confidence and announce that he is sure that the measures were exactly right to within £1,000 or £1 million. Surely, no serious person to-day doubts the necessity of trying to give effect to the sort of principles that I have been dealing with so far as one can relate the amount of restraint required internally to the balance-of-payments position.
Perhaps I may be allowed to mention a word or two about bank advances. I will mention one or two figures which will be familiar to experts like the noble Viscount, Lord Eccles, who is to follow me.
LORD BOOTHBY: My Lords, before the noble Earl leaves the subject of internal demand, may I ask him a question, not a Party political question? Why, in that case, did not the Government make more use of purchase tax than they have?
THE EARL OF LONGFORD: I think that we had better leave that for the moment. I am not going to get involved in the question of particular taxes. Frankly, we could discuss for some time how you raise the money and how you do not. It would involve asking the noble Lord what taxes he would have taken off and which he would have put on.
LORD BOOTHBY: I would have put them on all luxuries.
THE EARL OF LONGFORD: I will leave the question of particular taxes where it was very wisely left by Lord Dundee, but if the noble Lord, Lord Boothby, wishes to develop his views on taxation during the debate, I am sure my noble friend will answer him.
Taking the general policy—which is all I am concerned with—of restraining demand to about this extent, I would say a word about bank advances and mention one, or two figures—figures which will be familiar to the experts but perhaps not so familiar to every Member of the House. There has in recent years been a continuous increase in the proportion of bank advances to bank deposits. I notice, for example, that in

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1954 (which, it so happens, was the year I entered banking) the figure was 27·8 per cent. By 1964 it was just about double, over 54 per cent. It is a very interesting long-term trend, which is no doubt quite unrelated to Government policies, that the bankers were lending a much higher proportion of their resources.
Against that background, on December 8 last year, the Governor, on behalf of the Chancellor of the Exchequer, wrote a letter to the banks informing them that it was now the aim of official policy that the rate of increase of bank advances should decline. He went on to emphasise that some activities such as exports should be given the highest priority and other categories should be treated as being of less national importance. That was last December. At first the rate of increase of hank advances fell away, but in March and April there was a new surge forward in bank advances and the Chancellor, through the Governor, had no option except to step in and try to bring the increase in bank advances into a proper relationship with the growth of the economy. Hence a good deal of talk at present about the intensifying of "the squeeze". What then happened was that in April the Chancellor of the Exchequer, through the Governor, set out to make sure that effect was in fact given to the spirit of the letter of December.
LORD BYERS: My Lords, has the noble Earl any information as to why that happened in March and April? Could it have been that banks were advancing money for the useful projects which they had been encouraged to do in December?
THE EARL OF LONGFORD: I should not like to make a comment on that; I do not think that it would be wise. It is a little mysterious. The answer will no doubt gradually emerge, but it is too early now to answer that question. However, the banks have been called upon to steady themselves, and a limit of 5 per cent, of increase during the coming year has been set. I do not find it impossible to share the feelings of my old banking friends, but I would point out that no Government in the modern world can afford to leave the banking
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system to look after itself, or does in fact do so. There were several interventions of this type during the last ten years, and I am glad to notice from Mr. King's article in the Financial Times—and I do not know any higher authority on banking than Mr. King—that
"the domestic banking system is now enjoying a spell of probably unprecedented prosperity".
So it appears that my old friends in banking have "never had it so good." That is, at any rate, the view of Mr. Wilfred King.
All these decisions about the precise amount of restraint to be exercised at any particular moment are taken with a great deal of expert help. I am sorry to have to inform the noble Lord, Lord Boothby, that the Treasury come into this, but I know that he will forgive the Government for following their advice in these matters.
LORD BOOTHBY: Never!
THE EARL OF LONGFORD: There is a great deal of expert help inside and outside the Treasury. I would emphasise the fact that we have certainly not placed ourselves in a straitjacket, and if events take an unexpected turn we shall naturally adjust policy to cope with the new situation.
I should like to say a few words about long-term strategy. This is the most important issue in the economic sphere before the country to-day. I will leave these points primarily to my noble friend Lord Shackleton when he winds up. We shall never get the economy straight unless fundamental long-term changes are effected. The main changes, in my view, are such as need not divide the political Parties. There are organisational changes. We have set up the Department of Economic Affairs and the Ministry of Technology. The Ministry of Economic Affairs contains a number of business men of great experience who have come to work alongside Ministers and civil servants, and have brought with them invaluable experience. The Ministry of Technology is presided over by Mr. Frank Cousins, his talents happily complemented by those of my noble friend, Lord Snow. I do not think anyone would deny the utter dedication of Mr. Cousins and Lord Snow to these novel and vital tasks.

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Strategy is of even greater importance than organisation. Broadly speaking, this country has faced three economic strategies since the war. First, in the late 1940s we had the whole network of wartime controls which paved the transition from war to peace. Then we had the strategy of the 1950s, which relied very largely on regulating the level of demand. I am not criticising that as an idea. The idea of regulating demand in itself is thoroughly modern and sensible. The idea was perfectly sound, but it was applied in an unco-ordinated, unplanned way, so we had these up and down movements in our economic and social life. It was the era in which there was far too much of "Stop—Go". Let me say at once that this strategy, with all its limitations, was an advance on the pre-war position. During the 1950s we came far closer to full employment than in the days before the war. Where we failed was in adapting the British economy to the modern world. We did not get the exports which we needed as a substitute for our lost income from overseas, and we were left vulnerable to every swing of confidence in our country. Let us give every credit where it is due, but let us recognise where something was wrong and where our effort was inadequate.
Our economic strategy for the 1960s is much broader than that of the 1950s. It does not reject the use of budgetary or monetary measures, but it regards them as part of a general policy for advancing to a more dynamic economy. I will leave it to my noble friend Lord Shackleton to set out in broad outline the nature of this strategy for the 1960s.
There comes, first of all, the determination, expressed by unions, management and Government in their Joint Statement of Intent, to promote much greater efficiency. We agree with what fell in general terms from the noble Earl, Lord Dundee, and the noble Lord, Lord Byers, about the need to abolish restrictive practices—so long as they are abolished on all sides of industry, and so long as it is not just a question of asking working people to make concessions which are not made by the employers. Then there is the policy for productivity, prices and incomes, with which we shall be dealing in more detail next week. There is also the regional
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policy, and the national economic plan, about which Lord Dundee waxed a little amusing. We attach great importance to the national plan itself, and it will be explained in outline by my noble friend Lord Shackleton this evening.
My Lords, I should like to offer two final words, one of them from a somewhat personal angle; and it happens to fit in rather well with some rather strong words which fell from the noble Lord, Lord Byers. We have already been addressed, and we shall further be addressed to-day, by many noble Lords of wide and varied experience. On our side of the House, for example, at least two famous trade union leaders will be speaking, and from all over the House industry in various forms will be well represented. As noble Lords know, my own experience has lain in banking and perhaps I may be allowed, therefore, to illustrate the wider issue from the relationship between the Labour Government and the City.
I shall not repeat the words that I used in a book which apeared last year, because if noble Lords wish to read them they can find them there; but I myself should doubt whether the position is as serious as described by some. The Economist, which becomes more and more lively with advancing youth, has talked about the slanging match between Westminster and the City, and I think that that is very much of an exaggeration. But I recognise that more can be done to promote understanding. I am not going to start trying to allocate responsibility. As Pascal says,
"All men are divided into two classes, sinners who believe they are righteous and righteous men who believe they are sinners."
I am not going to say whether the Government or the City comes into either of those classes. As one who lived intimately with the City and received much kindness there (I was a little more fortunate for one reason or another, which I could explain to the noble Lord some time, than other ex-Ministers of my Party) I hope that something I say now may count for a little somewhere, though I do not pretend that it can count for a great deal.
There is absolutely no spirit inside this Government of desiring to hurt the City or other forms of legitimate business. The immense accumulated expertise of

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the City is widely appreciated, though the Government do not suppose that the City possesses a monopoly of financial wisdom. I should doubt—noble Lords may raise their eyebrows now, but I say it deliberately—whether this country has ever had three Ministers at the very top who were so passionately interested in improving the business efficiency of this country, as the Prime Minister, the Deputy Prime Minister and the Chancellor of the Exchequer. To come closer home, in replying to the point of the noble Lord, Lord Byers, about the lack of business experience in the Government, and leaving out my own position, there are the noble Lord, Lord Shackle-ton, who is going to wind up to-night, who was, of course, an executive director of an extremely well-known firm, and Mr. Jack Diamond, the Financial Secretary to the Treasury who is an accountant of many years' experience. So I could go on, including references to my own colleagues on this Bench.
I would just say this to the City and to business generally, speaking directly for the Government. We are all in this struggle as one. We sink or swim together. I cannot put it any plainer than that. That is the inside, the intimate, attitude of the Government as I myself see it. I can only say that if it were not so, if the attitude were markedly different from that, I could not imagine myself being a member of the Administration. But we are not all businessmen, or even politicians of any persuasion. To adapt a famous phrase of the greatest of American orators, we in the Government are seeking the co-operation of the commercial classes, the labouring classes and the toilers everywhere.
To-day, your Lordships are debating economics, but none of us supposes that economics is an end in itself. It is a means, admittedly an indispensable means, but nothing more than a means, for promoting the good life for our people and, so far as it lies within our power, for all humanity. We can achieve in this country few of our social or humanitarian objectives, we can exercise little influence for world peace—and I am unrepentant in thinking that this country, at its best and strongest, can have an influence for world peace out of all proportion to its strength—unless this economy of ours
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can be made much stronger and more successful than in recent years.
We are convinced that a new approach and far-reaching long-term measures are essential for this purpose. But, of course, these far-reaching measures, which in my submission (and I believe that this will become increasingly plain) need not divide the Parties, can achieve nothing unless they are carried out with the comprehension and positive good will of the nation. We have begun to introduce these measures and to expound them, and come what may we shall persevere in those exertions. I know that the differences of opinion will persist—indeed, they are the lifeblood of democracy—about the merits of Her Majesty's present advisers or about a thousand points of detail. But I hope that they will not prevent an ever greater understanding and cordial adoption of our main ideas regarding the future of economic policy. I say all that in this economic debate, believing that on a deeper level than that of economics we have an ultimate community of aim. I am sure that all of our side are most grateful to the noble Earl for introducing his Motion.
LORD FRASER OF NORTH CAPE: My Lords, may I just say this to the noble Earl the Leader of the House? There are 20 speakers on the list and half an hour each means the middle watch or the morning watch. Is that not a bit long?
THE EARL OF LONGFORD: My Lords, I think there is a great deal of force in that. I was trying to draw consolation from what the noble Earl, Lord Dundee, said at the beginning, when he referred to the exceptionally long speech of the Chancellor of the Exchequer which he also said was a good speech.
THE EARL OF DROGHEDA: My Lords, if it is any help to the House, if my turn ever comes I will promise not to detain your Lordships for more than five minutes.
4.27 p.m.
VISCOUNT ECCLES: My Lords, I shall try to throw away some of my speech in the course of addressing your Lordships.
SEVERAL NOBLE LORDS: No, no!
VISCOUNT ECCLES: I feel that all of your Lordships will agree that my noble friend Lord Dundee has chosen a very opportune moment to raise the subject of the state of our economy and, still more, the uncertain prospects for the economy. He was followed by the noble Lord, Lord Byers, in one of those well-informed and pugnacious speeches which used to delight us years ago in another place. I am personally very pleased to hear him at it again, and with much of what he said I agree.
The Leader of the House interested me very much in his closing remarks, when he quite rightly said that if we are to make the economic progress which we all desire, a high measure of good will between all sections of those who contribute to the economy is absolutely essential. Our standard of life is so precariously balanced, the margin between safety and crisis is so small, that this country at no time can afford to be badly divided on the basic issues of economic policy.
What astonished me, if I may say so to the noble Earl, Lord Longford, was that although I suppose he implied it in his remarks about the City, he did not seem really aware of the extent to which the good will with which this Government began has disappeared. If one looks back to the General Election, it was a great source of encouragement to many people that all three Parties campaigned for more or less the same economic policy: the modernisation of Britain, an increased rate of productivity, the removal of restrictive practices, and better financial methods at home and abroad. In the three Party programmes there was only one discordant and inconsistent proposal, and that was the Labour Party's pledge to nationalise steel. Clearly, that had nothing to do with the modernisation of Britain and, in my opinion, if they had not put it into their programme they would now have a working majority in another place. But when the Election was over and the Prime Minister assumed office with the narrowest of majorities it was my experience, up and down the country, that managers of business, both older ones and younger ones, were all ready—in fact, eager—to give the Government a good chance to carry out a more effective policy of modernisation than the
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Tories had been thought to carry out in their thirteen years.
Now why has this good will so markedly diminished?—and I deplore the fact that it has. It is not, my Lords, because this or that act of the Government, in itself, has been unpopular. We expect new Governments to do unpopular things; and certainly what we want is to be led firmly in one direction. I am sure the disappearance of this good will is due to the inconsistency in Government policy. Ministers say one thing one day and another thing the next day; and their acts are strangely inconsistent. In your Lordships' experience, I am sure, as well as in mine, inconsistency in Government is always paid for by unpopularity and lack of confidence in the country.
I could give your Lordships a great many examples. There is the Prime Minister boasting in New York about our vast investments overseas, and then the Chancellor of the Exchequer hitting at those very investments (as the noble Lord, Lord Byers, said) in the Budget. There is Mr. Brown and Mr. Cousins calling for great schemes of modernisation, which we all want, and there is the Chancellor of the Exchequer reducing investment allowances and damaging those small businesses from which a large part of the new ideas which keep us competitive have, and always will, come. There is the same problem in regard to new capital. It is impossible to carry out these great schemes of modernisation without a strong capital market supplied by a strong flow of new savings from small people as well as big. What does the Chancellor of the Exchequer do? He hits at the shareholder in his Budget; and, to make matters worse, he actually undermines the gilt-edge market itself. It is these instances of inconsistency which are causing the uncertainty and, I am sorry to say, the falling off of the will to co-operate.
But, of course, by far the largest example is in the field of incomes policy. It was not, I think, until 1961 that we really began seriously to think that we ought to have a policy for incomes and prices, and we came to that conclusion without respect of Party, because it was then seen that the sums which were annually added to the purchasing power of the country through increases in incomes of

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all sorts were too large to be handled by the traditional methods of monetary and fiscal policy. The £1,600 million added to purchasing power in 1961 was far too much to take out of circulation by alterations in the taxes. The whole system would have been upset. Therefore, rather than go in for drastic deflation, it was decided, and I think perfectly rightly, that a mature country like ours should try self-discipline and responsibility. For that reason, Mr. George Brown—and he deserves our support—set up his Prices and Incomes Commission. But what has happened? Hardly is the ink dry before his colleagues start making wage settlements in the public sector far outside his own rules.
My Lords, I do not think that is as important as a deeper inconsistency. I mentioned to your Lordships that it was not until 1961 that any of us seriously thought about an incomes policy. But what about Mr. Kaldor's Budget, which was thought up years before 1961? This Budget is inconsistent with an incomes policy, because an incomes policy must have the broadest support and good will from the whole nation if it is to get going. Here we have a series of tax changes, which had been elaborated in published reports years ago, reproduced in a Budget after we have started an incomes policy, and introduced with no thought, so far as I can see, of the inconsistency between this Budget, which ought first and foremost to have been aimed to keep the good will of all the sections of the people, and the incomes policy.
Instead of keeping that good will, one section after another is upset by the Budget; and industry itself, on whom must fall the brunt of restraint and willingness, both to keep prices down and not to advance incomes, are in a great fix at the present time. They do not know which of the two policies the Government want. Do they really mean the modernisation of Britain? My Lords, I think that if the Government had been single-minded in that policy, and in the objective of putting to rights the balance of payments, which really comes to the same thing, they might have got the nationalisation of steel without much trouble, because people would have said, "We do not like it, but at least we are being led firmly in a new direction, and we will
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follow for the time being". But in so short a period—and it really is a great pity—this good will has been thrown away.
Now I want to turn to a more long-term aspect of our economy where the inconsistency of the Government is shown by their failure to do what they told us they would do. I am referring to the policy of import substitution. There is a good argument for a measure of import substitution, because as the world gets more and more industrialised it becomes less and less certain that a foreigner who earns £100 in our country is going to spend it all on sterling goods and services. He now has the whole world in which to shop. There was a time when we were the only shop: the more we imported the more we exported. But for a good many years now we have been wrong to assume that those conditions continued, and I had thought that a measure of import substitution was one of those readjustments, popular or unpopular, which we had got to make to our changed industrial and financial situation—and I was very glad that Mr. Harold Wilson, before the Election, supported a policy of import substitution.
But what have the Government been doing about it? As I understand it, Mr. Cousins is concentrating his efforts upon saving money over the imports of machinery. Of course, the bill last year for non-electrical machinery was over £300 million, so clearly there is something to be done in this field and we should all support him. But this is one of the most highly-competitive industries in the world. There is not an industrialised country where the top brains have not been put on to programmes of research into the development of machinery; and, while we no doubt can do better than we have done, it is not going to be easy to make a big dent in the import bill for machinery.
There are, however, two other sections of the import programme which are both larger and both more capable of far swifter and more rewarding action. There are foodstuffs, for which the bill last year was, I think, £1,600 million; and there are textiles, for which the Bill last year was £550 million. In order to cut short my speech I will not argue at length the case for foodstuffs, as I would otherwise have done. I simply say this.

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The time has come when the long-term weakness of sterling is so serious that we can no longer go on tying one of the farmer's hands behind his back, simply in order to give other countries a chance to continue selling us for ever the same quantity of food. Your Lordships know well that science and technology, which are bringing about a revolution in the structure and method of industry, are doing the same for our farming. Some years ago we all thought that we were running out of farmland. We now know that if the production techniques and investment employed by the most efficient farmers were applied to the average farm the output of our land would go up far faster than the expected increase in our population. I thought that a Government who declared support for import substitution would have given, in their first Price Review, an assurance that their aim was that we should cover from our own agriculture the larger part of our food. But not at all. They produced a Price Review which has lost them the good will of a good many farmers. They were inconsistent; and once again inconsistency in Government must be paid for by unpopularity in the country.
My Lords, I want to say a word or two about textiles, an industry which gives the Government a striking opportunity to improve the balance of payments. Here I have an interest to declare to the House: I am a director of Courtaulds and chairman of the West Cumberland Silk Mills. Therefore I am engaged in textiles all the way from fibres and fabrics to made-up goods. As I said, in 1964 the United Kingdom imported textiles to a value of £550 million. This colossal figure is the third largest total in our import bill, ranking only after foodstuffs and mineral oils. The wheel of fortune has turned right round from the days when we were far and away the largest exporter of textiles in the world; now we are the largest importer.
Ten years ago, not longer, many people, here and overseas, had come to the melancholy conclusion that our cotton industry was dying. They were ready to write it off altogether. But about that time new developments in man-made fibres, in machinery for spinning, weaving and knittings began to change the prospects for textiles in all
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the advanced high-wage countries. Unfortunately, there were special reasons why we were doubtful whether any such revival would occur in our own Lancashire. The last Government were aware of these reasons and saw that the industry was in too bad a shape, too fragmented and weak, to take full advantage of the new technology unless it was helped to cut out the dead wood. This was done in 1959 by a subsidy for the scrapping of old spindles and looms, opening the way for the formation of a few concentrated textile groups.
Enough has been done already in this direction to make it quite safe for me to say that if conditions are now stable, and if confidence is firmly based, the plans for the reconstruction of the British industry will be completed and we shall have a thoroughly modernised, unrecognisable indusry. This is going to happen, too, in the other advanced countries. Their textile industries are reshaping themselves in favourable conditions—I watch it happening. Only in the United Kingdom are the conditions artificially unfavourable for these dramatic changes. The reason is not far to seek: the other advanced countries restrict their import of textiles to 10 per cent., or less, of their home consumption; and the figures are 7 per cent. in the United States, and only 5 per cent. in the Common Market. Compare these figures with ours! Consumer expenditure on textiles in this country last year was £2,000 million. This is one of the biggest industries we have. Of that vast sum, 35 per cent. was covered by imports, the bulk coming in, duty-free, from the Eastern Commonwealth.
Our textile industry—and wool will go the same way as cotton if we do nothing to stop it—suffers by comparison with those in the other advanced countries in two ways. First, by the sheer volume of the imports; and, second, by the weak manner in which these imports are sold on our market, resulting in an instability of prices which renders all long-term planning extremely hazardous. If, then, the capital and the management are to be found to transform our old multi-unit industry into half-a-dozen strong, labour-intensive, vertical groups then the attack on our home market, which we alone suffer, must be firmly contained.

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How is this to be done? The industry, with Government support, has tried to restrict the volume of cheap imports by voluntary quotas negotiated separately with the exporting countries. These quotas have not given the required stability. A new policy is essential and the time has come to negotiate a global quota under which no new allocation will be given unless it comes off the original total. We have just heard about Malaysia, which last week got a quota added on to the existing one; and this has undermined confidence in the North of this country still more. The industry itself feels that to offer these Eastern countries one quarter of the whole of our domestic market will be very generous in comparison with anything that any of the other advanced countries are willing to do for them. But, whatever may be the size of a global quota, it will not by itself afford the stability required for long-term planning. We have learned from experience that quotas do not eliminate weak selling. Yarn or cloth arriving from the underdeveloped countries is sold here for what it will fetch, and the bargain prices become the prices for similar products from British mills.
Some years ago Mr. Wilson addressed his mind to the problem of weak selling from the East and, together with others, he suggested an Imports Buying Commission which would take all imports and re-sell them at reasonable prices—and by "reasonable prices" I mean simply non-disruptive prices. That was an idea well worth examining; but to-day I do not find anyone in Whitehall, or, barring a few exceptions, in the whole of the industry, who thinks it would be workable. On looking into the proposal it is seen that the administrative difficulties would be overwhelming. In any case, a system of that kind would be bound to be irritating, clumsy and inflexible.
If we in Britain cannot organise a buying Commission it is quite certain that the diverse Eastern countries cannot organise a selling commission. So we are left with some sort of levy. We have one at this moment—the surcharge. We are left with some sort of levy on all the textiles which would otherwise come in duty free. That would be a kind of tariff, which would tend to reduce the sterling earnings of the underdeveloped countries. None of us wants to do that.
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We take pride, I hope, in having given a lead to the advanced countries in accepting the exports of Asia and Africa. Our duty is to press this policy on them and not to go back on it ourselves.
Is it therefore possible to continue to help India, Pakistan and the other countries, and at the same time to secure the minimum conditions in which our own textile industry can compete with the others in Western countries? We want to regroup and re-equip our mills; they want sterling to pay for their imports. Is there a way in which we can get the stability and they can get the sterling? I believe there is. A global quota could be negotiated for the next five years, and during that period a levy could be raised on all textiles, from yarn to garments, which would otherwise come in under the quota duty free. The whole proceeds of the levy could then be set aside and returned to the countries from which the textiles have come, to help them with their economic developments.
If that were done, not only would the sterling earnings of the underdeveloped countries be maintained but there would be a good prospect that they would increase, because of the orderly market which would obtain here. Further, this returnable levy would be a striking gesture which might at last persuade other countries to follow our example. As things are at present, there is no hope whatever of persuading the industries of either Europe or America to do anything comparable with what we are doing for the underdeveloped countries. If the Government will introduce a levy of that kind I can assure them that the British textile industry will respond and in a few years' time we should hold our own in our market, and make great advances in those export markets where fashion and quality count.
One further point. The developments in the pipe-line of new man-made fibres are very promising indeed, but in this industry the competition is severe, being in the hands of a few giant international firms, and if our own industry, which is technologically as good as any other, is to capture a large slice of the growing world demand for fibres we must have a home base for the use of fibres in this country. If our textile industry were treated by the Government no better and no worse than Governments treat the

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textile industries in other advanced countries, we should earn tens of millions of pounds for the balance of payments, on both sides of the account, saving imports and increasing exports. I think the Government cannot point to an industry with a greater growth potential than textiles, measured by their contribution in millions of pounds to the balance of payments.
Therefore my plea to Ministers is, first: will they please be more consistent in their general economic policy, because otherwise the incomes policy will fail, and that will be a real disaster? Secondly, wilt they give us the kind of fair treatment which will enable Britain's oldest industry in manufacturing to rise again? My Lords, as I said before, our standard of life is so precarious that we cannot afford a Government who are in two minds about the basic issues of economic policy. I hope they will tell us, not just in words but by their deeds, which they prefer—prosperity for all or politics for one side.
LORD SHACKLETON: My Lords, may I ask the noble Viscount a question? I was following his argument very carefully. I gather that he is in favour of a greater increase in subsidies, but does he also want to have an increased quota and a special tariff of the kind which is returnable to the country; and would be equate this with increased competition, from a consistency point of view?
VISCOUNT ECCLES: May I reply to the noble Lord? Supposing that the present surcharge, which is for the first time levying a duty on Commonwealth textiles coming into the country, had been collected and set aside in a separate account, and that money used for development schemes in the Commonwealth, then since the surcharge was put on the Commonwealth would have earned more sterling than before. This is the situation which I wish to perpetuate, because there is no doubt at all that the weak way in which textiles from abroad have been sold in our markets has reduced the total earnings of the very people whose prosperity we want to help.
LORD BYERS: My Lords, when the noble Viscount talks about weak selling he really means competition; when he talks of stability he really means protection. Is not the end result of his argument higher prices to the consumer?
VISCOUNT ECCLES: No; weak selling is rather a special thing in the textile industry. Textiles are offered on the exchange for whatever they will fetch, but they get knocked down at very low prices. It is a sad and ironic thing that the great ingenuity and skill of the British merchant, which was built up in making us the biggest exporter of textiles in the world, is now turned against our own industry to make us the greatest importer. It would not mean higher prices, because we know perfectly well that if we can get six or seven very large units here, using their expensive machinery round the clock, clothing will come down in price. If the noble Lord imagines there will be no competition between I.C.I. and my company, I think he is wrong.
LORD BYERS: Then will not the noble Viscount require the protection?
VISCOUNT ECCLES: Yes, temporarily.
4.58 p.m.
LORD HAIRE OF WHITEABBEY: My Lords, it is almost twenty years since I first had the honour to address this House. It was then the other place, graciously loaned by your Lordships during the emergency of war and after. Like so many of my honourable friends, I was in uniform. We had won the war and we had high hopes of winning the peace. To-day I have again the honour of addressing this House—this time your Lordships' House; and it is a great privilege to me to find here so many of my old colleagues from another place, on both sides, whom one has learned to honour and respect. In the short time that I have been in your Lordships' House I have sensed a kind of legend which says that those who come from another place make nerveless "maidens"; that they are "steeled"—if I may use such a controversial word—in the curt and thrust of debate. On the contrary, my Lords, the butterflies within me are working overtime at the moment and I have immense need of your Lordships' indulgence.
Almost twenty years ago we faced our first post-war economic crisis. The similarities of the situation to-day are so great that your Lordships will forgive me if I recount them in some detail. In 1947 we had an adverse balance of £600 million—and those were 1947 pounds.

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The cost of the war was being fully brought home to us. During the war we had sacrificed our foreign investments—some £6,000 million of them. The interest on those investments, the invisibles, was no longer available to us, no longer available to fight any adverse balance. The pattern of our overseas trading had been changing since the First World War. Before 1914 we had been in the comfortable position of being able to buy against our exports and services all the imports we needed, without touching the interest on our investments. After the First World War, we had to use those interests to effect a balance. Indeed, for three years before 1939, economic adversity had set in. We had, for the first time, an adverse balance, with all invisibles included, of approximately £50 million in each of those three years. Minus £50 million was the economic picture then, before the Second World War had done its worst.
After a generation of effort, the economic position is no better and little worse. We had an adverse balance of £600 million in 1947. To-day, only just a few months ago, we had an adverse balance of £700 million. Your Lordships will forgive me if I use the cliché: this is where I came in. Then we had a giant post-war housing problem. We had lost 2½ million houses in the war, destroyed and partly damaged, and there was the natural wastage to be overtaken. The target we set ourselves at that time was 4 million houses and we gave ourselves ten years. To-day, in spite of all our efforts, on both sides, our growth of population, our immigrant increase, make the housing problem almost equally urgent.
Then, twenty years ago, we had urgent need for new factories, new plant and new tools, after the war. To-day, the technological revolution has made most of our factories obsolete or, at best, obsolescent. We are faced with the enormous investment required in new factories, modern machinery, electronic equipment, if we are to achieve the growth targets we have set ourselves. Then, we had a manpower problem and we even had to resort to direction of labour. To-day, in spite of our population explosion, in spite of our useful immigrant labour force—the coloured folk, the Irish and the others—we are
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in dire need of manpower and woman-power. Indeed, the lack of labour may well be the bottleneck that may wreck our economy within the next ten years.
Then, twenty years ago, some were saying that the solution of our economic ills lay in the reduction of our population, and thus of demands on our food and raw material resources. They suggested a reduction of ten million. To-day, our population has increased by ten million and thus has negatived all our efforts at increased home agriculture and new consumer industries using less imported material.
I realise that this analysis is too facile, too over-simplified, too brief, but if I were to say more I might be accused of being partisan and I realise that my tongue is tied on this occasion. But it is surely no longer controversial if we acknowledge that we are no longer masters in our own economic house. Unlike America, we are economically not self-contained. We still need to go on importing half our food and two-thirds of our raw materials, and much else besides. We have to pay for them with our exports. This is the fundamental fact of British economy. This is the basic truth. Successive Governments, whatever their colour, have had to grapple with our razor-edge economy. As each economic crisis followed, at almost two-year intervals, we surely have realised our deep-seated economic malaise. Yet, as the fever rose on each occasion, each Government has had to fall back on short-term remedies. We have had to stop the gap. Sometimes the treatment was painful, like last October. Then a sharp turn of the tourniquet was necessary to stop our lifeblood from flowing away. It appears to be having an effect. The dosage has been reduced; the treatment is now more palatable, and our Continental friends in EFTA are beginning to believe in our recovery. That is why we should applaud the efforts and the initiative taken by my right honourable friend the Prime Minister in Vienna this week.
The time has come for us to edge our way—one does not know whether to use metric or linear measure—towards a fusion of the two economic groups, E.E.C. and EFTA. What we need, in my opinion, is a 200 million population market right here in Europe, if we are to stand a

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chance to "knock the hell" out of the Americans—of course, in the most friendly way. Europe is now our most natural export market. We have lost two chances, but we must get in on equal terms with our partners and with the Commonwealth, and with not too many "ifs" and "buts"—and soon, too.
I am a businessman, a small businessman. In the light of what the noble Lord, Lord Byers, said during his speech, I hope that my noble friend the Leader of the House does not consider this as an application. I am also an unrepentant and unrelenting exporter. In the thirteen years since I was last in Parliament, hardly a month has gone by but I have been personally on the export beat somewhere in Europe. I may not be an economist, but I claim to be an exporter. I agree with what the noble Lord, Lord Byers, said in his own maiden speech on February 11 last. He said that exporting is tough, sometimes lonely and certainly not fun, but I would say that it is a challenge, and a stimulating challenge. A year ago this very week, I was invited by the B.B.C. to take part in a documentary film called "The Exporters". I appeared on and off in the film and I suppose that my own contribution was 60 seconds out of 60 minutes, and, as no names were mentioned, I would ask your Lordships not to consider this as a "plug". What I should like to think is that this film gives the answer to many of the problems of large and small businessmen throughout the country when they apply themselves to their export problems, and I hope that export organisations and chambers of commerce which have not already done so will show this film to their members.
If I may he permitted to make a personal comment or two, I think that I would single out, as our greatest weakness in the field of exports, communications. We do not measure up to the Americans when it comes to speed of communications. What I might call their listening posts are always alert; their ear is always to the ground; the vital information on a contract or deal gets passed on quickly. The Americans discovered the commercial hot line long before the political one.
May I give an illustration? Some two years ago, the organisation of which I am chairman was contending for a 1½, million dollar contract for mobile homes for American Service families in
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Europe. We learned first of our success from the manager of a branch office of component suppliers in Paris, an American, who immediately telephoned us in London and gave us the good news. He knew before we did. He asked if his company could be of service in supplying a type of refrigerator which had been specified in the contract. His costings and specifications were not quite right, but he made three calls from his head office in Paris to his senior colleagues in New York; the line from London to us was kept almost open; during that afternoon he met us on all our points, and the following day he was in our office with a written contract and a completed specification and all necessary documents to finalise the contract.
Not to be too internationally partisan, may I say that the boot is sometimes on the other foot? There was another occasion in my experience. A famous American aircraft corporation was entrusted with a contract of high military priority in East Anglia. They did not particularly like the hotels in the area, and, in any case, their job took them to a somewhat remote airfield. So they asked if we could supply them with 50 mobile homes. These were wanted as housing for their top executives. They did not like the local hotels: there were not sufficient home comforts, and the temperature in the bedrooms was not to their liking. As always, they demanded these in a "heluva" hurry. They had to be built to their specification, which again had to be good, and full of American gadgets, central heating, air conditioning and even a frost warning device with dual circuit electricity to make sure it worked.
Normally this would have been a twelve week delivery, maybe longer, starting from scratch, with materials and components to be ordered and assembled, and furnishings and fittings to be brought in. We signed the contract on a certain November 9, for 250,000 dollars, with a specified delivery date on January 6 following, Christmas falling in between. Their experience of delivery dates in this country was not good, so they insisted on a penalty clause; and we countered that by asking for a bonus clause in the event of early delivery. They thought this was inconceivable, so they readily conceded it. Our associate manufacturers are a well-known firm in

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Newmarket, and their men worked wonders. They worked through the Christmas holidays, and they saw the New Year in in their workshops. The result was that we delivered those goods two days ahead of time, and we collected our bonus: we immediately got a further contract for 100 units, and that contract built up to 200 units, to a value of approximately 1 million dollars.
I mention this in some detail because it was an occasion when the Americans could acknowledge that we could produce and deliver the goods on time. But it is also a perfect example of good industrial relations. Management and men worked together in unison; the men got a good bonus rate; they were "enthused" with their first dollar contract and the hope of future orders. Little wonder that this firm in Newmarket exports some half of the total mobile home production in this country, to a value of some £5 million. Little wonder that this factory has taken the challenge of Europe right into the heart of Germany, and has taken over a factory there. Little wonder that it has gone into Africa, and established itself in South Africa.
My Lords, may I now mention my second point regarding speedier communications? We must get off the ground, in my opinion, and into the air. I find that I can be in our agents' offices in Brussels, Paris or Dusseldorf in almost shorter time than I can be in our branch near Huntingdon; and certainly I can be in our branch in Belfast sooner than I can be in Brandon in Suffolk, where we have another branch. My favourite dining out story is of an occasion two years ago when we had a contract in the south of Italy. I spent the day on the job. The following day I caught a plane from Bari for Rome. There I met our agent and spent three hours with him. I caught a plane to Nice, where we have a branch. I had an excellent lunch on the plane, and arrived at 2 o'clock. I had a long session with our agent there, and then flew on to Paris, arriving at 6 p.m. There I met our manager, and I had three hours with him. I caught a plane after 9 p.m. and was home in my own bed in London just after 11 o'clock. This is possible to-day, and your Lordships will be familiar with
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this kind of thing. But there are so many manufacturers in this country who believe that they cannot be spared, and remain here in their offices. In my opinion, a day by a managing director among his agents is worth a week in his office writing letters and signing forms.
The third point I wish to make regarding communication is speaking the other fellow's language. Of course he will love to try out his English on you. But the time has gone commercially when nation shall speak to nation only if it is in English. If exporting is so vital that we are to have this dynamic campaign, then our salesmen and management must become more linguistic. Fortunately, there have been considerable advances in this field, too. The new language laboratories take all the pain, or most of it, out of learning a foreign language. It is not back to the classroom, but back to a thrilling new adult experiment. The Government must give this new language drive their backing, and, just as we spend lavishly in linguistics for our military men, we must subsidise and support language training for our export men. My Lords, I have tried your patience, and you have been most generous. I trust I shall never try your patience to such an extent that any one of you may be tempted to say, in somewhat historical language: "Will no one rid us of this superfluous Haire?"
5.18 p.m.
LORD GRANTCHESTER: My Lords, it gives me great pleasure to express the congratulations of the House to the noble Lord who has just sat down, and more particularly so as he has spoken to us on quite different lines from any other speaker this afternoon. I find it a little difficult to believe, in spite of what he said, that his speech could be such an ordeal to one who has had many years' experience in another place and who rose there to ministerial office; who has travelled and lectured in many parts of the world; and who has had great business experience, of which he has given us some idea during his remarks. I think he obviously wishes to influence history, as well as to write it. We shall look forward to hearing more from the noble Lord as he shares with us the knowledge and experience that he has acquired. I am afraid that I may be a little more controversial than the noble Lord has been

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on this occasion, but he will be able to get his own back after to-day, and I am sure we shall be pleased to listen to him when he can give full vent to all the advice he can give us.
I suppose there are few Members of your Lordships' House, if any, who are not in some way, in some capacity, involved or affected by the fiscal and other measures which Her Majesty's Government have taken since they came into office. This is perhaps true even more of Ministers and Members of another place. No one, I think, could express the extent of his personal involvement, or declare a specific interest, so complicated and, in some respects, undefined are many of the proposals of Her Majesty's Government. Perhaps, therefore, a general declaration of interest may be acceptable in the matters to which I shall refer in this afternoon's debate.
On many an occasion since 1948 your Lordships have reviewed the economic situation in this country. I have listened to many of these debates and have had the honour to take part in a number of them. I do not think anyone will question the fact that there was general agreement in this House that the position of our country was at all times "precarious". It has been a continual struggle by the country as a whole to make ends meet. Sometimes there was a small balance on the right side; almost as often it was on the wrong side. The country's gold reserves remained far below the claims which were payable on demand. Several attempts to step up production by the offer of inducements caused the deficit to mount. Every attempt to restore equilibrium checked production. The Conservative Government were taunted with operating a policy of "Stop" and "Go" and urged by the Opposition not to be so ready to apply the brakes.
As has been said, by the end of 1964 we had an uncomfortable deficit on our external trading account, which coincided with a considerable net outflow on capital account. It was the shock of this large deficit which caused one happier feature in this and picture to be overlooked. Although we had not increased our gold reserves over a long period of internal prosperity, some of our more enterprising businesses had succeeded in
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building up a substantial group of assets overseas. The noble Earl, Lord Dundee, referred to this achievement. These, as we know, do not appear in our national accounts as do our gold reserves, but, as was shown in two wars, assets of this kind can be a source of great strength to the country. The striking post-war recovery of this country in this respect, in the accumulating of assets abroad by its citizens, was shown, I think, for the first time in an estimate prepared by the Bank of England during the summer of 1964.
Incidentally, I would suggest that this is a much better way of expanding world trade on a sound basis than by the giving of aid. I am sorry that some of the announcements of Ministers seem to put these the other way round. If I am told, as the noble Lord, Lord Walston, implied in replying to a Question this afternoon, that the field of investment is very restricted, whereas Government can choose where to send it, I would reply that if the field of investment is restricted it is because there are still Governments who are not ready to accept the rules of conduct necessary if they are to benefit from the experience of those who come to their country—that is, not to kill the goose that lays the golden eggs. I hope, therefore, that Her Majesty's Government will take another look at the provisions of the Finance Bill affecting investment overseas while the Bill is still under discussion in another place.
It is equally important, I believe, that they should recognise that aid is no substitute for investment, and that in making a choice of the use of available resources. suitable investment is to be preferred to aid, both from the point of view of this country and even more in the interests of developing countries.
THE EARL OF LONGFORD: My Lords, may I interrupt the noble Lord who, as always, is speaking in a most interesting fashion? Surely, there are countries which are in need of help by any ethical standard, but which cannot be looked upon as good investment projects. You either help them by means of aid, or you do not help them at all.
LORD GRANTCHESTER: I think there are exceptional cases. I did not say there were to be no exceptions. I think there are exceptional cases, as when a

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country is overtaken by a disaster, such as an earthquake, and I think there are exceptional cases where a country may be, as the noble Earl the Leader of the House has said, behaving ethically and will protect the investment, yet where they have not reached such a stage where a private investment would be forthcoming. But in such a case I think the Government, rather than doing it themselves, might provide a guarantee and so make available the practical experience necessary. I do not believe Government is a proper medium for directing this sort of development. This, I think, is the advice which has been given to the World Bank and to the development agencies who have had reports over a period of about fifteen years of the results of both investment and aid which has geen given. It certainly brings out very clearly that much more has been done as a result of investment than as a result of aid.
Over all, in this country the stability of the economy depends upon the confidence of foreign nationals engaged in trade or business with us in our ability to meet current obligations, gradually to reduce claims on demand on our meagre reserves, and to build up foreign assets. This is nothing new. For over a hundred years we have successfully done just this, and the picture was not basically different up to the middle of 1964. But I am afraid that, whatever the noble Earl may say, regard for such an intangible factor as confidence which affects every phase of business relationship has never loomed large in Socialist thinking. Confidence is a very delicate and fragile asset, rather like faith, if I may use the illustration without impiety, beyond reason yet not entirely divorced from reason. Her Majesty's Government, shocked by the complexity of the tasks of Government—and I agree they are complex—which appeared much less difficult when they were in Opposition, and overwhelmed by the problems with which they were confronted, sought to elicit the sympathy of the British public by fastening blame irretrievably upon their predecessors in office. All this is understandable Party politics, but the protestations and ill-considered activity of the new Government in its early days were interpreted by those outside the country as panic and destroyed the confidence upon which stability of our economy depended.
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That confidence has not been restored, and I do not believe the Budget, tainted as it is with malevolence—and I do not think that that is too strong a word—against the successful individual and business, will help to restore confidence. Denials that there was any such intention behind its drafting will not remove the unfortunate impression that has been created. The words of the noble Earl the Leader of the House on this matter this afternoon were very moving, but, with the greatest respect, they will be judged meaningless unless they are translated into substantial changes in the provisions of the Finance Bill.
This Finance Bill deals another blow at natural family ties. I would call this morally bad, politically wrong and financially stupid, as it removes just one more incentive to save. Charity, we used to be told, begins at home, and I wonder whether parents and grandparents will be very anxious to execute covenants in favour of strangers which they will be unable to do for their offspring under the same conditions. Again, I can think of very few, if any, existing large businesses in this country which have not grown from quite small beginnings, in many cases family directed. I believe we shall often still find ourselves dependent in the future, as in the past, upon this sort of initiative. Successful change and adaptation can be brought about economically only by experiment on a limited scale, built upon the genius of an individual often, or the close interest of a group of individuals. Any Finance Bill which discriminates against this type of company, in my view, strikes at the foundation upon which the success of British industries at home and overseas has been built. The current Budget also contains a destructive impulse which I can only call "The Hitler bug" because those plagued with it are willing to risk causing great destruction in an attempt to impose a new order.
The pound has been saved by a rescue operation designed, as some noble Lords have already pointed out, some years ago to prevent the collapse of any leading industrial nation which might run into trouble. The operation was prepared by the I.M.F., which is an organ of the United Nations, though we sometimes do not realise it, acting in co-operation with the reserve and commercial banks of the great industrial trading

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nations of the world, commonly called "The Group of Ten". Had it not been for this preparation every one of us might at this moment be facing the misery through which the Germans went on two occasions in our generation when their earnings melted into worthlessness in their pockets before they could spend them. As a consequence of the rescue operation the Government, made up from a Party which was not willing to surrender one jot of national sovereignty in economic decisions to the executive of a European community, of which this country could have been a part, have had to listen to the facts of modern life being explained by those who came to their rescue. To speak bluntly, we have had the brokers in on behalf of the Americans, the Germans, the French, the Swiss and the Swedes, to mention the principal countries concerned. This is the truth, however discreetly the brokers represent themselves as advisers.
We are used to criticism by Opposition Parties. During the past months the Opposition Parties have refrained from embarrassing the Government, but in my opinion we should not be doing our duty to the country if we remained silent now. The country must reassert itself to create a Government in which those with whom we trade have confidence. Only so can we get rid of the brokers.
We may speculate on some of the things the Government must have been told. I know some of the German Social Democrats fairly well, and I wonder whether they have whispered into the ears of Ministers that they, at least, consider policies like nationalisation to be out of date in a modern society and that they have come to the conclusion that such exercises do more harm than good, particularly so in our present difficult position. And I wonder whether anyone suggested that no far-sighted business man would want to put too much of anyone's money into any single industry, even steel, in a world ever experimenting with new and alternative materials; and that the Government's credit does not stand very high at the moment and would not be improved by the issue of more Government stock to the shareholders of the steel companies.
Talking of Government credit, is there any defence of the Government's proposal, after issuing stock on the basis
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of redemption yield, retrospectively to change the terms on which it was issued by levying a tax on redemption? Do the Government expect their citizens and institutions to buy any new stock when they have, to put it in plain language, acted dishonestly in respect of existing obligations? Most business men prefer not to deal with a customer who has not maintained a commercial standard of honesty. Should a Government expect to be treated differently in their dealings with their citizens when their actions are not above suspicion? This act takes us along the road to anarchy, not that of good Government.
The capital gains tax is represented as a just levy upon the speculator who has benefited without contributing to production. The fact is that one of its effects will be to diminish the return which would otherwise be received by those who have entrusted their savings to any of the institutions which manage corporately the small investments of millions of workers—such as life insurance and trust companies. It ought to be explained that it is going to reduce the return to these millions of workers; that it is not just a tax designed to hit what is called the speculator. This is proposed at a time when the purchasing value of the national currency is still falling at a rate of more than 3½ per cent. per annum.
It is relevant to ask whether a capital gain can even be computed honestly on the basis laid down in the Finance Bill, in an inflationary situation such as exists. The Finance Bill is a direct attack on the value of the savings of millions of small workers throughout the country, men and women who have struggled to save. The word "speculation" was burned into my mind by the Prime Minister when, in an address to the City soon after his appointment, he declared, rather pompously:
"Investment, yes, speculation, never."
Since then, the speaking aloud of their thoughts by Ministers, and the proposals made by the Government in two Budgets, have turned every investment into a speculation. Nobody knows how to compute the value of any investment so that it becomes the speculation of which the Prime Minister said he would never approve. When it comes to incentives to expand, which we are all looking for, I

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suggest that we might take a hint from the American President, who thinks the best way is to reduce taxation.
However, it is no doubt true that the advisers of our creditors have recommended the damping down of consumer demand at home, and this is given as the reason for the increased taxation which is being imposed in the Budget. If the Government took Treasury notes to the value of this extra taxation and made a bonfire of them outside the Treasury, that would be a way of reducing consumer demand in this country. But the Government themselves intend to spend not only the sums raised in additional taxation, but some £745 million more which it hopes to borrow. This will have the effect of increasing consumer demand and undermining the restrictions imposed in the private sector, as the banks have reminded the Government. We all know that financial institutions try to avoid clashes with the Government, whatever their Party constitution, for the reason that they have customers from members of all Parties and they are not interested in their politics. The fact that the banks have spoken out shows how misguided and detrimental to their customers they consider the proposal not to apply the same checks upon Government expenditure as apply to other expenditure.
Quite a lot has been said on the subject of expense allowances and benefits in kind in industry and business, so all I would say is that the declared reason for this amounts to an accusation against the honesty of those engaged in business, an accusation of connivance in such dishonesty by the firm's accountants and auditors, and an accusation of incompetence against every tax inspector. When we speak of these things we should not overlook the fact that the office and works refreshment and recreation facilities are usually heavily subsidised by the taxpayer, and that the talking of "shop" in the canteen is barred, in contrast to what happens at the Savoy. Nor must we forget the many and varied State-provided benefits in kind dished out at the expense of the taxpayer which, on the analogy of the Finance Bill, should be included as part of the income of the recipient.
As I have said, the Budget is not automatically disinflationary because it
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imposes additional taxes, and I should have no hesitation in labelling the two Budgets of this Government as certain to increase the inflationary trend. I think this is clear already. If anyone doubts it, the leading article in The Times of May 7, which I will not quote, confirms the general feeling in responsible circles. In such an atmosphere, no incomes policy can succeed for long, and if inflation were stopped and a sound and stable currency maintained, an artificial incomes policy would be unnecessary.
The fact is that Mr. Selwyn Lloyd was far more successful than Mr. Brown has been in this matter. Several million pounds per week have been added to the costs of production and wages while Mr. Brown has been talking about an incomes policy. It has obviously been sabotaged already. I think that Ministers have found, in the hard school of responsibility, that some of their preconceptions had little relevance to the economic realities with which they have had to deal; but they are committed to some policies which they cannot perhaps discard without showing themselves to have been unknowledgeable, and without making themselves ridiculous in the eyes of those who took what I think might be called their pseudo-scientific jargon during the Election for a new revelation.
It is particularly noticeable that what Ministers say outside the country, particularly on the Continent, is many years out of date. They may represent in this country a refurbished Eden plan for a Free Trade Area as a new initiative, but this carries no weight at all if addressed either to our EFTA partners or to the E.E.C. I am afraid that I cannot share the optimism of the noble Earl the Leader of the House regarding the result of the meeting in Vienna. The only hope of getting back the confidence of our partners in EFTA would be to announce the date of the final end of the surcharge, and then perhaps we might together make a new start.
If the Government are serious in their desire to make progress in the movement for wider union in Europe—I use these words in a very comprehensive sense—I would suggest that they should first take Sir Winston Churchill's advice given at the Yalta Conference, that co-operation with France is the first condition for

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rebuilding Europe. If we could get down to some preliminary discussions, without preconceptions, with the French Government we should be taking the line which Sir Winston at that Conference pressed on both Stalin and President Roosevelt. In particular, I hope that Ministers and the Government as a whole will take seriously the unofficial address given in London yesterday by M. Rueff dealing with the international monetary situation. The key to European unity perhaps lies more in the ideas he was discussing than in any other field, because agreement on monetary problems in Europe could have an overriding influence upon future developments. It is of interest to note that the ComEcon countries have recently defined a unit for international settlements among themselves in terms of a definite weight of fine gold.
I could refer to a number of other matters but I see that it is getting late. May I suggest that when the Chancellor speaks on television he should refrain from references to the benefits that manufacturers have told him they get from his new rebates. He referred to one who said that the export rebates were worth a million pounds to his firm. Everyone knows that such rebates come under close scrutiny at GATT, and I think the manufacturer concerned may well rue the day he said anything about it to the Chancellor of the Exchequer. Unfortunately, the Chancellor of the Exchequer refrained from saying he would not put the British manufacturer at a disadvantage, corporation tax-wise, as against a German competitor; or that he would not put a British citizen at a disadvantage double tax-wise compared with Continental competitors.
No one has a right to judge the motives of other individuals, even of members of the Government. We are entitled to express judgment upon the behaviour and policies that any Government pursue. To-day, more than ever, the economic position of a country is reflected in its political influence and vice versa. Our influence in the political field at the moment is paralysed. I think that is obvious from the silence of those for whom I had a sneaking admiration, who used to sit down in our streets because they thought that that was the only way of expressing their frustration. Why is it that now no one raises a voice when
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Ministers say that they are 100 per cent. behind policies with which many are in great disagreement, including many members in the Government's Party? This makes us doubt the sincerity of the professions they made. I wonder whether if, as a result of an early Election, there was again another Party in power, these marches and protests would be resumed. Then we should feel they were made only for Party purposes rather than from burning conviction.
5.57 p.m.
THE EARL OF KILMUIR: My Lords, I should like to join the noble Lord who has just spoken in congratulating the noble Lord, Lord Haire of White-abbey, on his maiden speech. He mentioned that a number of us who are sitting here to-day were with him in another place. I remember that well, but I should like him to know that we are all glad to see him here and look forward to his repeating the admirable performance which he gave this afternoon.
I want to speak, for as short a time as I can, from the point of view of industry, and I hope that we can start from the accepted position that it is the wish of British industry in general, as it is of my own company in particular, to make the greatest possible contribution to improve the economic situation, and especially to solve the problem of the balance of payments. In this matter it is our wish, no less than our duty, to co-operate with Her Majesty's Ministers in the attainment of these objectives. This means, however, that we should ask about, and be informed on, the aspects of the Government's policy which we find difficult to understand. I make no apology that my remarks will be largely interrogative. I have a very long-standing engagement which may prevent my hearing the speech of the noble Lord, Lord Shackleton. I have sent a message to him, but I should like to express my sorrow if I do have to leave.
It has often been said that before and during the Election the Prime Minister won much support, inside and outside his own Party, by advocating the efficiency of the economy, based on, first, the efficiency of industry and the advancement of technology; second, the need for specific Government encouragement and

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the creation of a climate of expansion; and third, the requirements, in relation to the balance of payments, of exports and the import-saving industries. In a striking passage, an old friend of mine, William Rees-Mogg, once imagined how the Prime Minister would have dealt with his own Chancellor's Budget proposals, if he had still been in Opposition. I hope that your Lordships will allow me to quote it and place it on record.
"Here is a Government facing a long-term problem of investment and a long-term problem of exports. They are concerned that Britain is falling behind in the investment league table and the productivity league table and the export league table; indeed, they have talked of little else for years. When they at last get into office what do they do? They cut down on the investment allowances and impose new tax penalties on the overseas investment which is essential to the export drive and to our earnings of foreign currency."
That quotation brings me to my first question. What is the purpose, in Mr. Wilson's sense of the deliberate use of Government policy to encourage industrial efficiency and economic expansion, of a Budget with these provisions: first, the devaluation of investment allowances; secondly, the discrimination against overseas earnings (incidentally, my Lords, I have not seen an answer to the point I raised, as to why the proposals should be drawn to discriminate in favour of South Africa and against India, which is the effect of their present form); thirdly, the ensuring, as I elaborated in a previous debate, that Britain is a bad place to conduct an international company, which, after it has reached the stage of local manufacture, is at once an exporter and a customer for British goods, although that step is essential to the development of exports.
Again, my Lords—and I listened very carefully to the noble Lord, Lord Walston, earlier this afternoon—I have heard no answer to the point which I ventured to raise: that if you discriminate against private investment you will be driven to increase Government grants at the taxpayers' expense, or else to allow a foreign competitor to come in and do that which you are prevented from doing. As the noble Lord, Lord Grantchester, has pointed out, the capital gains tax, especially if gilt-edged are within its scope, will be a disincentive to invest-
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ment. I agree that, after so many promises of special encouragement to him, the attack on covenants discourages the executive who has attained a good income but has not much capital from spreading the income in his family, other than among his children under 21, which of course is prohibited. I have a personal interest in this, but I have never been able to understand why, if a man entirely deprives himself—and that must be the basis—of his income, he should still pay taxes; whereas someone who is more fortunate and has inherited or acquired capital can deprive himself of part of his capital without paying tax.
I now ask my second question. Are import-saving industries likely to be encouraged by the experiences of the aircraft industry and of agriculture, and by their reactions? The other point on which I should like information is the Chancellor's statement that the credit squeeze has "hardly started yet". In spite of the fact that this question has been dealt with in many of the organs of informed opinion over the week-end, I am not clear about the position, and should be very grateful for the answers to these questions. Are the facts—
THE EARL OF LONGFORD: My Lords, may I interrupt the noble Earl on that particular point? I would not do so if he were able to be with us, but for reasons which we fully understand he will not be here. So may I simply take up that one point and his reference to the Chancellor's remarks? I hope the House will forgive me for coming in here. The Chancellor was asked on television when he was going to be able to ease the present squeeze and replied, "Well, it has hardly started yet." That was the answer, given off the handle, and it has been taken by some to mean that we are going to have a still rougher time in the near future. But of course the Chancellor was only stating the obvious. He was simply pointing out that the measures, including the global limit on bank advances over the next year, had only just been introduced. He went on to say that we should be able to ease the squeeze when we got the country out of its present balance-of-payments difficulties. If I may say so with great respect, that particular remark has been very widely misunderstood.
THE EARL OF KILMUIR: My Lords, I am very grateful to the noble Earl, and I entirely appreciate the most helpful spirit in which he interrupted me. But I think he will see that his words leave the questions which I was about to put as very relevant.
The first is: are the facts which have been stated correct, that after the 7 per cent. bank rate in 1957, the peak of unemployment was reached in January, 1959; that after the 7 per cent. bank rate in 1961, the peak of unemployment was reached in February, 1963? I do not want noble Lords to misunderstand me. I am conscious of the fact that I was a member of the Government at that time, and I lake my full share of responsibility for those actions. But then comes the vital question. Following Mr. Callaghan's 7 per cent. bank rate of November, 1964, what are the Government doing to prevent the peak of unemployment coming in the early months of 1966?
The next question I should like to ask is: what serious attempt has been made to tackle inflationary wage claims, particularly in the public sector? I do not want to lengthen my speech, and the noble Lord will find the claims well set out on page 889 of the current issue of the Economist, under the heading "Private Precept and Public Example". The importance of the claims in the public sector is stressed there.
Then I would ask: what serious attempt has been made to discriminate between public demand and investment demand—that is (to take the example which is so often quoted), between the hire-purchase credit for a car and the bank credit for factory extension? Obviously, they are two entirely different things. What attempt has been made to discriminate between the two? I would also ask, generally, what are the Government's plans for getting out of the position for which they blame their predecessors, of each boom hurting foreign confidence and each recession being at the expense of productive investment—what the noble Earl, Lord Longford (if my note is right), called the "up and down" from which our economy has been suffering? Further—and in view of what the noble Earl said, I think this question now becomes material—can the noble Earl give us some information as
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to when there will be a careful—and I stress the word "careful"—cautious, limited relaxation of the credit squeeze, in order that business confidence may be restored?
My Lords, may I return to the point from which I started? I can promise—and I am sure that I can speak for industry as a whole—every co-operation with the Ministry of Technology, or whatever be the sponsoring Ministry, in increasing efficiency. Here, I hope your Lordships will allow me to give the House my experience. On Saturday I had the honour of opening, at Swindon, a conference of the Institute of Industrial Supervisors. The theme of the conference was industrial training. I have never seen a better or more hopeful spirit of collaboration between members, personnel managers and the people from the Ministry of Labour. The second point I would make is that industry has never been more alive to the problems of management training, development and succession. The third point is that industry is exportminded—and this applies not only to the great standard-bearers in this field, like my friends Sir William Macfadzean and Lord Watkinson, but to every member of my own staff with whom I have come in contact and whose work I have seen. l assure the Government that we shall win this fight, but what I have put in interrogative form is that we should be immeasurably helped if we had explained to us the battle-plan on which the Government wish to engage.
6.15 p.m.
LORD CASEY: My Lords, by far the greater part of this debate on the Motion of the noble Earl, Lord Dundee, has been about the domestic economy of the United Kingdom; and that is perfectly understandable. The domestic economy is, of course, by far the greater part of the economy of Britatin as a whole. But there is another part, and that is that part of the British economy that exists overseas; and, if I may, I am going to attempt to redress the balance a little by speaking solely about the other part of the British economy—that part which finds itself in countries overseas. As we know, the economy of the country does not stop at its own shores, but includes the domestic economy and all operations that can be expressed in terms of money that originate in this country and then

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project themselves overseas. The overseas aspect of it has in recent times been discussed in your Lordships' House, so to an extent, although I hope to only a very small extent, I shall be treading on fields that have already been covered; but I can assure your Lordships that I shall be jealous of your Lordships' time.
Indeed, I like to believe that this debate on the Economic Situation would not be complete without consideration, and fairly detailed consideration—not that I will deal with it at great length—of some aspects of the overseas investment elements in it. I am fortified in my belief in the importance of the overseas aspect by the Chancellor of the Exchequer's having expressed the total of Britain's overseas investment assets at (I think it was) about £10,000 million, which is not an inconsiderable sum. I would remind your Lordships that the gross national product of Britain is well under £30,000 million. I realise, of course, that the figures I have given are not comparable. Of the £10,000 million, about £6,000 million is said to consist of direct investment at book value—of course, at current values it would be appreciably more—and the balance of £4,000 million is portfolio investment overseas. There is also the fact that the earnings of this large total of overseas investment have averaged over £430 million a year over the last five years, excluding (for reasons that I do not appreciate) the earnings from oil and insurance. For some reason the statistics specifically exclude earnings from oil and insurance.
Looking again at the figures for the last five years as published in Economic Trends, which is the authoritative publication of the Government Central Statistical Office, British direct and portfolio investment overseas has amounted to £1,185 million, again excluding oil and insurance, over the last five years. As against this, the interest, profits and dividends earned on overseas investments have amounted to a total of £2,158 million, showing a net gain of nearly £1,000 million to the British balance of payments over the last five years. The figures that I have quoted emphasise, I think, the point that overseas investment is two-way traffic, and that for every swing there is a roundabout. in this instance, taking
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overseas investment over the last five years, the roundabout has been very definitely in favour of the British balance of payments.
Again, the figures that I have given take no account of the fact that Britain's direct overseas investment creates considerable demand for British products and equipment, brought about by the fact that those in charge of British direct investment overseas are understandably and properly inclined to buy British, which the figures I have given do not take into account. Another figure of consequence, that links the economy of Britain with that of the other sterling area countries, is that the total financial reserves of the other sterling area countries held in London amounted to about £2,420 million at the end of 1964. Of this total, the financial reserves of my own country, Australia, were of the order of about £500 million sterling.
I would be grateful if your Lordships would regard what I have said up to now as a factual background to a consideration of the financial and taxation innovations that Her Majesty's Government have recently proposed. I speak of the overseas effects of the Chancellor of the Exchequer's corporation tax and of the letter of April 8 from the First Secretary of State to a number of the more important British companies operating overseas. I think I am not using the language of exaggeration when I say that each of these, the corporation tax and the letter of April 8, will have the effect of diminishing the outflow of money from Britain to other countries, including the overseas Commonwealth countries. Indeed, I believe that this was the express purpose of both the tax and the letter. In addition to diminishing the outflow of money from Britain to overseas countries, I believe that two other things are likely to flow from the corporation tax and the letter. First, the net profitability, and so the value, of Britain's overseas assets will be depreciated; and, second, there is at least the possibility of a reduction in the total of the sterling reserves held in London by the overseas sterling area countries. I would not believe that either of these what I might call consequential results was intended by Her Majesty's Government when the corporation tax and the letter of the First Secretary of State were contemplated.

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I think it would be agreed, from the figures that I have quoted, that the basic balance-of-payments problem is very largely an import-export problem and not, to any important extent, an overseas investment problem. However, it must be agreed that the balance-of-payments problem has some overseas investment content; and, to this extent, Britain's overseas investment might be expected to have to accept its part of the business of correction, but not, I would hope, a permanent burden. But the means that Her Majesty's Government have adopted to this end is designed to be a permanent one. In other words, Her Majesty's Government have adopted a permanent long-term solution to a short-term situation. Her Majesty's Government are no doubt motivated by what they believe to be the interests of this country; and this, indeed, is their task and their responsibility as it is that of every country's Government. However, the position of Her Majesty's Government in the United Kingdom is, I believe, rather different from that of the Governments of other countries, in that Britain is the de facto leader of the Commonwealth and, as such, is looked to to have the interests of the Commonwealth in mind, at least to a reasonable extent.
Perhaps I might at this stage say a little about the situation of my own country, Australia. We have a population of little over 11 millions trying to occupy a country of continental size. We have for many years been endeavouring to strengthen Australia by as rapid a population increase as our economy will stand, by the import of capital moneys for investment and development and by the exploitation of our natural resources. If we had to develop Australia on the basis of our own domestic savings, our rate of development would be very much slower than it is. In other words, we count—I believe, legitimately—on as great an intake of migrants and of investment money from the United Kingdom as is possible, in addition, of course, to similar investment from the United States. If either the flow of investment money or of migrants were to be curtailed, the rate of development of Australia—and hence her long-term security—would be correspondingly diminished. This is the reason for our
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sensitivity, even our anxiety, in this current situation.
Australia does not seek men or money for purposes of self-aggrandisement, but for survival in a troubled world. I hope I shall not be accused of introducing sentimentality into what is essentially an economic matter when I say that there is no more loyal British country than Australia, loyal to the Crown, to this country, and to the Commonwealth.
SEVERAL NOBLE LORDS: Hear, hear!
LORD CASEY: Membership of the Commonwealth and membership of the sterling area are not, I know, synonymous, but they are very nearly so.
Britain must, of course, take whatever action she believes will best serve her own interests, and I should be the first to agree that the balance-of-payments gap must be eliminated as quickly as possible to the benefit not only of Britain but also of the rest of the sterling area. However, it would appear to me that if the present measures, as I understand them, are brought to fruition, one of two alternatives is likely to come about. Either the development of Australia (and I take Australia as a typical Commonwealth country) is likely to have to slow down, and this would mean a lower rate of imports; or there is likely to be a reduction in Australia's financial reserves in London. In other words, to use a popular term, we should have to eat into our kidney fat to maintain the rate of development we seek.
Neither of these alternatives, I believe, would be to Australia's interest; nor indeed is it clear that they would be to Britain's interest. The rest of the sterling area, outside Britain, appears to be moving into a period of balance-of-payments difficulties, partly as a result of falling commodity prices over which we have little or no control. Australia, for example, has lost about £100 million of her reserves held in London since June, 1964, following an increase of over £200 million over the two previous years. As I have already said, any reduction in the outflow of capital from Britain to Australia and to the other Commonwealth countries in the sterling area is likely either to lead to a slowing down in the rate of development of the other countries or to diminish further their reserves in London.

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I have spoken of the situation in Australia, as it is the Commonwealth country I happen to know best, but what I have said about Australia is largely true of most of the Commonwealth countries. In some instances what I have said could have been expressed in more stringent terms in respect of some other Commonwealth countries.
This leads me to the belief that the countries of the Commonwealth are involved, I believe to their detriment, in the present proposals of Her Majesty's Government and I believe that the Commonwealth as a whole is not in a position to stand any additional blows. That is really all I have to say to your Lordships on this subject of the overseas aspect of the British economy. I would finish by saying that I hope very much that Her Majesty's Government might see fit to have these matters reexamined, particularly, I hope, in the Commonwealth aspect, and that perhaps it would be wise if this were done before the Prime Ministers' Conference next month.
6.29 p.m.
LORD BROCKET: My Lords, the last speech by the noble Lord, Lord Casey, is a great example of the power of this House, in that we have among our Members representatives from other parts of the Commonwealth. We should congratulate ourselves that he has so very ably and shortly, if I may say so, put his views from Australia. It reminds me that it is 34 years next month since I was elected to the House of Commons on a Commonwealth policy—or, as we called it in those days, an "Empire" policy. This was in June, 1931, when a Labour Government was in office and we were on the verge of a financial crisis which ended with the formation, in October of that year, of a National Government that included Mr. Ramsay MacDonald, Prime Minister, and Mr. Baldwin and Lord Snowden.
I remember that in the second Election which I faced in three months people were greatly influenced by the fact that Lord Snowden made an announcement that Post Office savings were in jeopardy; and the voters certainly rallied to the side of the National Government candidates because they were frightened of
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their savings being in jeopardy. I am not going to suggest that any Chancellor of the Exchequer will repeat that the Post Office savings of the people are in jeopardy, but I do feel that things are going from bad to worse at this time.
I should like to quote from the White Paper on the Economic Situation a statement by Her Majesty's Government of October 26, 1964. In paragraph 3, the penultimate sentence reads as follows:
"But the underlying economic situation remains profoundly unsatisfactory."
That was at the end of October last year; and of course one reason given by the spokesman for the present Government was that the late Government had not explained to the public the extent of the balance-of-payments deficit. The Government were inclined to blame Mr. Maud-ling for the position in which they found themselves. I have been told that even fishwives do not cry "stinking fish", and I believe that this cry did a great deal of harm to the credit of this country. Whose fault it was does not matter in this way, because we are all in it together.
Arising out of that, I was delighted to hear the noble Earl, Lord Longford, say this afternoon—and I quote his words—that "the City, industry and the Government must all work together". The noble Earl also said that the Government have no wish to hurt the City. All I would say is that if they have no wish to hurt the City, I wish they would carry out their wish; because there is no doubt at all that at the present time there is a great lack of co-operation between the City and the financiers of this country and the Government.
The last Budget, not only was very long and complicated but had the effect of creating great uncertainty among trade and industrial interests in this country. No Chancellor can introduce a capital gains tax such as the present one without creating uncertainty; and I would say, speaking as an industrialist, and not trying to make Party political points in any way, because things are too serious for that, that uncertainty is one of the most terrible bugbears that industry can have. It cannot plan ahead, and yet it must plan I ahead if it is to have increased exports and conduct the industry of this country efficiently. The uncertainty of this

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tax hanging over industry must have a very bad effect on it in general.
There is another matter which I feel I must discuss, and that is the question of inflation. The pound is now worth roughly one quarter of what it was before the last war. Going back still further, I remember my father building cottages for £300 apiece, whereas if I have tenders for similar cottages to-day the figure is nearly £3,000. That is an immense increase within the last 30 or 40 years. Inflation must be fought by all Parties, and in my opinion an incomes policy can best be carried out by the Labour Party.
The organisation popularly known as "Neddy" was set up by the late Government, and Mr. George Brown is very keen that "Neddy" should work. If I may digress for a moment, I should like to repeat the view that I have expressed several times and say how much I regret that there is no representative of agriculture on "Neddy". I believe that that is a very great omission, from the point of view both of the late Government and of the present Government. I feel that if a really well-known and capable representative of agriculture could be put on "Neddy" it: would do a great deal for the success of that organisation.
LORD WILLIAMSON: My Lords, would the noble Lord forgive my interrupting him? Agriculture can have, and probably will have, its own individual "Neddy" for the industry.
LORD BROCKET: I hope that will be so. I was not making a Party point, because I blame the late Government as much—in fact I have said so to them.
To continue with the question of inflation, I welcome Mr. George Brown's efforts in connection with an incomes policy to keep down prices; but at the same time as Mr. George Brown signed this historic document between industry on both sides—the employers and the employees—and also on behalf of the Government, Mr. George Brown's colleagues have been conducting their affairs in such a way that they themselves create inflation. There is no doubt in my opinion that the last Budget and also (I am being perfectly fair to both sides) Mr. Maudling's Budget of last year, and Mr. Selwyn Lloyd's Budget before that, have all put up the cost of living. If you put up taxation either by a 10 per cent. pur
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chase tax or by putting up the cost of tea, beer, cigarettes and petrol, the cost of living rises, and I am sorry to note that in this last month the cost of living has gone up by over 2 per cent., which is the highest percentage rise in the cost of living for years. Of that 2 per cent., 1·4 per cent. can be attributed directly to the actions of the Government by putting up taxation on commodities which people consume, and in turn it has put up the cost of living. That is at the same time as Mr. George Brown and his Committee hope to keep it stable.
Also, at the same time as poor Mr. Brown is doing what he can for his Committee, we find wages being put up in Government Departments and in industry. There was a large rise in wages in B.O.A.C. the other day and a rise of 9 per cent. in a Government Department. All these things are causing inflation, and I feel the inflationary position will get out of hand. I hope it will not mean that we shall have another financial crisis in the autumn, as we had in 1931, and it may well be that a National Government would not be welcomed on either side; I do not know. But I feel industrialists as a whole would welcome some security for the future. They find it very difficult indeed, with the uncertainty and the inflationary position which we have at the moment.
Arising out of the question of security, I do not wish in any way to hark back to yesterday's debate, but I was one of the minority who voted against the Motion yesterday because I feel that the security of the law is very important to us in this country. I was sorry that certain speakers, particularly on this side of the House, regarded the debate yesterday as a possible issue between the two Houses of Parliament. I never regarded it as that myself—I may be right or I may be wrong—but when we have such eminent Judges as the noble Lords who spoke yesterday putting forward the legal position, I feel it is a pity that the public must realise that the law can be overridden as it was yesterday. I had the wish that if only the Parliament Act could have operated on that particular War Damage Bill, which will come into operation in the early months of next year, it might have given the oil companies and the Government a chance to negotiate some perfectly reasonable settlement between now and then which

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would have preserved the law and prevented the retrospective legislation which we approved yesterday. That, again, is a question of security. It is absolutely essential for successful industry that it should have security.
There is another matter on which I wish to comment, and that is incentive. In the last few days we have heard of the deterrent. On Monday we had the debate about consenting males over 21 and we had the possible deterrent. But we must have incentives as well as deterrents, and I feel we are drifting into a situation, particularly arising from this last Budget, if it gets through on the lines in which it was proposed, where we shall be without any incentive. Arising out of that, I should like to say that, with the exception of Sir Kingsley Wood's speech in 1940, I have listened to every Budget speech in the House of Commons since 1931, four as a Member of the House of Commons and the rest from the Gallery; and I thought that Mr. Callaghan's speech was a very good performance, as a performance, but I did not like the contents.
We have this uncertainty of the question of a capital gains tax and of other forms of taxation now being debated, both by night and by day, in another place. We have also the question of incentive. Human nature being what it is, profits are more acceptable than losses, and people who make money want their children to be better educated than they were. To-day there is not that incentive to work hard which one used to have when taxation was less and the rewards were greater.
I remember that when Neville Chamberlain was Chancellor of the Exchequer in 1933, I made a speech complaining that the Budget was approaching a figure of £700 million. In 1963 Government taxation was roughly £8,000 million and the rates were £1,000 million on top of that. I am sure that a few more millions have been added since then, and I presume that Government taxation plus rates now come to £10,000 million a year. This is an enormous addition to the cost of production. It is this increasing cost of production which brings up the cost of what people consume and causes inflation. Some effort should be made, by whatever Party is in power,
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to keep down expenditure. I cannot blame Her Majesty's Government in this respect, because I know how difficult it is, but we heard before the Election of the extra advantages which our people could be given without putting up taxation, and a great many people believed it. They now find that taxation has been increased by £500 million, so that has not been carried out—perhaps it could not be.
THE EARL OF LONGFORD: My Lords, I apologise for not being here at the beginning of the noble Lord's remarks and I hope that I have not missed something which bears on this intervention, but I am sure that no pledge, even of a most shadowy kind, was given about taxation in the first year. The only undertaking that was held out was for a period of five years of power.
LORD BROCKET: My Lords, I should not like to argue with the noble Earl, Lord Longford, on that point, but I certainly thought before the Election that it was hinted by Mr. Wilson and other people that taxation would not have to be raised because the yield would be so increased that it would pay for all the benefits people would have.
This enormous expenditure on rates and taxes of £10,000 million must be inflationary. I had lunch today with an industrialist who said that incentive has largely gone. People in industry are now saying, "What is the good of bothering?", and they find that workmen are saying the same thing because the cost of food and drink is always going up. He was an industrialist who was only too willing to work with the new Government. He said something which is worth repeating to your Lordships. He said that the climate that was bright at the time of the Election has now deteriorated into a wet afternoon. I am sorry that such a remark can be made, because it is a very bad thing for our country.
I think it is unfortunate that the 15 per cent. surcharge on imports was imposed in the way it was. I have already spoken in your Lordships' House on the effect it had on the Republic of Ireland, where it caused a breach of the 1931 Treaty. The noble Earl, like myself, has interests in Ireland and will probably agree that it was unfortunate. If it had

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been done in some other way, perhaps it would not have created the lack of confidence in this country which it did, not only in Ireland but in the EFTA countries as well.
The 7 per cent. bank rate has now gone on for 184 days, which I believe is a record. I understand that farm loans are now being made by the Agricultural Mortgage Corporation at 7¾ per cent. Again, the high rates charged by the banks and for agricultural loans must put up the cost of production, either in industry or in agriculture. I hope that the Chancellor of the Exchequer and Her Majesty's Government will see if these rates cannot be bought down at the earliest possible moment. I am sorry to be so depressing, but I feel it is only right that those who are connected with industry and agriculture should say what they really think. I hope that we shall not run into another financial crisis this autumn, but I think it is quite possible.
6.48 p.m.
LORD CITRINE: My Lords, this is the fourth debate on the Economic Situation in which I have taken part and I think that it would be true to say that all the major facts underlying our present economic difficulties are fairly well known to the Members of your Lordships' House. But when we look outside, what about the general public? How much of our difficulties are really understood by the vast mass of our people? in the workshops of this country, in the mines and in the factories, how many people ever discuss these matters? How many people ever bother their brains about the serious situation that is developing in this country?
My firm conviction is that there is a general assumption that our difficulties are purely temporary, that nothing lies deep, nothing requires anything more than a series of expedients. I do not think that it is realised that for the past 64 years this country has been importing more goods and foodstuffs than it has exported. The difference has been made up, of course, by invisible exports, such as shipping and insurance, and by overseas investment. Both these factors, in my judgment, are diminishing and are quite impermanent. Undoubtedly over the last ten to twenty years the contribution that shipping has been able to make to our balance of payments has diminished.
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As to investments, I believe that as time goes on it will be found more and more difficult to find profitable and secure investments overseas. I hope that I am wrong, but I believe that there are many factors which tend to reinforce that point of view.
Whatever our basic difficulties were before the war, the post-war period accentuated them, and right throughout that period we have had inflation and rising prices. This is not because we have not been warned about the consequences that would follow inflation. I recall a speech of the late Mr. Hugh Gaitskell when he was Chancellor of the Exchequer, made to the Trades Union Congress in 1951. That was a long time ago. I will not read it all, but he concluded in this way:
"If incomes go up more than production goes up. then prices will rise. The truth is as simple as that, and I would like to see it hanging as one of those old texts on the wall of every office occupied by anyone, whether employer or trade unionist, who is concerned with negotiations about increases of any kind."
This situation, and the warnings attendant upon it, has been reinforced from time to time by the Trades Union Congress.
I have here an extract from a very factual, well-balanced report made by the General Council to the trade unions in September, 1956. They conclude by saying:
"Costs and prices cannot go on rising indefinitely without seriously affecting our ability to export, on which our standard of living and employment level ultimately depend. The rest of the world does not owe British work-people a living, and competition for overseas markets is becoming more intense."
One would have thought, in the light of those warnings, that some serious attention would have been paid to this. But, although there have been many discussions in the trade union movement and elsewhere, I do not think anyone has taken the lesson home to himself; it has always been left to the other fellow. Expedients are being used from time to time: pay pause, credit squeeze, hank rate and purchase tax. All of them are unpopular, but they are all measures which the Government of the day considered imperative.
Labour's policy is not based upon the use of expedients, although it is perfectly obvious that as a short-term policy, as we have seen to-day, they cannot possibly avoid expedients. But the difference

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between Labour policy and that of the members of the Opposition is that we believe in a long-term policy, and not that of expedients. I do not know whether anybody ever thinks of the immensity of the task to change the economy of this country. The administrative machinery alone to deal with the limited purposes of the mechanism for the control of prices and incomes will be found, as the years go by, to be very considerable indeed. Whatever may be said about Labour's policy, it is an attempt at economic planning. I have said on a previous occasion that I think this is the major factor that, as it were, distinguishes the Opposition and the Labour movement. There is a good old British belief that you cannot look too far ahead in human affairs. The idea of planning, which in some measure carries sanctions at some point, is obnoxious to most people; and yet the economy of the country cannot be run hand to mouth by expedients. There must be—I do not care what Government are in office—more and more attention paid to matters of planning and guidance if the economy of this country is to function in a satisfactory manner.
I know perfectly well that planning, as such, depends largely upon influence and persuasion, and not upon sanctions. But it is true that at some stage sanctions have to be employed if effectiveness is going to result. I remember when I was Secretary of the Trades Union Congress getting resolution after resolution on the structure of the trade union movement. The point was reached when I said to the members, "What is the use of the General Council drawing up plans without the ability to implement those plans?" The lack of sanctions will be found to be an important factor in the endeavour to rescue our economy from its present difficulties. I do not know whether it will ever be possible, in a mixed economy such as exists in this country, to have planning backed by sanctions. This is something that the future must show.
In the public sector, it is clear that the Government have great powers over policy and over the economy pursued by an increasingly large sector of industry. But with regard to private industry, we have to remember that the majority of people who are in private industry are
916
in it for a simple motive, and that motive is to make a profit. I am not saying that the profit motive can be discarded, or anything so foolish as that, but I am saying that it is very much of a scramble rather than co-ordinated production. Co-ordination is really a secondary factor, and it is remarkable how well it has worked.
There has been much discussion in the trade union movement concerning their part in a planned economy. When I was Secretary of the T.U.C., year after year we had resolutions demanding a planned economy. Even during the war period, when our attention might have been occupied by more immediate things, we were thinking of a planned economy, and many resolutions were passed endeavouring to stimulate interest in securing a planned economy. But I do not believe for one moment that many trade unionists, even senior trade unionists, ever felt that planning could be applied to the wages sector as to other sections of the economy. I honestly do not know whether it is realised to-day, although I think there is a greater understanding about that problem.
The idea that wages should be planned implies that at some point there are planners, and the trade union movement greatly suspect planners of any kind who want to deal with their line of subjects. I am quite sure that they will always be conscious that their real strength lies in their power to disorganise the economy, in greater or lesser degree, by strikes or things of that kind. I am sure that at the back of their thinking is the idea that they will never part with their power for members to strike, or to use their influence by well-known methods in trade union technique in asserting what they believe to be their rights.
So I come to this point. What are we going to do about wages? There is an approach to an understanding of that problem. There is, of course, great resentment on the part of trade unionists to (shall I say?) any system which limits their opportunity to increase their monetary wages if it does not apply to the whole of incomes. For some years we have been flirting around that point. How far are the Government of the day—I apply this question to any Government—prepared to attempt to control incomes right through the economy; and

917
what means have they of doing so? I think the second part of that question is just as important as the first. No wonder the trade unions say, "You must tackle all incomes". That, I am pleased to say, is now the basic principle of the present Government's policy; and your Lordships all know the mechanism that has been set up to carry that into effect. I think that the control of prices will prove very difficult indeed. I have said in this House on a previous occasion in debate that in the First World War and the Second World War the point was reached when attempts to control prices proved to be ineffective. I only hope that more success will attend the attempts in this post-war period.
The unions' eyes are fixed upon this and, as sure as I am addressing your Lordships, unless it can be demonstrated that prices can be effectively controlled, no wages policy is likely to remain a permanent factor of our economy. The unions have accepted the purposes of the planned economy, the control of prices and the limitation of wage increases to a norm of 3½ per cent. Your Lordships are well informed about the recent Trades Union Congress which, unfortunately, was not unanimous in this respect. One of the most important unions of the T.U.C. was not prepared to subscribe to it.
The real question for me is: Can this policy of a planned economy be implemented, carrying through with it control of prices and incomes? Up to date there is no recognition, so far as I can see it, on the part of anybody, whether it is employers or Government, or whether it is workers, that their applications should not exceed 3½ per cent. As a matter of fact, if we look at the long list of unions with current claims, we find that their claims go far beyond that. One can understand this difficulty of taking a particular point in time and saying, "After that time our calculations for the 3½ per cent. limitation run, but not before." Unions who either had applications in or have lagged behind the general advances will, I think, be found very difficult to convince that they are not entitled to advances considerably more than the 3½ per cent. norm.
I ask myself this question, and it is a very real one in trade union matters: Can the unions control their members? We all know that one of the features of
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post-war industrial relations has been the striking of bargains in the workshop. Unions and employers meeting at national level can agree upon a general policy, but when that policy comes to be implemented, even if it prescribes particular wages to be paid, all sorts of pressures are brought on the workshop floor, and all sorts of devices are employed by employers, such as bonus system payments for particular jobs, which make the fixed rates agreed by the union and employers almost nonsense. I ask myself: How are the unions going to deal with their members in this matter? We know very well that there has been a marked increase of unofficial strikes. We know that there have been little groups of members, sometimes 20 or 50 men, who can disorganise a whole plant; and the remedy for that has not been found. I hope that nobody will assume that the remedy lies in the legislative sphere, because I am sure it does not. None the less, that problem must be faced. It is a question of trade union discipline and trade union understanding.
Probably one of the greatest tasks that the Trade Union Movement has to face is to play its part in educating its members on the present difficulties which face the community. I repeat that all eyes are fixed on prices and incomes and the treatment of incomes of other classes. The trade unions are extremely interested to see the rise of a new militant class—farmers, doctors, teachers, administrative workers, and so on. The concessions made in that sphere will not be without their influence upon trade union policy when it comes to making wages applications. I would conclude by saying that the Labour Government need the good will of every decent citizen. A subject like this should never be debated crudely, in the sphere of Party politics. It is too big, it is too serious for the economy of the country, and for the well-being of our people. I hope that whatever difficulties arise—and they are arising, as we can all see—in the international sphere, in the balance of payments, and in our internal economy, we shall be free from the sneers and the cynicisms of the people who say, "You cannot work this".
7.6 p.m.
THE EARL OF DROGHEDA: My Lords, I should like to be the first to

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congratulate the noble Lord, Lord Citrine, on his relevant, courageous, and forcefully expressed speech. He put forward a number of extremely powerful statements with which it was difficult to quarrel. The difficulty is that the education of the great mass of people in this country is not something that can be done in a short space of time, and I think it must be the subject of a good deal of long-term planning.
As the noble Viscount, Lord Eccles, said in his admirable speech earlier, our economy is more precariously balanced than that of almost any other country. We have often been told that, apart from coal, our only natural resources are the ability, skill and ingenuity of our people. This would not matter if we had a purely agrarian economy, and if we were content with a humble or modest standard of living. But the fact is that, as a country, our standard of living is high, and we wish it to remain so. The Government are taking a great many steps designed to make this possible, and with some of the things they are doing one cannot quarrel.
They are clearly right to damp down home demand at the present time, so as to free more resources for exports; but they should have acted, I feel, more quickly in this respect. I can understand their reluctance. When they were in Opposition they were always critical of what they called the "Stop-Go" economy. But here we are now with the familiar "Stop" measures back with us; and no one can argue against them. What is deplorable, I feel, is that far more was not done in the beginning, particularly in the public sector. Since last October the heavy demand for labour has resulted in substantial wage increases, not only in minimum rates, but all along the line, as the noble Lord, Lord Citrine, has said, and just as much in the public sector as in the private sector. These are inevitably reacting upon costs. I regret that a far greater effort was not made immediately after the Election to tackle this problem on the domestic front.
In relation to the foreign exchange position much has been done. I personally thought that the introduction of a 15 per cent. surcharge was a mistake; and certainly, in my view, it was gravely
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mishandled. But I do not deny that certain measures had to be taken. What I think essentially was wrong, was that more was not done to stem the pressure of demand for labour, for no one has found a better method of preventing wages from outstripping productivity than reducing that pressure. The trouble is that when one suggests that there should be some reduction in the pressure, one is all too often given the reply, "I suppose you want the dole queues back"—which, of course, one does not. It always seems to be assumed that, before lifting any finger in that direction, the first essential is to have a good "swipe" at profits and dividends. It has not hitherto also been regarded as essential to revolutionise the entire method of business taxation at a time of serious financial crisis.
I believe that the timing of the introduction of the new corporation tax, which was not hinted at before the Election, was disastrous. And I believe that much of its content is mistaken. As a result, the Finance Bill is frightening in its complexity, and the attention of many able people who should be more usefully employed is directed to disentangling its mysteries. There is no doubt, I fear, that the detailed provisions of the new tax, as also the penal initial rates for the capital gains tax, have given the impression, rightly or wrongly, of a deep-seated prejudice against the business community which has not been without its impact on foreign opinion.
The noble Earl the Leader of the House made some encouraging remarks in this respect at the end of his speech, and I look forward to the action that will no doubt follow from what he said. But I find it depressing that, while Mr. George Brown and other Ministers are saying that for as far ahead as they can see we shall have a mixed economy, with a large part of industry remaining in private hands, and while they recognise that general profits are a pretty good yardstick of efficiency, the spirit of their words is contradicted by the letter of the Finance Bill.
THE EARL OF LONGFORD: My Lords, may I raise one point with the noble Earl? It would be unfair, perhaps, to ask him to tell us what he would do. He said that he would somehow or other damp down demand—at least I

921
understood that—more than has been done; and I assume that he has something in mind. Perhaps it would be unfair to ask him to develop that. But when people say, as it has been said, that the City and business were very friendly to the Government when they were elected, I would point out that the capital gains tax—which is, after all, the most painful from the point of view of the well-to-do—was widely canvassed at the time of the Election.
THE EARL OF DROGHEDA: The noble Earl is a great interrupter, and I was going to deal with one or two of the points he has put in this question. I hope he will allow me to go on, to the best of my ability. While the principle of the capital gains tax was accepted, I do not think the rates were proposed at the penal levels we now have before us in the Finance Bill. There is no doubt, I think, that when the Government came into power there was a great feeling of good will towards them. There was certainly a good deal of disenchantment with the previous Administration. It may be that all Administrations suffer from disenchantment after a short time. I believe that the business community were anxious to co-operate, as the noble Viscount, Lord Eccles said, and in this respect, at any rate, I think I can claim to have some opportunity of forming a judgment. But the Finance Bill has done a great deal to dissipate that good will. What people find particularly depressing is the unwillingness of the Chancellor, so far at any rate, to pay heed to the representations made to him; and your Lordships should remember that the representations were being made long before the Chancellor made his Budget speech.
For my own part, I regard the assault on companies earning their profits abroad as the most misjudged step of the lot, and extremely dangerous at the present time, when one considers the vital contribution which these companies make to closing the balance-of-payments gap. It runs into hundreds of millions of pounds, and I cannot for the life of me see the sense of "clobbering" them about the head in the way that is being done—but this has already been debated, without great success, in your Lordships' House.
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One still hopes that the Chancellor will act to amend his Bill before it is too late; but I feel there should be no mistake in recognising that the resentment voiced by certain Ministers—not all Ministers—against those members of the business community who have spoken up recently in self-defence is misplaced. The members of the business community as a whole are not entirely driven by selfish motives, and by far and away the majority speak, I know, from sincere conviction and with a sense of responsibility. I feel very strongly that it is imperative that the Government should try now to regain the confidence of business and of the City, and should give a real lead in promoting a united effort by all. For, as I said at the beginning, we are indeed in a very precarious position.
7.17 p.m.
LORD WILLIAMSON: My Lords, there have been many speakers in what has been a very fine discussion this afternoon, and there are more to follow, so I assure your Lordships that I will try to be as brief as possible. I have always thought that our difficulty, put in plain words, is that for a long time we have been living above our income, and one simple fact which has been emphasised many times but does not appear to have sunk in yet is that the maintenance and progressive improvement of the standard of living of the 50 million people of these islands has not always depended, but does now depend and will continue in the future to depend, on our own efforts. Of course it all depends what sort of standard of living we want for ourselves and our children in the years to come.
So far we have been privileged to enjoy what I consider to be a very high standard, probably one of the highest in the world, but cushioned, as I have said, in the past by substantial income from abroad and cushioned to-day to a lesser extent. To simplify the complicated economic jargon, which many folk cannot understand, it means that if we want to continue to live in this rough, tough world on the comfortable standards to which we have become accustomed we shall have to ensure a number of things, including making a much more intelligent and profitable use of our limited resources, including manpower, and encouraging what has been described as the "Dunkirk spirit" in our peace-time activities. In

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other words, the country has to pull its socks up.
When I addressed your Lordships' House in the last economics debate, I think in March, 1964, I referred to manpower statistics; and because I believe that we are wasting much of our greatest asset, I trust your Lordships will bear with me if I refer to them again this afternoon. I have the latest figures, up to June and December, 1964. In that time the numbers in civil employment have increased by 1,800,000, and when I look to find out where this additional labour has gone to I find that distribution has taken 662,000, 36 per cent., financial, professional, scientific, catering, hotels, et cetera, have taken an extra 1,300,000, and all the manufacturing industries put together have had a reduction of 114,000. Yet industries all over the country are crying out for additional labour. If this means anything, it means that we are using our labour force unintelligently; in the light of those facts, no one can say that we are in any way making the best or most constructive use of it.
Not long ago, on December 8, 1964, there was a television programme arising out of the report by an American gentleman who had been here for six months studying British industry. In this programme it was alleged that there is no shortage of labour in Britain; on the contrary, there is a vast surplus of labour due to many industrial processes being over-manned. The programme did, however, bring out certain success stories of backward factories having improved their efficiency out of all recognition, mainly by cultivating better industrial relations and creating a spirit of confidence among the operatives. It also brought out evidence that there was a large field in industrial Britain where sour industrial relations resulted in wasted time, wasted effort and low production. It is largely because we are backward in this and other matters that we continue to have these periodic crises.
There were two things that I wanted to refer to, but quite briefly. One is the question of shift work. Is it not intolerable that we are using some of our most expensive plant and equipment in British industry for only 40 to 50 hours out of a potential 168? It means that this plant
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and equipment is largely out of production producing nothing. It is a fact that many managements and employers would try to invest to get the best capital equipment if they thought they could use it and make it pay for itself, but they cannot in the present circumstances of single day working. I believe that if we could somehow make an effort to use our labour more intelligently and, to use the words of the noble Lord, Lord Byers, earlier to-day, pay extra bonuses to those who are prepared to go on shift work, we could get the labour and use the plant and equipment in British industry for something like 90 or 100 hours a week.
To turn to restrictive practices, I welcome the announcement, made the other day, of the agreement which has just been arrived at at John Brown's shipyard on Clydebank. There the various crafts are co-operating for twelve months to do away with restrictive practices. I am not going to detain your Lordships any longer. I believe that it is important, as I think Lord Citrine said, that the people should be told the unvarnished truth. I do not want to strike a discordant note here or be too controversial, but it is the case that when the nation was told that it had never had it so good, it misinterpreted this and thought that it was a case of every man for himself, getting as much as he could.
Speaking with all the experience that I have in the trade unions, I think that a greed has developed over the last few years. At a conference in Aberdeen from which I have just come the chairman and the general secretary made a special plea to those who were on higher pay to stay their hands while some of those who are on low, basic rates are lifted up, as indeed the Government wishes them to be. I believe the Government are trying to solve all these questions, and I believe that serious and unpopular decisions are called for and are being taken. I believe that the Government should have the support and assistance of those who wish to see our country buoyant and prosperous.
7.25 p.m.
VISCOUNT MASSEREENE AND FERRARD: My Lords, I agree completely with everything that the noble Lord, Lord Williamson, has said. I think his was a most excellent speech. I cannot quite agree with the opening remarks

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of the noble Earl, the Leader of the House, whom I understood to say that the Labour Government after the war had a higher productivity and export record than obtained in the thirteen years of the Conservative Government. Of course, in those years just after the war there was not the competition from Germany or Japan, and even France was disorganised. So it is not really a fair comparison.
I want to say only a little, because I have cut my speech down to about five minutes, the majority of it having already been said in any case. I cannot really understand Mr. Wilson, who has been saying that he is going to "knock hell" out of all our competitors abroad. So far as I can see, the only people he is going to knock hell out of are us at home. He is going to knock hell out of the institutions and individuals at home who create all the wealth of the country. When he was in New York he was boasting of the £11,000 millions worth of foreign assets, largely built up by private enterprise. At the same time, as Lord Casey has ably explained to us, he has produced a Finance Bill which appears to be framed to make it almost impossible to increase those foreign assets or to continue to build them up.
I cannot help thinking that Mr. Kaldor, who I understand is the chief economic adviser to the Government, really wants a closed economy. I think he has got hold of the old Marxist idea of a closed economy. If you try to work that in the United Kingdom, this over-populated island, it will be completely disastrous, because in England we must have an expansionist policy. I would say that the present Government are indulging in the old form of Labour restrictionist finance. I had hoped that they had grown out of that.
LORD HOBSON: My Lords, before the noble Viscount continues, I think there is one point that ought to be put right on the record. I think it is rather important. Mr. Kaldor is one of the economic advisers to the Government, but not the chief economic adviser to the Government.
VISCOUNT MASSEREENE AND FERRARD: My Lords, I thank the noble Lord. I was mistaken. I thought Mr. Kaldor was the chief economic adviser. I apologise for that. I should like to
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agree most heartedly with my noble friend Lord Eccles in what he said regarding imports of foodstuffs. I actually said the same thing in our agricultural debate—namely, that if the Government had had a more realistic agricultural policy in the Farm Review, we could, of course, produce far more food in this country and make a great saving in the imports of foodstuffs.
What I wanted to talk about chiefly for a moment is the position of the self-employed person, the small businessman and the small business. I have an interest here, having built up a small business. But, as far as I can see, the Finance Bill is really aimed at destroying capital in private hands. It is bound to destroy the spur of competition. It is really going to hit the small business man, the energetic go-ahead person building up a small business. One cannot acquire capital if one is going to be burdened with corporation and capital gains taxes. It is hard for people on wages and salaries to understand this fact, but I believe it is true that if the Finance Bill goes through in its present form we shall have no more Nuffields, no more of the great industrialists who have come from nothing and who have created tremendous wealth for the benefit of the community. If businesses cannot expand, the economy is obviously going to run down. With due respect to the Civil Service, the Civil Service is not organised so as to create wealth.
Before, and even since, the Election, the Prime Minister has said a great deal about modernising industry. He has pointed out that the United States, Germany and other countries are leaving us behind in productive capacity, which is quite true. But what I do not understand is how he thinks that if he is going to tax private industry so heavily we are ever going to be able to put the money back into business in order to buy new machinery. One cannot have it both ways. I personally have never thought that the Prime Minister could be classed as an eccentric; in fact he is the last person I should imagine in that class. But he appears to be very indecisive: he says one thing and does another; so I suppose he must be an eccentric. If the Prime Minister wishes to "knock hell" out of the Americans—and I hope he can, commercially—I suggest he takes a leaf

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out of the American commercial book and gives the very big investment allowances they have on all expenditure and especially for new automatic machinery. As any noble Lord knows who has been to America lately, their productive capacity is going up the whole time. The extraordinary thing is that their cost of living remains static. If only we could do the same in this country! But if up and coming companies are over-taxed, the country cannot modernise.
Another point I would touch on is the credit squeeze, which has already been mentioned. I believe it is unfair that the credit squeeze should bear entirely on the private sector. The Government should share some of the burden of the credit squeeze. The Government are, quite rightly, applying deflationary medicine to the country, but they have not applied it to themselves. After all, they are the biggest spenders, but they have not cut down their expenditure. I think it was the noble Lord, Lord Byers, who pointed out that the current expenditure this year will turn out to be some 10 per cent. larger than it was last year, some £8,482 million. The Government capital expenditure is also going to be increased by over half. How can the Government hope to cure inflation if such vast expenditure continues? They will have to borrow over £700 million to make both ends meet. How can one cure inflation like that?
I have some sympathy with Mr. George Brown and his wages and incomes policy, a policy which the Conservative Party started. I understand that the Minister of Labour, Mr. Gunter, has said—and I am referring to his remarks which appeared in the Press—that until people stop being selfish and subject themselves to a bit more discipline the wages and incomes policy will not work. I came in at the end of Lord Citrine's speech, when he was talking about education. I have often said the same thing in this House. But I am quite sure the average worker is not selfish and is quite prepared to listen to discipline.
The whole trouble is—and I speak as one who is responsible for a certain number of work-people; I have a small factory apart from employing agricultural labourers—that the average person does not understand the true facts
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of the position. If only, by some means or other, Her Majesty's Government, my own Party and the trade unions could try to get across to the average person that he cannot be paid more than he can produce, it would be a tremendous boon to the country. If all the parties concerned would get together and perhaps take the centre pages of some of the big daily newspapers to try to explain the position to the ordinary people, it might get home. This position has to be explained, otherwise we can go on and on in the same situation until some disaster overtakes us.
I do not want to say anything else, as I said I would speak for only a short time. If we cannot get these facts across to the British people the only people we are going to "knock hell out of" are ourselves. I will end by saying that
"Experience keeps a dear school, but fools will learn in no other."
7.40 p.m.
LORD DRUMALBYN: My Lords, I am sure we are all very grateful to my noble friend Lord Dundee for having initiated this debate, which has been a very wide-ranging one covering many aspects. I was particularly glad to hear the maiden speech of the noble Lord, Lord Haire of Whiteabbey. I remember his maiden speech in another place. I should like personally to welcome him here, and to congratulate him on his very successful début to-day.
Unfortunately, I missed a considerable part of the speech of my noble friend Lord Dundee, but I did hear the speech of the noble Earl the Leader of the House. He distinguished between the short-term and long-term measures of the Government, and he said that his noble friend Lord Shackleton would expound the long-term strategy when he came to wind up. I think we should make it clear that this is not, of course, a Motion of Censure. What our debate to-day seeks to do is to take account of the present situation; to get a statement of Government policy; to make criticisms, as we see it, of the way in which the Government are going, and, as my noble friend Lord Eccles has done, to point out the inconsistencies in the Government's policy. I think, if I may say so without presumption, that this was done so well that I could cut out quite a part of my speech, but as what he had to

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say was reinforced by so many of my noble friends it might be just worth while my touching on one or two of the points again.
First of all, my noble friend referred to the attitude to overseas investment, a point which was particularly referred to by my noble friend Lord Casey. Surely we ought to be doing nothing to diminish overseas earnings. Yet it is proposed to increase the total tax burden, taking the foreign and home tax burden together, on existing investments. is it not rather a small-minded attitude to regard this subject simply from the point of view of what comes to the Revenue? Surely we have to take a much wider point of view than that. After all, if the object is to limit the outflow of capital for the time being, it is perfectly easy to do that with the controls already in the hands of the Government, without striking a blow at those who have been encouraged in the past to exert so much effort in order to expand businesses overseas, and who are now reaping the rewards in profits and dividends, amounting to no less than £863 million, as against £428 million paid out by this country. That is a very remarkable balance in our favour, and the action that has been taken, I should have thought, cannot fail to tend in the long run to reduce that income to this country.
Secondly, with regard to the attitude to home investment, the corporation tax is defended on the ground that more profits should be ploughed back into business and less distributed. Yet one has this remarkably discriminatory attack on companies, making it impossible for them to plough back as much as most would have to do if continued growth was to be secured. My noble friend also referred to the incomes policy, and I shall be coming to this in a moment. The country has been feeling its way in this matter ever since my right honourable friend Mr. Selwyn Lloyd started on this journey.
My noble friend also referred to the question of substitution of imports, a matter which was specifically mentioned in the Labour Manifesto before the Election. I hope that the noble Lord opposite will have something to say about the textile industry; and, whether or not he has something to say about it to-day, I hope that he will be able to tell us
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that what my noble friend said will be very carefully looked at, indeed. After all, when we have an industry of this size, when the consumption of textiles in this country is so high, there is obviously scope to do something to implement the policy which was put forward by the Labour Party, one object of which was to supply more of what we need at home.
I want now to say a few words on the short-term objectives. These are, as the noble Earl said, to achieve a state of balance in our combined current and long-term capital account. In order to correct our imbalance of payments, we certainly have to increase our earnings abroad, both visible and invisible, and to do that we have to be competitive both abroad and at home. Apart, of course, from offering goods of the right quality, of up-to-date design and on the right terms—and we are constantly trying to improve the terms—that means (I am putting it very briefly) keeping costs down and the ability to supply goods without undue delay. It also means an adequate capacity to meet both home and export demand. I should have thought it was quite clear that we cannot hope both to export more and to supply more of what we need at home unless we have an expansionist rather than a restrictionist outlook and policy.
The expansion of the gross domestic product between the second halves of 1963 and 1964, as reported in Economic Trends No. 138 in April, was 7 per cent., or 4½ per cent. at constant prices. In that period manufacturing industries' fixed investment of plant and machinery, and in buildings and new works other than dwelling houses, increased by 15 per cent.; and according to the report it was still increasing at that rate when the present Government came into power. The noble Earl, Lord Longford, said that this fixed investment is still increasing. I wonder if the noble Lord, Lord Shackle-ton, could tell us whether, on the latest statistics, investment in manufacturing industry, and particularly in plant and machinery, is still increasing at the present time. The increase in investment which took place in the year up to October, 1964 (I think it is fair to say this; I refer to what my noble friend Lord Dundee said earlier), meant additional productive capacity, and of course

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from October to January production duly increased.
In view of the last speech that I made in an economic debate, I should just like to add this. I do not know whether noble Lords will remember, but I was particularly concerned at the fact that the index of industrial production had stuck at one single figure—127—since the beginning of last year. I understand that there has now been some revision of the index of industrial production in 1964. Instead of remaining at 127 since January, 1964, under the revised figures it was 126 in January, it rose to 128 in June and to 129 in August, slipping back to 128 in September.
Clearly, production needs to increase if we are going to fulfil these objectives, but what is of overriding importance, if we are to maintain our exports and succeed in the export drive, is, of course, the cost of production. Increasing efficiency can help very greatly with this, but it is not the only answer. It is not only in manufacturing industry but in the goods and services it uses that costs must be kept down—costs such as those of power, of transport, of local authority services and the rest.
I suggest that the questions we have to examine are these. Are we succeeding, and shall we succeed, in holding down costs of production? Prices mainly depend on costs and on demand. The noble Lord, Lord Citrine, made a very remarkable speech, but I think that perhaps, in trying to compare wages and prices too closely, we are apt sometimes to forget that there are factors operating in regard to prices which do not operate so immediately and directly in regard to wages. In particular, of course, there is the demand factor that operates on prices. No form of education is better for workers in industry than to participate in pensions arrangements with their employers, and themselves to see, by the dividends that are received into their pensions funds, how this factor of demand operates, and how a successful show can add to their pensions funds whereas, when things go wrong in a company for one reason or another, dividends go down and the capital value of the investment decreases.
The second question that I think we must ask is this: Are we succeeding, and shall we succeed, in getting the need
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for the better use of our manpower and skill more widely accepted, not only in theory but in practice? The noble Lord, Lord Williamson, made an interesting intervention on this matter, which was dealt with also by the noble Lord, Lord Citrine. My Lords, this is one of the cardinal problems we have to face, and I think that the main difficulty we are up against in respect of it is that, at the moment, we have this remarkably low degree of unemployment. I looked up the numbers and I found that, in broad figures, the number of people who were unemployed for less than two years was about 66,000 in the whole country. That is a very low figure indeed. Of course, when employment is at such a high level there is a strong temptation for employers to bid up wages and for employees to put in wage claims, and there is little scope for new development or expansion in the areas of lowest employment except at the expense of other areas.
If it is true that industry is still willing to invest in expansion, I should like to put this to the noble Lord: Is this not the ideal time to get industry into development districts and, in particular, into Scotland and the North-East, where there is still a margin of productive capacity? In this connection, I would suggest that loans should be given at attractive rates, or, at least, they should be made on terms that will allow of a downward revision of interest rates when medium-term rates of interest fall.
I would suggest that in these areas the unions should be willing to accept rates of pay which discount the wage drift that has taken place in the areas of very high employment, because, after all, the greatest attraction that areas of comparatively high unemployment have to offer to incoming industry is lower wage costs. One can help with initial costs through grants, loans and special depreciation allowances, but this help in itself is rarely decisive. These areas should seize their opportunity and make the most of it while it lasts. Lower wage costs, of course, coupled with suitable training allowances, are by no means the only attraction to industry, but in my view they are unquestionably the greatest, and I hope the unions will be prepared to negotiate agreements that will guarantee a continuation of the advantage to the incoming industry for a reasonable time.

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I would say that failure to do so—and, still worse, of course, failure to honour the agreement when made—is suicidal.
At a time when shortage of labour is pushing up costs, there is a particularly heavy responsibility on the Government to set an example in moderation in their own sectors, in the nationalised industries. The norm that Mr. Brown has set for annual increases in wages is 3½ per cent. That is, I suppose, something rather less than the expected increase in productivity over the country as a whole, so as to leave room for exceptional cases of industries that have done particularly well, and occupations that may have fallen behind. Yet, my Lords, the Postmaster General has granted increases far in excess of that, and at least one other colleague has, in effect, been promising publicly to support claims from employees in his sphere in excess of the norm. There may be a very good case for that, but what I should say is regrettable is a sort of pre-emptive bid, a kind of finesse, against one's own colleagues. There are claims in the pipeline for many local government workers, miners, teachers, railwaymen and busmen. All these, of course, will be liable to increase taxes, rates and charges. I should like to ask the noble Lord, as my noble and learned friend Lord Kilmuir did, what steps are being taken to handle claims in the public sector.
Obviously industry should be encouraged to be more efficient, but surely the way to encourage it to be so is to let both labour and capital in it get advantage from its increasing efficiency—labour through higher wages linked with greater productivity and capital through higher distributed profits—while a share of the advantage goes to the consumer in the form of lower prices. The right way to encourage industry, surely, is certainly not to mop up this increasing efficiency with higher costs in the form of rates, National Insurance, transport, postage and, shortly, redundancy payments, and to leave it at that. If the Government want higher costs to be absorbed through increasing efficiency, they must proceed by example rather than by precept.
I would give my own personal opinion that it was a grave blunder ever to have set a norm at all. A norm has two serious disadvantages. The first is that it is immediately thought of as a mini
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mum; and the second is that wage earners think in terms of their take-home pay, and to them a 3½ per cent. increase means a 3½ per cent. increase in what they take home. At this time, I am sure it is right for industry to give co-operation in every form to the Government just as the Government do to industry, and I think that both sides of industry are to be very much congratulated that their leaders have agreed on a procedure for an incomes policy. But surely people should not be concentrating on norms, whether of output or of income. Everybody should be concentrating on doing their utmost to raise productivity, to lower costs and to increase exports—and here again the Government should be setting an example. I regard this as the greatest problem we have to face.
My Lords, if it is not possible to get a policy for the removal of restrictive practices accepted at a time when we have the highest employment that we have ever had and a very low level of unemployment, when will it be possible? There is a tremendous urgency about this problem, and I think that we have to try to tackle it in totally new ways. The noble Lord, Lord Citrine, spoke about education. I think this is most important. I believe that in the old days monks used to go out in pairs to convert people to Christianity. One of our great difficulties in this country is that people all have labels on them. If you are labelled as an employer, what you say is mistrusted by the workers. I wonder whether one could not have a very strong educational campaign carried out in the country to make people realise the great difficulties that the country is in and the great necessity for the abandonment of restrictive practices. I agree with the noble Lord, Lord Byers, that we should be prepared to give considerable increases in wages in order to secure the abandonment of restrictive practices. But there is a great deal more to it.
I wonder whether it would not be a good thing, if, in conjunction with the incomes policy, representatives of the new union that is to be formed of the manufacturers, with representatives of the trade unions, were to go out to the country and carry out a vast educational campaign. It is true, as the noble Lord, Lord Citrine, said—as did some of my

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noble friends—that in this country, outside immediate Parliamentary, trade union and representative circles, we are not sufficiently conscious of the problem. If teams of two (one from either side) were to go round, as it were "carrying the torch", I believe that in a short time we should be able to change the atmosphere of thought of a vast number of people, given the right type of organisation.
We have had a National Productivity Year. I wonder whether it would not be a good thing—and it was suggested to me to-day—to have an Education Year. It seems to me that if an Education Year were organised along the lines of the Productivity Year it would be very helpful. The Productivity Year itself has given an entrée that previously did not exist to a situation where workers and management can mix together. I wonder whether, in the need to make the best use we can of our manpower in this country, this could be further exploited, to carry the education very much further.
8.2 p.m.
THE MINISTER OF DEFENCE FOR THE ROYAL AIR FORCE (LORD SHACKLETON): My Lords, I should first of all like to express my appreciation and that of the House to the noble Earl, Lord Dundee. He has often spoken from this Box on economic matters, and I shall try to emulate the most popular thing he ever did in this House when he threw away his notes and made the shortest speech of the whole evening. We have had such a long debate that I ought to follow his example. On the other hand, a number of important points have been raised and there have been a number of speeches to which I will refer. Of course, I should particularly like to refer to that of my noble friend Lord Haire of Whiteabbey. I have known him for a very long time, probably longer than I have known most people in this House, if not for thirty years, certainly getting on for that. We served in Coastal Command during the war and I know, both from his experience as a very active constituency Member and from his speech to-day, that he will be a great asset to this House.
I think he has benefited, as have quite a number of us, from having left the
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other place. He has acquired, as was obvious from his speech to-day, a deep knowledge—I do not know whether he was in the export business while in the House of Commons—and an expertise which go some little way. Although, as he stressed, it was not quite top management, it was top management in a small business. I am sure we should all agree that this is equally as important as something for which the noble Lord, Lord Byers, asked: that there should be experience in Government. I do agree with him; but I will not accept that there is not quite a lot of experience, including business experience, in Government already.
Some points made by my noble friend Lord Haire of Whiteabbey I should like to deal with a little later, but first I would refer to the speech of the noble Earl, Lord Dundee. There were certain points on which I was in enthusiastic agreement, although the noble Lord, Lord Boothby, is not here to support us. The phrase "international liquidity" is as dear to our hearts as it is a matter of absolutely fundamental importance to this country. On this, it is satisfactory to record that leaders of both Parties (Mr. Maudling, as he said, and the Prime Minister) have in the past, done their best to stimulate a different attitude in other countries.
The Prime Minister recently in New York again pointed out that the international liquidity problem requires urgent attention. It is not, of course, that there is a shortage of liquidity at the moment. I would accept that the provisions (and, indeed, I have paid this tribute before) made by the previous Government and other Governments to increasing the liquidity reserves are of great importance. They have enabled us to weather this particular storm without a major dislocation. Certainly, the economic indicators do not reveal quite such a gloomy position as seems to come through from listening to some speeches, although this is not to suggest that we do not need more international liquidity. International discussions have been going on for some time, as the noble Earl knows, both in the International Monetary Fund and in the Group of Ten industrialised countries which lend money to the Fund under the Fund's borrowing schemes;

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and, of course, the increase in the I.M.F. quotas announced earlier in the year is a very useful further step. I could go on at some length on this, but it would be inappropriate to do so beyond saying that I agree wholeheartedly with the noble Earl.
I would say that I think that a revaluation of the price of gold, which sounds a very attractive proposition, is not as simple as the noble Earl suggested. It is an idea that commends itself to people, but there are quite grave arguments about finding this as a panacea which, if I may say so, would be very much a "once and for all" one, quite apart from the obstacles and difficulties. But this would be perhaps the only matter on which the noble Lord, Lord Grantchester, and I might agree.
I do not propose to go deeply into the questions of who has said what in the last year. The Government of the day, like all Governments, tended to say more than the Opposition. But there does exist a very fine selection of statements about "everything being spendid". Indeed, I had a list of them, but I will not waste the time of the House in referring to it, because those who took part in the last Election campaign probably heard Sir Alec Douglas-Home's many blithe statements and, indeed, some of Mr. Maudling. But I was a little bothered because, although the noble Earl, Lord Dundee, came apparently well-prepared, he was not able to answer some of the questions we asked. But we had the benefit of hearing again certain passages of his excellent speeches in the previous debate. He frequently said that Mr. Maudling had referred to or indicated the order of the gap that there would be at the end of the year. But he did no such thing.
I sympathise with the previous Government. It is very difficult when your Election plans go wrong for various reasons and you have to have an Election later than you meant to have it. It is a fact that very late in the day the Chancellor of the Exchequer was still saying that there was really nothing that particularly needed to be done. But the crisis really broke during the Election campaign. I think it is perhaps difficult to blame the political leaders on both sides. This was a dilemma for the Opposition as much as for the Government. It was tempting for the Opposition to say,
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"We are heading for a major crisis." But there was quite deliberate (and I say this purposely) restraint in doing so. In a pre-election statement the then Opposition, now the Government, were very anxious to play this carefully, and it was only when they got into office and saw the long faces of their advisers that the full horror of the situation became apparent. Therefore I do not want to go on adding to this particular controversy. I shall be interested to know whether perhaps, on a later occasion, the noble Earl can give us the answers to some of the questions he was asked when he was interrupted by my noble friend. And I think that on that occasion he will perhaps find his speech of to-day less useful to refer to than his earlier speeches.
There was another general point referred to by the noble Earl, and that was the question of co-operation with Europe and the possibility of our entering the Common Market. This is not the time to start a debate on the Common Market, but I hope that recent events have started us on a new—"tack" is not the word, but a new course, for co-operation with Europe. I took part in the final stages of the negotiations on the Anglo-French aircraft agreement, and there is no doubt that there was very real enthusiasm and satisfaction on both sides. It was something which we felt to be real and something which I think points the way to co-operation in Europe—and let me say that I do not regard this particular example as more than an indicator of the way T hope we shall go.
I found myself in very general agreement with the speech made by the noble Lord, Lord Byers. I must say that I find it difficult when I see the noble Lord, Lord Byers, and the noble Lord, Lord Grantchester, sitting together on the Liberal Benches; but we are accustomed to this strange anomaly in this House. So much of what he said I think was extremely reasonable and relevant to the matter we are discussing.
I should like to say—and I think the noble Lord, Lord Drumalbyn would agree—that we can make too much out of the March production figures. T admit that this is what the previous Government were saying in similar circumstances, and it did not always turn out quite so happily as they hoped, although the noble Lord, Lord Drumalbyn, was relieved to

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find that the figures, when they finally came out, were less static than he expected. I would refer the noble Lord, Lord Byers to the National Institute's Report, out to-day, which agrees that very little in the way of conclusions can be drawn from this particular figure. Clearly, if the trend goes on, this is a matter on which we should be not only worried but also, if I may say so, very surprised.
The noble Viscount, Lord Eccles delivered, in that brilliant and polished style to which we are all accustomed, a speech which I think was as astonishing to the noble Lord, Lord Byers, as it was to me. I am not sure whether the policy that he advocates represents a Conservative policy. I know that there is a tendency for ex-Conservative Ministers, when they come to this House, to "de-Party politicise" themselves, but I think he was going back to an earlier Conservative Party—of about 1929. Certainly he was advocating subsidies; he was advocating a very special form of levy—a kind of combined tariff-quota. The noble Viscount knows the situation in the international trading world as well as anyone. At the same time, the problem of weak selling in textiles is one that has been with us for a very long time. It is an intractable problem, and I take the point that the purpose of his proposals is not simply to erect a tariff barrier but to take some of the weakness out of the selling. I hope that in this matter I have understood him correctly.
I should have hoped that these new industrial groupings would by now be strong enough to be able to compete even in a market of this kind. I was wondering how far the noble Viscount's speech was leading up to the situation that the present quota arrangements expire at the end of this year, and that there are to be complex negotiations about the arrangements to operate thereafter. It is true that this country is shouldering a heavier burden than other industrial countries in taking more low-cost imports, and although I am generally a multilateralist and a free trader, I do realise that there is a special problem here, although I have not heard it stated quite so starkly by somebody of the experience and eminence of the noble Viscount.
My Lords, in considering all these problems, and particularly in the attitude
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of the noble Lord, Lord Grantchester, I think I detect perhaps the most striking difference between the Labour Government and the Conservative Opposition. We have had to adopt a policy (the noble Earl, Lord Drogheda, referred to it, I think, as a revival of "Stop-Go", or at least of the "Stop" and the "Go" part of it)—the sort that the Labour Party, when in Opposition, had for years been complaining about; and rightly. But, my Lords, we have always recognised that, granted one is stuck in a situation such as we found ourselves in, and the Conservative Government would have found themselves in if they had been returned to power, there are certain limited things one has to do, the value of which, to say the least of it, is somewhat doubtful.
I think the Radcliffe Report made very clear the limitations of these short-term regulators, and particularly of the bank rate, but there is no alternative to using them in a situation such as that in which we find ourselves now. Therefore we are taking measures which, quite honestly, I would ask your Lordships to believe are, if anything, more painful to a Labour Government than I believe they would have been to a Conservative Government. The need, of course, is to establish the right sort of long-term policy—and I shall have a few words to say about this in a minute or two.
There were many other questions I should have liked to answer. I do not agree with the noble Lord, Lord Grantchester, when he suggests that the operation of the capital gains tax in relation to gilt-edged securities is in some way a breach of agreement. There is no time now to argue it; I would only ask him to believe me that the Government do not regard this as so. If it were so, I think we might have had to take a different view. There may be further opportunities, when we come to debate the Budget, to go more specifically into questions related to tax proposals.
The noble and learned Earl, Lord Kilmuir, sent his apologies for his inability to be here at the end of the debate, but he asked what serious attempt was being made to tackle wage schemes, particularly in the public sector. We shall be having a full debate on prices next week. The important thing is, as the noble Viscount, Lord Masseerene and

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Ferrard, and other noble Lords have paid tribute, that the Government, the trade unions and the management are all now committed to a policy of keeping increases in income in line with increases in output. And the Government have made it clear that in principle (though when I say "in principle", other may say "Well, it is not enough") this applies to the public sector. Here again, there is a certain hangover of wage demand which the Government, like any other employer in a similar situation, have had to deal with as best they can. This is a very complex situation and I hesitate about saying more. It is easy to get a discussion of this sort on a wrong footing; therefore I hope your Lordships will forgive me if I do not go further into this matter.
The noble and earned Earl, Lord Kilmuir, also asked when there will be a relaxation of the credit squeeze in order that business confidence may return. I am not sure whether this is a loaded question. The answer to the first part is, of course, the same as Mr. Callaghan's—the credit squeeze has only just begun and it is too early to say when measures of this kind can be dropped, but I would insist that they will not be kept any longer than we have to keep them. I really resent the suggestions that the way this was done was with some sort of malice towards industry and the City. As my noble friend Lord Longford said, this would be absolute folly. We appreciate that it is extremely important to have the confidence of industry, both of management and of the trade unions. We are conscious that some of the measures we have had to take are likely to endanger their confidence, but I hope that noble Lords, whatever they may say here—and it is right that they should say what they think—will do their best to persuade their colleagues in the City and industry that the Government's intentions are good in this matter.
It is a complex situation, because at the same time as we have had to raise taxation to meet a particular situation—and they have not been very big tax rises—we have also embarked on what we believe to be an absolutely necessary round of reform in taxation law. Again, this is not the time to go into this question. I would only make the general point that
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we are adopting methods of taxation which have been long familiar in other countries.
The noble Lord, Lord Byers, and other noble Lords raised the important question of the increase in public expenditure. The Government indicated that the increases in public expenditure should come down to 4¼ per cent. a year. I think that this is the first time that a specific target has been given. It is clear that we are going to exceed that percentage greatly this year. Of the increase in estimated public expenditure this year over that for last year, approximately one-third results from decisions made by this Government. About two-thirds represents inherited commitments, mainly on defence programmes. We regard it as a fundamental basis to our incomes policy and we have no need to excuse our share of the increases, which were towards social benefits, National Assistance and war pensions, as well as certain other things in the social field.
Noble Lords opposite who have had to deal with Estimates year after year know how intractable they are. It is fortunate that usually the outcome tends to be rather better than the Estimates. But we have a major task to get down Government expenditure. For this reason the Government have taken some bold and unpopular decisions in the field of defence equipment, on which we have been criticised. We had to make decisions to save over a period of years. We hope that we, as a Government, shall be able to take the credit for these reductions; but it may be that, in the same way as we have inherited the sins of our predecessors, another Party may inherit the virtues of this Government. Certainly there will be a saving of £600 million over the ten years and there will be a release of resources into the economy which will be of importance, both in increasing production and, we hope, increasing exports.
I should have liked to go at some length into some of the interesting points which have been raised, but the hour is late. I know that Plessey's is a fine firm, and I hope the noble Earl, Lord Kilmuir, as chairman, is not too starry-eyed over the efficiency of British management. I do not know how he could be, when we are all spending so much money

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in trying to improve management standards in this country. But I agree with those noble Lords who said that improvement in management and other steps in the industrial field, which we have not had time to go into to-day, are every bit as important, even more important, than the short-term policy of the Government, when faced by the situation with which we have had to deal.
I would emphasise to those noble Lords interested in exports that the Government have done a great deal in a short time, and if any noble Lord wants to know about the efforts they have made in improving the situation in relation to credit facilities and other facilities, I believe that this is having a significant effect already. In connection with this, I agree with what my noble friend Lord Haire of Whiteabbey said about the importance of first-hand knowledge. He made some other interesting suggestions which I should like to have an opportunity of discussing with him, or at least to pass on to my right honourable friends who deal with this side of the business.
I fear that I have not yet come to the constructive part of my speech. It is a disadvantage in this House, unlike Congress, that we cannot just write these parts into the record. The Government attach very great importance to their long-term plan. The first stage, of course, was the joint statement of intent. The second, allied to the policy of improving efficiency, is that for productivity, prices and incomes. Then there is the regional policy—the "Neddies", the regional councils, the "Little Neddies", the councils in industry. All these, together with the information which is being collected, will go into the National Economic Plan, which we hope will be published this summer.
But I would give a warning here. We in the Labour Government are not simple believers in the idea that we have only to produce a plan and everything works perfectly. We know it is not possible to produce a blueprint in this field. All sorts of things have to be done. After all, the plan itself is not based on actual statistics but on the extrapolation of statistics. Nevertheless, this should enable us to ensure very much more effectively that resources are available for increases in
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export and investment. The basis of the plan is that the national output should be increased by 25 per cent. by 1970, a higher rate than in the past. I see no alternative to the following of a policy of this kind, and I see no possibility of its succeeding unless there is co-operation between industry and the Government. I would ask noble Lords to do their best, as I am sure they will, to contribute towards that.
Some of the estimates of the Government will not be realistic, but I am sure there is every intention to take all the advice we can get in this field. I am sure, too, that confidence is not nearly as badly shaken, particularly in industry—and I would say in the financial world, too, where it is also important—as has been suggested. Noble Lords who go around this country and meet industrialists, and others, find that they are a good deal tougher and more realistic than sometimes in the heat of political speeches we may suggest. I do not think they have been unduly bothered. One noble Lord (I think it was the noble Lord, Lord Brocket) attacked the Government for crying "stinking fish". I think this is a lesson that does not have to be learned by the Government alone.
I should have liked to comment, also, on the really excellent speeches of my noble friends Lord Williamson and Lord Citrine. We are accustomed to their splendid distillation of wisdom and experience, and I think their contributions were particularly important. Despite all my best intentions, I am sorry that I have gone on longer than I intended. I should again like to thank the noble Earl for introducing this debate. We shall shortly be having another debate on an allied subject, when we shall perhaps be able to pursue some of the points which have not been answered to-day.
8.32 p.m.
THE EARL OF DUNDEE: My Lords, the only reason why I shall not say very much in reply to the most interesting speech of the noble Lord, Lord Shackleton, is that my own opening speech was long. I would only remind your Lordships that my opening speech would have been short if I had not spent about 20 minutes listening to and replying to a fairly wide range of lengthy

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interruptions, which were most interesting, and the reason why I did so was that I was most anxious not to be unfair.
In particular, I referred from my memory to two statements which I thought had been made, one by the Chancellor of the Exchequer in a television broadcast, and one by the Prime Minister in another place. The noble Earl, Lord Longford, very reasonably, asked me to produce the original source of these statements, which I could not do because I had not got them; and the noble Lord, Lord Shackleton, made some play of the fact that the best I could do was to quote previous speeches of my own in which I had referred in much more detail to these statements. Since then, as I promised the noble Earl, Lord Longford, I would try to do, I have procured a transcript of the Chancellor's Tv broadcast, and also the OFFICIAL REPORT which I had in mind from another place, and I should like, as I said I would, to clear the matter up with the noble Earl before I withdraw the Motion.
The statement which I said I thought had been made by the Chancellor of the Exchequer in his television broadcast on April 6, in the evening after the Budget, was that he said he thought our balance of payments would be even when the Government came into office in October. This is what the noble Earl, Lord Longford, said he thought I must have made a mistake about. I will just read the relevant passage from the transcript. The interrogator's name was Harris, and the relevant passage reads as follows:
"HARRIS: Chancellor, when the Labour Party was in Opposition they used to promise expansion when they came to power. Now. can you honestly say that this, your first Budget, is an expansionist Budget?
"CALLACHAN: No, I can't; of course not. And I didn't anticipate. I must say, before we came to power, that we were going to find a balance of payments deficit of £800 million. And our expectations were based on the fact that the balance of payments would be pretty well in balance."
THE EARL OF LONGFORD: My Lords, am I allowed to intervene?
THE EARL OF DUNDEE: Certainly.
THE EARL OF LONGFORD: It is obvious that Mr. Callaghan did not relate the last remark to his knowledge during the Election. If I may say so, it would
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have been incredible if a man who had related a remark of that kind to a situation in the Election could have held a responsible office. It would have been quite out of the question.
THE EARL OF DUNDEE: I am reading the exact words. I am not trying to draw any particular inference from them. What he said was:
"…before we came to power, that we were going to find a balance of payments deficit of £800 million. And our expectations were based on the fact that the balance of payments would be pretty well in balance."
THE EARL OF LONGFORD: But he was not meaning during the Election.
THE EARL OF DUNDEE: Surely, in April, 1964, Mr. Callaghan must have listened to the former Chancellor of the Exchequer, Mr. Maudling, making his Budget statement, in which he anticipated, not, of course, on the figures—obviously he could not say how many hundreds of millions of pounds; but he did expect, and say that he expected—a very large deficit, and he mentioned that he had arranged to increase our borrowing powers by 4,000 million to 5,000 million dollars in order to provide cover for that. Then, in July, the half-yearly balance of payments figures were published, showing a half-yearly deficit of £341 million. After that, Mr. Maudling repeatedly said, in August and during the Election, that he was disappointed that during those months export figures were not rising as he had hoped they would rise; and unless Mr. Callaghan had failed to listen to the Budget speech, and failed to notice the balance of payments figures half way through the year, I do not understand how on earth he could have expected that when his Party came into power in October the balance of payments would be even. That is what I said. Surely, I am justified in submitting that point.
THE EARL OF LONGFORD: My Lords, the noble Earl is justified in submitting any point, but I would say that he has completely misunderstood Mr. Callaghan. I do not think anybody reading this discussion in Hansard to-morrow will seriously suppose that he, during the Election, imagined he would find the accounts in balance. The National Institute Review before the Election forecast a deficit of £500 million; and it

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turned out to be more. Nobody in Mr. Callaghan's position could have said that he expected to find it even.
THE EARL OF DUNDEE: That is not the period to which I am referring. I have read out this transcript, which does show, I claim, that my memory of what he said was correct.
THE EARL OF LONGFORD: No.
THE EARL OF DUNDEE: Is the noble Earl now trying to say that he ought to have said: "Three or four years before, we used to think that when we came into office three or four years hence there would be an even balance of payments"?
THE EARL OF LONGFORD: I have been stigmatised as almost a professional interrupter by the noble Earl, Lord Drogheda, who I see has not lingered very long, to interrupt or otherwise. But the answer is that the noble Earl has misunderstood the Chancellor of the Exchequer, and I think it is not much good our pursuing the matter any further.
THE EARL OF DUNDEE: I am delighted always to listen to the noble Earl's interruptions, and in view of the undertaking I gave him I am particularly anxious that we should clear this matter up. T still do not quite see what his new point is, but I imagine he thinks it possible that Mr. Callaghan failed to make it clear that this idea that he would get an even balance of payments referred to some state of mind that he had a year or two before the Election, and not in any period immediately preceding.
THE EARL OF LONGFORD: I must not interrupt any more.
THE EARL OF DUNDEE: The noble Earl asked me to produce my authority. and I have done so which shows that my memory was not incorrect. As for the Prime Minister's statement which I thought I remembered he had made, accusing Mr. Maudling of suppressing facts, that was on November 3, during the debate on the Address, in which the Prime Minister said this:
"Not since Stanley Baldwin's 'sealed lips' confession after another Election have we had such a conspiracy to mislead the public, a
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Prime Minister who had no other thought than to fulfil his pledge of a year ago that every act of Government and every speech be made with the Election in mind, a Chancellor who knew the facts and suppressed them—"—[OFFICAL REPORT, Commons, Vol. 701, col. 83. November 3, 1964.]
Mr. Maudling here interrupted with the word, "Nonsense". I admit that the word "nonsense" is an expression of opinion. If you agree with Mr. Maudling that it is nonsense, you will think that he did not suppress the facts. If you do not agree that it is nonsense, then Mr. Maudling did suppress the facts.
The point I was making was that the Prime Minister—and this is what I think the noble Earl wanted me to substantiate—did accuse Mr. Maudling of deliberately suppressing the facts for electoral reasons. It may have been right or it may have been wrong. The point I was trying to make was that this statement of the Prime Minister, at the very beginning of Parliament, which has formed the theme of nearly all Government propoganda since then, made it more difficult than it might otherwise have been to discuss the subject here in a non-Party spirit, in the same way as Lord Pethick-Lawrence and others used to do. I thought that this statement of the Prime Minister was rather like the famous allegations of Charles Kingsley in his great controversy with Cardinal Newman, which Cardinal Newman said had poisoned the wells, which made rational discussion on the subject extremely difficult.
That is what I was trying to put to the noble Earl, and to your Lordships. I hope, anyhow, that I have satisfied the noble Earl that, whatever inferences one may draw from these statements, my recollection of the facts was not widely inaccurate.
THE EARL OF LONGFORD: I am not sure whether or not I am allowed to interrupt. These rhetorical questions are rather difficult, because I do not want to fail to answer. But the noble Earl has not satisfied me, with the best will in the world, in any way.
THE EARL OF DUNDEE: I do not know how to satisfy the noble Earl. What he asked me was to give the original source of these quotations. I think I

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have quoted them accurately, although I did not have the original sources with me when I made the speech. I think that is perhaps all I can be expected to do. Naturally, we cannot go on to discuss inferences which may be drawn from these statements, but the noble Earl definitely challenged me on the question of whether or not I had correctly quoted these two members of the Government. I think I have shown your Lordships that I did quote them correctly. The noble Earl shakes his head: he still thinks that I quoted them incorrectly.
THE EARL OF LONGFORD: I am not going to interrupt any more.
THE EARL OF DUNDEE: This does not quite remove the suspicion I am under, that the Government, somehow or other, talked themselves into the idea, when they came into office, of expecting to find things very much better than they were, with no real trade deficit, and that they were surprised, shocked and rather hurt to find that there was this deficit.
I did not try to verify, because I do not think it was challenged, the quotation I made from Mr. George Brown, who said last week that the Labour Party should deliberately redouble their efforts to pin the blame for their mounting troubles on the mess that the Tories had left behind. That again, I think, is symptomatic of the attitude of mind into which the Labour Party have talked themselves. Even the noble Lord, Lord Shackleton, insisted on speaking about the crisis they found when his Government came into office, although their own White Paper, published on October 26, 1964, specifically said:
"…there is no undue pressure on resources calling for action."
I wanted to clear this matter up, because I was challenged on it.
LORD SHACKLETON: What was the last quotation?
THE EARL OF DUNDEE: From the White Paper of October of last year.
I am most grateful to the noble Lord, Lord Shackleton, for giving us, not a very thorough, but a small foretaste of the national plan, which I have been waiting to see for so long. I know how
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difficult it is to compile plans of this kind, and I also know how, after you have made the plans, you often find them upset because the people and the industries about whom you have made them insist on behaving in the most unpractical manner. I hope that we shall see this plan for 1964 until 1970 published some time before the year 1970, and I shall look forward to reading it when it comes.
I thank all your Lordships who have made such interesting contributions to this debate, and I now beg leave to withdraw the Motion.
Motion for Papers, by leave, withdrawn.

BRITISH WATERWAYS BILL FLINTSHIRE COUNTY COUNCIL (HIGHER FERRY SALTNEY FOOTBRIDGE) BILL GREATER LONDON COUNCIL (MONEY) BILL
Brought from the Commons; read 1a, and referred to the Examiners.
NATIONAL INSURANCE BILL [H.L.]
Reported from the Joint Committee on Consolidation Bills, with Amendments, and re-committed to a Committee of the Whole House.